Investors looking to maximise the gains of any further stockmarket rally could consider high-beta stocks. The beta value of a share is a measure of its past volatility against the average volatility of an index, such as the FTSE 100.

The beta for an index is one, so if a stock has a beta of 1.2, it is 20 per cent more volatile than the market. If the beta is 0.8, the stock is 20 per cent less volatile. When indices are rising, high-beta shares should outstrip the index, but they are likely to fall faster if the market is in decline.

If you had bought the stocks with the ten highest betas on March 12, when the Footsie fell to 3,287, you would have made a gain of almost 60 per cent by now.

Companies with high beta values are in sectors such as technology, media, fund management and life insurance.

You can find the beta value of a company at www.bloom-berg.co.uk. Low-beta shares tend to be defensive stocks, such as supermarkets and tobacco firms. They will probably lag behind a rising stock market, but should fare better than the average company during a slump.

Given the recent performance of the Footsie, high-beta stocks could be worth a look. However, you have to believe that the market will climb higher. If you get it wrong, you would have a lot more to lose. Any investor should also remember that the beta value is a measure of historic movement of a share price and past performance is not necessarily a guide to future success.

It is very risky to buy only high-beta stocks, but the overall beta value of your portfolio is important. You should aim for a high beta value, but you can reduce volatility by holding a mixture of stocks that are not too closely corr-elated.

Some analysts see the recent upturn in the stockmarket as the beginning of a new bull market, while others feel too much money in the short term has been invested in equities. This could affect future gains in share prices. While you should not expect the Footsie index to run away to 5,000 by the end of the year, a more gradual appreciation is likely over a longer period, with some slight corrections on the way.

If individual equities are not your flavour, why not try some of the actively managed pooled funds available rather than the stockmarket index trackers which appeal to many?

But beware, six out of ten "active" funds are "closet trackers" that simply follow the market, but levy higher administration fees than genuine index funds. It has been estimated investors waste £125m a year in unnecessary fees for closet trackers. Over the past five years, the average "active" fund has slipped further than the decline in the FTSE All-Share index over the comparable period.

Many firms are now launching funds for private investors whose aim is to deliver above-average returns by ignoring the index and focusing on a smaller number of individual promising stocks.

Fund managers would even be able to retain the entire holding in cash if necessary, while awaiting opportunities or if strategically prudent.

But experts warn that, although these funds have the potential to deliver better returns than closet trackers or index funds, losses could be greater. They are therefore suitable only for adventurous investors.

Check your fund's top ten holdings - some of Britain's largest funds hold big positions in the stocks that make up the FTSE All-Share index. This, in effect, means that the fund's performance will usually be in line with the market, if not worse, but high administration fees are still being levied.

Adventurous or cautious, discuss your strategy with an independent financial advisor before making your decision.

Trevor Kirkley is principal of Redworth Caledonian Associates, Independent Financial Advisers, Waverley House, 50 Princes Street, Bishop Auckland, Co Durham. Tel: (01388) 607722.

Published: 18/11/2003