SHORT INTERESTS: TIPS, TRENDS, OBSERVATIONS

Quite the cover story

The unusual cover of the May issue of Financial Planning magazine — where a vertical slit down the photograph of mutual fund manager David Dreman unfolds to reveal a $40,000 advertisement for Boston-based New England Funds — has stirred trouble in the editorial ranks.

Managing Editor Carl Sullivan pulled his name off the masthead to protest the publisher’s precedent-setting decision to let the ad folks invade what traditionally has been considered editorial turf. “I did take my name off,” Mr. Sullivan says. “I probably shouldn’t comment any further.”

Associate publisher and editor-in-chief Evan Simonoff also declines to comment. But publisher Tonia Caldwell sees no breach of the wall separating editorial and advertising: “I do not consider that an advertisement was on the cover. It’s called a ‘French gate.’ It is not a new idea.”

Cover boy Dreman doesn’t seem to mind having his arm sliced off to make way for the ad. “Not one financial planner,” he says, “has mentioned it to me.”

Their time will come

Small caps, venture capital investments and emerging market equities are expected to clobber domestic large caps and fixed-income products during the next one-, five- and 10-year periods, according to a survey by New York-based KPMG Peat Marwick LLP. Despite jitters over emerging markets, the 60 investment firms surveyed forecast that stocks in developing countries will have the highest returns of any asset class over five years (about 13.3% annualized), followed by venture capital (12.7%), international small-cap stocks (11.3%), emerging market bonds (11.1%) and U.S. small-cap equities (10.1%).

Heed the whispers

Those highly unofficial corporate earnings forecasts that circulate among traders and investors, commonly referred to as “whisper forecasts,” are usually more optimistic — and more accurate — than the official predictions of stock analysts, says a new study.

A group of business school professors across the country compared 943 earnings predictions of 127 firms found on Web sites for investors, and electronic bulletin boards with more than 3,500 traditional analyst forecasts between January 1995 to May 1997. The study found that whisper forecasts overestimated 55 cents of every dollar of earnings forecasted while official analysts underestimated 64 cents for every dollar of earnings. Overestimations have been closer to the mark because many companies exceeded expectations.

The forecasts originate from the companies, but how they get on the Internet isn’t clear. The researchers still suspect the companies, but these forecasts can show up anywhere. Says Stan Levine, director of quantitative research at First Call Corp., which provided the stock analyst predictions for the study, “They can show up on the Internet or on the bathroom wall.”