It was getting a little frustrating. Sure, all you Fools are onto a great thing over there in the US of A, but sitting here in deepest, rural England I was starting to feel a bit of an outsider. "What about the London stock exchange?" I started to say to myself. "The blue chips pay dividends there. I know O'Higgins thought it might not work as UK companies tend to adjust their dividends according to earnings, but maybe, just maybe, it does."

Hard information was slow in coming. Lurking around the Fool message boards, though, I picked up a few leads. Several people said that indeed the strategy did work on the FT Industrial Ordinary share index, 30 industrials similar to those in the Dow Jones Industrial Average and that I could read about it in an article entitled "Dogs of the Bourse" in the January / February 1997 edition of the Bloomberg Personal magazine. Hmm, not so easy to find here among the green fields and pubs. "Bloomberg who?!" was the response wherever I tried. A visit to the relevant website was in order and before long a copy of the article was being faxed to me by the publishers, free of charge (aren't you Americans just the friendliest bunch?), and I was away.

It transpires that the strategy works spectacularly well on the FTSE-30, along with the German DAX and the Hong Kong Hang Seng Index. Various brokers offer unit trusts based on a high-yield 5 or 10 approach on the FTSE, so I contacted one of them who soon had the brochures for their various trusts winging their way towards me. But what I was after was not management charges, nor maximum capital gains exposure. No, Fools, it was information! And that information was heartwarming: 20-year back-testing of the HY 5 on the FTSE-30 gives a compounded average annual return of just under 22%. They wouldn't give me the raw back-tested data, but that's business!

Now, here comes the interesting bit. In the UK we have a way of tax-sheltering our investments by means of a Personal Equity Plan, or PEP. Anyone resident in the UK and paying tax here can set up one of these and put L6,000 ($10,000) into it per tax year. Any investments within a PEP are totally exempt from capital gains or dividend withholding tax for as long as you keep the PEP in existence. Most PEPs are fronts for the industry to relieve you of the burden of some of your money by investing in their extra-special, fancy doodah unit-trust PEP ("Only 5.75% initial charge! Roll up!"), but there are also so-called self-select PEPs, which are execution-only and with very reasonable flat-rate yearly administration and dealing charges (for the UK, anyway).

Now, I am about to invest equal pound amounts in Allied Domecq, BICC, BTR, Guinness and Tate & Lyle. I've rejected British Gas, firstly because it's a utility, secondly because it's about to be hammered good and truly by new taxes from any incoming Labour government and thirdly because it's the cheapest of the high yielders and so would be rejected by the Unemotional Value approach. There is no real evidence for this latter on the UK model (no-one has done the research, as far as I know), and I am merely extrapolating from the US models.

So, I hope in twenty years' time (fifty's not too late to retire, is it?) that the stock market Gods will have been kind to me. There's no particular reason why they should be, of course, but then there's no particular reason why the next twenty years on the FTSE should be much different from the last twenty either.

Who knows? Perhaps some time soon there'll be a "Beating the Footsie" site at the Fool.

Foolish in Devon,

David Berger

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