Johannesburg — IT HAS been more than two weeks since I looked at the results of Liberty Group for the half-year ended June 30, and prefaced my planned comment on the results with a column in which I told why Jean and I swapped Liberty Holdings shares mainly for Sasol.

It seems to me appropriate to extend the preface on my comments on Liberty by looking more closely at how the financial sectors, excluded from the Private Investor portfolio, have performed in the past year.

I have looked at three of the sectors: life insurance, in which Liberty is one of the heavyweights; the FINI15, the index of the top 15 industrial and financial companies on the JSE (by market capitalisation and which are made up of banks and life insurance companies and large real estate companies); and banks, which, of course, also include Standard Bank, Liberty's, now genuine, holding company. A year ago, the index of the life insurance sector was 19000 and, at yesterday's close, it was 12876, a fall of 32%.

This is no worse than the paper loss on the Private Investor's portfolio on Bell over the same period.

The difference, however, is that Bell has enjoyed significant earnings growth, while the earnings performance of life insurers has been pedestrian.

A year ago the market rated the constituents in the life insurance index at a historic price-earnings ratio of 9,7 and an historic earnings yield of 10,3%. It now rates it at 5,14 and an historic earnings yield of 18,5%.

This may well mean that, having digested the results of the constituent companies over the year and also its prospects reported in their published results, the body of investors who are interested in life insurance shares, reckon the forward earnings yields on the index constituent companies, on their current share prices, could fall by about five percentage points to 13,5%, a forward price-earnings ratio of 7,4. I make this conjectural conclusion relative to the current expected rate of inflation of 13% or higher over the next year.

If investors in life insurers want at least to match earnings yield at inflation, then the current share prices of the index constituent companies have to be close to a support level. But, as investors want earnings growth in excess of inflation, the market's forward earnings yield and forward price-earnings ratio are closer to the historic figures.

In other words, do no t look for more than moderate share price growth over the next year.

The FINI15 and the banks index, perhaps surprisingly, are currently historically rated better than life insurance, but have also been savaged by the market. A year ago the FINI15 was 92,32, with a price-earnings ratio of 12,5 and an earnings yield of 8%. On Tuesday the index was 22% down to 7170 and the ratings were 8,2 and 12%.