The stock market finished the first half of the year broadly unchanged. If this was a school report, the well-worn phrase "Could do better" would more than likely appear. While at first sight this may appear disappointing, there are a number of factors to take into consideration. Last year proved to be very good for investors, with the FTSE rising by 13.6 per cent, but the first six months of 2003 saw a net rise of only 2.3 per cent. This disguised the fact that the first quarter of the year showed a fall of 8.3 per cent and a subsequent recovery of 11.6 per cent in the second quarter.

The FTSE does not take into account the dividends paid out by companies, which average well over three per cent. This average is also slightly misleading, as some companies pay no dividend and others, such as Lloyds TSB, pay dividends equivalent to a net-of-tax yield of eight per cent. The key measure with investment should be what is called total return. This combines both capital growth - or depreciation - with income payments. In the above case, even if the share price of Lloyds TSB does not move, the annual total return, provided the dividend is sustained, is a total net return of eight per cent. Even with interest rates on the increase, I would reckon that holders of Lloyds TSB deposit accounts do not receive that level of return.

A market is always a collection of its individual components and, as such, is merely an average of the ups and downs. The simple theory to obtain outperformance is to have more of the ups than the downs.

The beneficiaries of flat markets can be the hedge funds. These funds take a punt on shares they feel will do well and also, in a different way, on those they feel will do badly. They will go long on stocks that they believe will go up, going seriously overweight before taking profits at some stage in the future. They will also go short on stocks that they believe will go down. By going short, they are able to sell stocks they do not own with a view to buying them back at some stage in the future at a lower price to square out the position. The risks of choosing the wrong stocks to go long and short in are minimised by the sophisticated use of financial derivatives. Friday sees leading hedge fund manager Man Group release a trading statement.

Looking more locally, Northgate, the Darlington-based vehicle hire group, announces its full year results today. In an upbeat trading statement released on May 4, the company said its UK business continued to perform well, and that Fualsa, its Spanish rental business, was slightly ahead of the board's expectations. City consensus is for the pre-tax figure to come in at about £43m.

A distraction for Northgate has been the persistent rumour that GE Capital is planning an 800p a share bid for the company. In a highly fragmented industry, Northgate is the largest supplier of short-term rental vehicles to businesses in the UK. Northgate's fleet represents more than 20 per cent of the estimated total light commercial vehicle fleet in the UK. GE Capital bought Smith Hire and TLS in 1997 to become the group's major competitor in the UK.

- For investment advice contact Anthony Platts on 01642 608855.

- Ian Pluves is a director of Wise Speke. Views expressed are the author's own and are not necessarily held throughout the Brewin Dolphin Group. Wise Speke is a division of Brewin Dolphin Securities Ltd, a member of the London Stock Exhange, authorised and regulated by the Financial Services Authority. Prices, values or income may fall against investor's interests. You should therefore be aware that you may get less back than you invested. Investments may not always be suitable for all individuals. If you have any doubts, you should consut a professional advisor.

Published: ??/??/2004