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When times get tough, people with an abundance of disposable income are inclined to keep disposing of it while the rest of us are forced to keep our thinner wallets in our pockets. With that in mind, Tobias Levkovich, Citigroup's chief United States equity strategist, has created the Living Large Index, comprising stocks of businesses that cater to affluent consumers. Profits and share prices of luxury-goods makers, higher-end retailers and travel and entertainment companies should hold up even if businesses serving them suffer from difficult economic conditions, he said.
The index is a new creation, but back-testing shows that building a portfolio from its component stocks would have been a far more lucrative long-term strategy than mimicking the Standard & Poor's 500-stock index. A $100 investment in Living Large at the end of 1995 would have grown to $1,013 by Oct. 31, compared with $252 for the S.& P. No wonder the logic behind the index wins high marks from investment advisers. ''It certainly makes sense conceptually,'' said Charles L. Norton, manager of the Vice fund, which invests in companies like tobacco makers, gambling emporiums and purveyors of alcohol. ''Usually in a recession, people at the lower end of the food chain are hurt most and so those catering to the luxury end tend to be relatively insulated.'' Mr. Norton holds one index constituent, Wynn, the owner of casinos, including one in Macao that has become a popular destination for Asian gamblers. Asia is expected to be a source of tremendous growth for the gambling industry.

If catering to well-heeled Americans is profitable, doing the same for wealthy people around the globe may be even more so. As economies develop, the number of rich people soars, and they have the same expensive tastes as Americans do. ''The next big frontier for many of these luxury retailers is emerging countries, where growth is faster and the number of affluent people is growing even faster,'' said Andrew Peck, manager of the Baron Asset fund.'' There are opportunities ahead for them in markets like China and India, where many new millionaires are being created every day.'' He expects Wynn and Tiffany to benefit from those opportunities, along with a retailer not in Mr. Levkovich's index, Polo Ralph Lauren.

John Buckingham, chief investment officer of Al Frank Asset Management, recently recommended Nordstrom and Callaway Golf. He cautioned against depending on them and other Living Large stocks to hold their value if weakness persists in the economy and stock market, however. Much of their sales come from so-called aspirational buyers, those who hope to be affluent one day but are not yet in that category. The already affluent can afford cruises and top-name accessories when times are tough; the would-be affluent cannot. He noted that some of the index companies, notably Coach, Tiffany and Nordstrom, have recently reported earnings lower than analysts' estimates, a result of ''aspirational buyers' slowing their purchases.

Mr. Peck's quibble is with the selection of companies from disparate industries to create an index that purports to track a single phenomenon. Their share prices may be driven by myriad factors other than the appeal of their products and services to affluent consumers, he said. Still, the index ''makes intuitive sense to me, within reason,'' he said. ''As a result of gains on Wall Street and a reduction of the top tax rate, the rich are getting richer. They are going to continue to be able to afford luxuries.''

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