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With a war on, the economic picture is harder to read than it has been in years. To cut through some of the fog, we asked a handful of professional investors to take a theoretical gamble on one of five major indices over the next six months and 10 years.

The unscientific survey found strategists roundly opposed to gambling on the speculative names of the recent past: nobody picked the big-cap tech

Nasdaq 100

or the

Wilshire 5000

for either time frame. Three of the six strategists interviewed thought the

S&P 500 was the best bet over a six-month period, while the small-cap

Russell 2000 received three votes for the 10-year horizon. One strategist chose the blue-chip

Dow Jones Industrial Average for both the short and the long term.

Relative to the other indices, pros liked the S&P 500 over six months for a combination of reasons: greater diversification than the Dow and Nasdaq, fatter capitalization than the Russell and Wilshire, cheaper valuations than the Nasdaq, and relative earnings strength compared with the Russell 2000.

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"Nobody knows what is going to happen abroad," said Peter Canelo, U.S. investment strategist at Morgan Stanley Dean Witter. If things go well, people may invest more aggressively, but for now it's safer to be in defensives like health care and regional telcos, he said. "There are lots of things in the S&P 500 that can go up as other things go down."

The S&P 500 is a market-value weighted index consisting of 500 stocks "chosen for market size, liquidity, and industry group representation," according to Standard & Poor's, and is one of the most widely used benchmarks of U.S. equity performance. Representing most major U.S. industries, it is probably the index most representative of the overall market, with the exception of the Wilshire 5000. But the Wilshire 5000 contains many more small-cap stocks, strategists noted, whose earnings are less reliable in the current environment of instability.

Predictable earnings are at a premium in times of crisis, so in making their six-month bet, the experts shied away from the Russell 2000, where profits are set to drop fairly precipitously. According to data collected by Bloomberg, the index is currently trading at about 21 times expected 2001 earnings but 35 times next year's estimate. The situation is reversed in the S&P 500, which is going for 35 times trailing earnings and 26 times forward earnings. By contrast, the Nasdaq Composite Index is trading at 155 times current earnings and 85 times next year's earnings.

"Small-cap companies tend to be less diversified and vulnerable to swings in the economy and their numbers are being chopped faster than for big companies right now," said Canelo.

A 10-Year Horizon

But three strategists said the risk-reward pays off over a 10-year period. In a survey by Ibbotson Associates of equity risk and return between January 1926 and June 2001, small-cap stocks averaged returns of 11.84%, with a standard deviation of about 31 percentage points, meaning the return was less predictable in any given year. Mid-cap stocks averaged returns of 11.56% and a deviation of 26 percentage points, while large-cap stocks averaged returns of 10.27% and deviation of 20 percentage points. Small-cap stocks also historically perform when the economy is pulling out of a slump, strategists said.

"Over a longer-term period of time, I would be willing to bet on the Russell," said Richard Bernstein, chief quantitative strategist at Merrill Lynch. "You are going to see a resumption of economic growth in the next 10 years, which is good for smaller companies. They are more leveraged to GDP than bigger companies, because the latter are more diversified in international markets."

Ike Iossif, president of Aegean Capital Group; Kent Engelke, capital markets strategist at Anderson & Strudwick; and Richard Babson, president of Babson United, saw things differently.

Iossif likes the Dow both short and long term, because the 30 bellwethers in the index are proven companies with solid businesses that can ride out risk. "The Dow has companies that have proven themselves to be able to withstand large shocks in the economy, no matter what happens," says Iossif. Though he thinks technology will outperform the rest of the market over time, yesterday's leaders may not be tomorrow's. "At the moment, if you invest in Nasdaq, you may end up with longer-term underperformance. I would hold back until we see what the new leadership in technology is." Iossif prefers large-cap to small-cap long-term because he thinks smaller companies will be slow to reap the rewards of rapidly accelerating globalization.

Engelke likes the Russell 2000 short-term as well as long-term, because smaller companies feel the effects of interest rates more intensely than larger companies, while S&P 500 valuations are still far too high.

Babson said he'd stick with the S&P 500 on a 10-year horizon, but warned against putting money there for just six months. "If you're investing for six months, you should be buying a bond that matures in six months, or a CD, because otherwise you're gambling," he said. "Or you should just take that money to Atlantic City. If you want to get rich, you have to do it slowly."