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Flying Scots funds gathering steam

Scotland&#39s fund management industry is increasing by the minute and it is


now one of the biggest centres in Europe. Which investment houses do you


rate and why?


MD: Britannic have been my long-term favourites. They have an excellent


track record across a range of funds. A genuine team approach seems to have


paid dividends for them. The other two I also like are Ballie Gifford and


Martin Currie. All three are pure investment houses. I am far less sure of


the major insurance companies in Scotland who still seem not to have got


their act together.


GH: My favourites include Britannic, Aberdeen and Scottish Equitable. They


all have consistent performance, good management and risk control.


SD: There is certainly an interesting mix of investment houses based in


Scotland. We respect firms such as Baillie Gifford, particularly in the


investment trust area, Glasgow Investment Management for their


income-oriented funds and Aberdeen for their fixed income and technology


ability.



Last April, the banks and building societies got ahead start on IFAs on


selling Isas. Why do you think IFAs got off to a slow start and do you


think they will be quicker off the starting block this year?


MD: I think IFAs initially thought them very complicated and waited for


things to settle down. At the time, Cat Isas were only just coming out so


IFAs also had to wait to see what the full range would be.


I think it will be different this time. Both investor and IFAs are now far


more familiar with the product. In addition most of our clients wish to do


a maxi Isas, which are effectively the same as Peps but with a wider


choice.


GH: I think IFAs were over-concentrating on the end of the Pep season and


thought Isas were going to take longer to establish then they did. Having


seen how well Isa sales have done this year, I think most IFAs will be very


well aware of the opportunities, even allowing for recent market


volatility.


SD: The banks have huge distribution capability at a product-selling level


that is still growing. They will continue to capture market share in Isa


sales, however, while many IFAs still feel the product is unnecessarily


complicated they are stuck with if for the moment and I am sure sales will


swell.



The old v new economy argument is flavour of the month. But do you think


the old economy stocks&#39 recovery can be sustained over the long term and


not just in the next six months?


MD: Perhaps real economy stocks would be a better phrase. Many of there


stocks will actually benefit from the internet once they get their act


together. However, in a low-inflation and lower-growth environment, a


premium will usually attack the quality growth stocks. So although I feel


that value/ real economy equities should bounce back, possibly when we see


internet rates peak. I still firmly believe the long-term story is in the


growth stocks.


GH: I think they both will. The old because they have been oversold and


there seem to be some bargains out there. The new because short-term


sell-offs have been swiftly followed by partial or full recoveries. There


will be casualties and the last minute.com situation should serve as a


lesson to all.


SD: Financials and pharmaceuticals are strong medium-term sectors that can


adopt new economy technology and make their businesses even more


profitable. We believe they can deliver sustainable recovery from current


levels.


We are much less sanguine about the prospects for transport, engineering


and basic utilities where the basic lack of earnings&#39 growth will hold back


investor interest.



The likes of Jupiter and Aberdeen (with the Boat Race) have poured money


into big advertising campaigns. Do you think that advertising pays?


MD: Jupiter was unheard of six years ago. Great investment performance


coupled with advertising has definitely helped. Name-awareness is extremely


helpful but takes long periods of advertising to achieve. Sponsoring the


Boat Race should help, after all, it was watched by over six million


people.


One of the most successful groups has been Scottish Widows, its brand name


was what made it so attractive to Lloyds – a long-legged widow can be


helpful.


GH: Yes, but not by itself – ask Perpetual. Advertising only pays


commercial gain if the rest of the provider&#39s proposition stands up to


scrutiny – that is, performance, brand, charging structure, the actual


proposal being advertised, name awareness, etc.


SD: Mutual funds are increasingly commoditised products that can be sold


into a massive retail market. As such, brand and name awareness are king


and advertising is essential if you are or wish to become a major player.


Major groups do not make annual seven-figure advertising commitments


without measuring the success rate very carefully.


Fidelity is starting to flag its forthcoming fund supermarket. Are you


gearing up to use a supermarket which pays commission and do you think it


may take time before IFAs embrace the technology?


MD: We believe we are a supermarket in our own right. We don&#39t need to


become a tied agent of Fidelity. GH: Supermarkets will play a significant


role for investors in the future. The only way ahead for most IFAs will be


to use some else&#39s technology. I think they will take longer to establish


than some optimists think and how many fund supermarkets can the UK


stomach?


SD: We believe the major buyers of funds have a very simple requirement –


a one-stop e-shop where we can buy and sell units of any fund offered by


any management group electronically. The engineering of such a system will


be the challenge, not the technology to access it.



Autif believes 20 per cent more people are buying direct equity Isas. Have


you seen a shift in attitude and if so, why?


MD: We have seen a big shift into our self-select Isa.


I believe this is because more people are buying equities and, given the


huge gains seen in tech stocks, it makes sense to buy them under a


self-select Isa.


GH: We haven&#39t but it could be that investors have become more confident


as a result of more bullish markets in the recent past and have decided to


invest in direct equity Isas.


SD: I am sure that direct equity Isas are more popular and suspect there


are two key reasons for this. The retail investor in the UK is maturing


from buying a series of funds within their Peps to understanding the equity


market sufficiently and having enough money to want some direct equity


exposure. Furthermore, the bull market in technology has created a new


generation of investors who are using equity Isas to access new


flotations/IPOs.



Panel Members


Mark Dampier, Head of research, Hargreaves Lansdown


Graham Hooper, Investment director, Chase de Vere


Simon Davies, Investment manager, Berry Asset Management

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