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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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