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Inside edge

Imagine the scene at a suburban breakfast table in early February. The husband passes a mailpack across the table to his wife, who is engrossed in the crossword.

“There&#39s another Isa offer here, darling. We have only lost 30 per cent on last year&#39s Isa and 55 per cent on the 2001 version. We really must hope for some growth out of that 2000 technology Isa, which is now down by 85 per cent.”

His wife replies: “Don&#39t you think this would be a great time to buy another one?”

This exchange is what the entire fund management industry is hoping will be a common occurrence over the next few months. But the chance of this happening in any significant numbers is as close to zero as it is possible to be.

During the bull market peak at the end of the 1990s, the only reason why a huge number of building society savers switched their hard-earned savings from deposit accounts into the stockmarket is because they thought it was a one-way bet and that they would make money. Despite all the health warnings, Isas have singularly failed to do what most people wanted them to do when they bought them – go up in value.

Using the Ronseal test, this would be rather like the paint that was supposed to dry in 20 minutes still being wet after three years. The Isa has not done what it said on the tin.

I believe there will not be an Isa season in 2003 – if, by Isa season, we mean direct mail and off-the-page cheques with coupons.

The only possible excuse for fund management companies and intermediaries doing mass mailshots is to pursue the one overriding theme for many investors in the next year – consolidation of Pep and Isa portfolios and selling out of funds that have let them down badly.

It is possible that 2003 could lead to several fund management companies having a sensational year, with a number of other groups struggling. Bizarrely, however, this could happen while overall fund industry assets decrease, with no new net savers being added to our products. For one group to prosper, another will have to suffer. It will be a switching year.

Over the past couple of years, the incredible rotation in fund managers from group to group has been very difficult to keep up with. Add to this the number of managers setting up their own boutiques and the landscape for investors to choose their funds from has become bewildering.

Many investors now own funds which have changed name two or three times and changed manager on more occasions than this.

Since the end of the technology boom, many investors have patiently waited for the value of their shrunken Isa to increase. They are generally waiting for that important day when their £7,000 is restored to its original invested amount. Of course, at that time they will sell it but at least psychologically they will not have done so at a loss. The industry is therefore left with two completely different sets of clients.

The first set of clients have taken out an Isa over the years following a face-to-face meeting with their financial adviser. They have long-term financial needs such as university education for their children and building up a pot of money for their daughter&#39s wedding. For them, equities and Isas have been a means to an end. They remain unhappy about the value of their holdings but understand why they bought them in the first place. Isas bought at current levels may in the long term prove to be their best investment yet.

The second set of clients have a similar understanding of equity markets as they do of the buy-to-let property market. They invest in things that go up. However, when they do not go up, they soon lose enthusiasm and do not return for several years.

The first set of clients will invest in their Isas throughout the year when they meet with their advisers. The second set of clients will throw our mailshots in the bin.

It is not a good time to own shares in the printing firms which serve the financial services industry.

Ian Chimes is managing director of Credit Suisse Asset Management

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