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Investment view

It was with some alarm that I heard on the radio at the end of last week that electrical giant Philips is to move its headquarters from the small town in southern Holland it dominates to Amsterdam. Philips has been one of the success stories of recent years. Having suffered in the 70s and 80s at the hands of powerful competition from South-east Asia, it has rebuilt its reputation, recaptured market share and established itself as a serious competitor in the consumer electronics industry. Recent profits&#39 growth has been impressive. But moving your headquarters to the nearest capital city? Mind your eye is all I can say.

Many years ago, as an investment manager, I used to employ a series of checks and balances to see whether the shares of the companies in which we had invested should still be supported. There were a number of warning signs that popular wisdom suggested you ignored at your peril. More pictures of the chairman than of the company&#39s products in the annual report and accounts usually boded ill. Those businesses that bought a company helicopter often ran into problems, initially at any rate. When the boss became chairman of a football club, you also had to take it as a bad sign. But most reliable among these signals was moving your headquarters from the place of manufacture to the centre of the nearest big town.

I well remember attending the launch of a company&#39s new headquarters in the centre of Birmingham. The business having prospered, it was decided to move from the previous location adjacent to its factory on a West Midlands industrial estate. Foolishly, I told the chairman that his company had just fulfilled one of my criteria for selling the shares. He lambasted me in his opening speech. I sold the shares. The change of head office marked a peak in the company&#39s fortunes that was never regained, with the business eventually being taken over at a fraction of the price at which I had dumped my holding.

Now, I do not wish to cast doom and despondency among the shareholders of Philips but merely to point out that fundamental analysis is more than merely adding up figures and calculating price/earnings multiples. Anyway, any company with a chairman called Cor Boonstra must be worth following. I am also encouraged by the company&#39s clear sense of strategy as it endeavours to build Philips into a global brand. Even so, watch that head-office move.

More important last week was the news that the mighty Prudential of America was to demutualise. It was a bit of a shock to realise that the US&#39s two biggest life insurance companies are, in fact, mutuals. Prudential has assets in excess of £150bn. Turning it into a listed company, with policyholders receiving shares, delivers a windfall bonus that makes 1997 in the UK look almost irrelevant. The Prudential may just be the beginning as the US life insurance industry restructures.

The effect on the US savings and investments market is incalculable. At the very least, it adds to the sum of wealth in private hands. Perhaps the time is not yet here to become worried over the high level of US shares. My colleague David Turner is in the US at present. His record there has been impressive so I look forward to talking to him on his return.

Less impressive has been the performance of UK pension fund managers. Analysing the performance of non-UK portfolios, the WM Company has concluded that we overweighted Japan and the Far East to such an extent that our performance lagged significantly. Apparently, the average return achieved on non-UK investments by pension fund managers was 7.2 per cent for 1997. The FT/S&P World index, excluding the UK, rose by nearly 20 per cent during the same period. No wonder some of the big boys have been losing mandates.

Mind you, the Far East could now represent a serious opportunity. The thundering herds think so. Recruiting a fair chunk of the now redundant Yamaichi salesforce, Merrill Lynch aims to build itself into a serious force in this, the second-biggest savings and investment market in the world. It may have the timing just right. Given that, so far this year, it has taken over Mercury Asset Management and is busy opening retail branches around the UK, you have to admire it for its ability to act on so many fronts at once.

I wonder where its head office is?


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