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Keeping up pace of change

Investors have not had a particularly prosperous start to the new millennium. The FTSE finished 2000 well below its start while the average unit trust is down by more than 2 per cent for the past 12 months.

For investors who thought 2000 was set to be the year for a Japanese recovery, there was particularly acute pain to be felt. Investors in Invesco GT&#39s Japanese smaller companies fund would have lost more than half their investment over the past year, with a return of -52.28 per cent.

Even the best-performing fund in the Japanese sector, Schroder Tokyo, still managed to produce a negative return of nearly 5 per cent.

Hargreaves Lansdown inv estment manager Ben Years ley says: “One of the main reasons the sector went up so much in 1999 was due to the high performance of all the new economy companies like Softbank. These all did very well until March last year and then got hammered. These were the only companies that were doing things – the old economy was not really doing much at all.”

Nevertheless, there was money to be made. For those that invested in the winners such as Framlington Health and CF Bio-Tech, there were three-figure returns to be had.

The European smaller companies sector also had success, with an average ret urn of 9.62 per cent. Scottish Equitable&#39s fund led the sector, spending much of the year in the top 10 unit trust table. On average, investing in a managed fund produced better returns than the market.

One factor at least in the mixed fund performance of 2000 was the number of fund manager moves. Many of the biggest profile funds saw managers move, retire or leave to start their own boutique or hedge fund. Jupiter&#39s star equity inc ome manager, Will iam Little wood, was one of the year&#39s first and most prominent departures. After leaving Jupiter for a sabbatical in January due to exhaustion, he then confirmed in March that he would not be returning to the fund.

The UK&#39s biggest corporate bond fund, CGU&#39s mon thly income plus, was another fund to lose its manager in March. Hugh Everitt was replaced by Mark Gull, who was left with the difficult task of managing the downward spiralling fund.

By October, Norwich Union finally real ised its high yield was unsustainable, slash ing it by 20 per cent.

Scottish Widows&#39 disastrous management of the Hill Samuel merger with its investment arm saw the firm lose all but a handful of its Hill Samuel fund managers.

The US team left to run Aber deen&#39s American equities desk, head of Pan Euro pean Equities David Kiddie moved to become Rothchilds&#39 chief investment officer and Hill Samuel&#39s former CIO rounded up the heads of four other desks to work under him at Old Mutual Asset Management.

Swip also lost chief executive Orie Dudley who depar ted from the fund manager in August.

The year ended with more friction in the technology sector, with Henderson losing its top-performing TMT managers but managing to replace them with the number two rated team from Scottish Equitable. ScotEq now has the harder task of replacing its tech team.

This year does not necessarily promise to be any more stable than last year. Few believe Bio-Tech is set to continue the success it has seen in 2000 and many pundits have gone one step further by predicting the bottom is due to fall out of the sector this year. It is worth noting that the last time Framlington Health saw triple-figure ret urns – in 1990 – it followed this up with a fourth-quartile performance the next year.

Yearsley says: “I think Bio-Tech is okay for the long term but I wouldn&#39t buy it now.”

Hargreaves Lansdown says it is fairly conservative about this year and unwilling to highlight any sector as this year&#39s winner. Yearsley says: “We are steering clear of recommending a sector this year. We are being very cautious with our recommendations.

“We are saying, buy the core holdings like HSBC UK growth and income, HSBC European and Threadneedle American growth rather than try and be too clever about the high-flyers.”

Although markets may not be any kinder this year, 2001 is certainly set to be an eventful year in terms of regulatory upheaval for the fund management industry. Changes in the polarisation laws and the introduction of individual pension accounts are likely to change investment companies&#39 focus.

The Government&#39s det ermination to pave the way for stakeholder and Cat-standard products may see the launch of more Cat-standard funds – and lower charges across the board in general. In Decem ber, Old Mutual Asset Man agement announ ced it was slashing charges across the board and there is plenty of evidence that char ges are slowly coming down. Greater disclosure will also force this.

The FSA also appears to be slowly warming to the idea of allowing hedge funds into the mainstream retail market. With several high-fund managers having left to start their own hedge funds already, the industry may see even more friction next year.

2001 will also see the launch of former Jupiter chief executive John Duffield&#39s new company, New Star Asset Management. IFAs and fund managers alike have already acknowledged that any company started by Duffield will be one to watch.

All eyes are also on Jupiter staff to see if they will stay after May when Duffield has the right to poach again.

This year will also no doubt see further consolidation in the industry following last year&#39s numerous mergers and acquisitions.

If the industry keeps up the pace that it has managed this year, will we soon see a much simpler world, with just a few fund managers running a few mainstream funds? Probably not.

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