A fund manager with nine lives

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Indy Lifestyle Online
Stock market turmoil in the recent period has left many investment houses wondering how to deliver value to their clients. No such worries for Schrodinger, The Independent's feline fund manager. As Paul Slade reports, our cat has survived the last three months with all nine lives intact.

Tracking fund managers' performance every few months can leave them feeling somewhat under the spotlight. Perhaps that is why Schrodinger has not been as successful in the UK equity growth sector as he was when in smaller company stocks.

Even so, he has still shown a clean set of heels to the average benchmark index of the biggest 350 companies quoted on the Stock Exchange. And his performance still leaves investment experts open-jawed in admiration.

Schrodinger makes his stock selections by choosing pieces of dried cat food from a numbered grid. In the year to August 12, his CAT small companies portfolio rose by 4.35 per cent, against just 3.25 per cent for the average fund in the sector and 0.37 per cent for the funds' benchmark index - an impressive performance.

At that point, we had him make some new selections, taking CAT into the UK equity growth sector. His first three months as an equity growth manager - a period which includes October's extraordinary stockmarket volatility - saw CAT fall by 0.53 per cent against the sector's average drop of 0.04 per cent. However, this still ranks the revised portfolio equal 79th in a field of 161 UK equity growth trusts.

Readers with units in Royal London's UK Growth Trust may like to know their own fund manager turned in an identical performance. Schrodinger remains ahead of Legal & General and Standard Life, two leading insurers whose funds have suffered even more from October's financial storms.

Ian Millward, an independent financial adviser at London-based Chase de Vere, says Schrodinger's performance would cause him no undue concern. He says: "CAT would be a definite `hold.' Its performance is OK over the short term and seems to be quite good over the longer term. It doesn't seem to be particularly volatile. I think you have to say it's holding its own."

Schrodinger's three-month decline of 0.53 per cent still leaves CAT well ahead of the FTSE 350 - the closest match as a benchmark index - which fell by 3.74 per cent over the same period.

When we first created the portfolio in August 1996, the grid represented shares in the FTSE mid-250. When the time came to realign the portfolio, we dropped the 10 worst-performing small companies, and let him select 10 replacements from a FTSE 100 grid of the UK's biggest players. UK equity growth trusts can buy shares not only in the FTSE 250, but also the more important FTSE 100 - an option Schrodinger did not previously have.

Two of the FTSE 100 shares he picked - Abbey National and Great Universal Stores - are among CAT's top performers over the last quarter, showing growth of 15.76 per cent and 9.37 per cent respectively. Our top performer was Granada, whose shares grew by 19.75 per cent in the last three months. Granada came into the portfolio when it took over Yorkshire Tyne Tees, one of Schrodinger's original small companies picks, in July.

This fits in with Schrodinger's overall tactics so far, going for a portfolio which is overweight in financials, retailers and media, but underweight in sectors such as engineering.

Richard Carlyle, a pension fund manager at Henderson Touche Remnant, says: "It's a sensible split. If you were advertising yourself as an upmarket, high fee-charging fund manager, and came up with this portfolio, you certainly couldn't be laughed at."

It is worth remembering that Schrodinger also underperformed as a small companies manager in his first quarter, but managed to turn the situation round as the year went on. His first-quarter performance in the UK equity growth sector will also have suffered from the dealing charges incurred when he sold his worst small companies stocks and bought the FTSE 100 ones.

The worst-performing unit trust in the UK equity growth sector over the past three months is Canada Life's Canlife General Trust, which lost 7.23 per cent of its value over the period. The top performer was Johnson Fry's Slater Growth Trust, which grew by 10.33 per cent. Johnson Fry may have been forced to issue a profits warning a week ago, but they've evidently got a smarter cat than we have.