Bears of P&D win top fund ranking

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PHILLIPS & DREW, the notoriously bearish investment house, finally saw its strategy pay off in the third quarter of this year as it rose to become the top-performing fund manager in the City.

The firm was ranked top in a survey published this week by Caps, the performance monitor, as one of its main funds shrank in value by just 7.7 per cent, against an industry average of 11 per cent. P&D directors claimed a measure of vindication after years of being attacked for an overly bearish approach.

In the past two years P&D, formerly known as PDFM, has languished in the bottom quarter of the performance tables.

Robin Apps, a director at the fund manager, said: "Clearly it is nice to begin to be vindicated, but we are by no means out of the woods. We were wrong about the market and we had a tough time in 1995, 1996 and a bit of 1997. The last year has been good: the last three years haven't been."

Tony Dye, who heads P&D, became the most famous bear in the City two years ago when he warned that share prices were unsustainably high. The firm stepped up the proportion of cash in its funds to nearly 20 per cent, twice as much as its peers, in anticipation of a crash.

But in 1996 and 1997 pension schemes began to withdraw funds from the firm as it emerged that P&D was missing out on one of the strongest bull runs for decades.

Its directors yesterday insisted that the market's latest bounce was not justified. "We think the outlook for corporate earnings is poor. Quite a lot of banks' capital has been destroyed and they are going to have to rein in lending. The easy money, the easy credit, clearly won't be available," Mr Apps said.

The company's main pension vehicle, known as the mixed with-property fund, still has 23 per cent of assets in cash, nearly twice the average.

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