Trio of fund managers a sound bet

Dot.com survivor ADVFN is a buy; Body Shop attractive after its makeover
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The Independent Online

The FTSE 100's 13-month high is lucky for some: Schroders and Amvescap, the UK's two biggest quoted fund management groups.

It is a simple equation. The higher the market, the greater the value of the funds under management, the higher the value of the percentage fees. So it is that these two stocks are often among the biggest movers when the FTSE 100 takes a decisive turn in one direction of the other. And so it is that shares in Man Group - purveyor of hedge funds to the wealthy - often go in the opposite direction, since the short selling activities of hedge funds have made them popular ways to profit from the bear market.

So, sell Man Group and buy the other two in anticipation of a continuing rise in equity values? No. The long-term growth of hedge funds as an asset class will continue, and Man, with its dramatically lower stock market valuation, is the most attractive of the three. Its shares hit a record 1,407p yesterday; it continues to pull in record-breaking sums of cash to its new funds and now manages more than $30bn of assets. Still hedge funds as an asset class account for only a fraction of investment, and although there are issues of diminishing returns as more and more funds are set up, Man's "funds of funds" approach is emerging as the preferred way to gain exposure to this type of alternative investment.

Of course, it would be foolish to sell the traditional fund managers while the market is in such a bullish phase. Schroders appears fairly valued on 23 times Deutsche Bank's adjusted earnings forecast for the year, but the savage cost cuts at the group and the stock market rally leaves scope for the group to beat estimates. The new chief executive, Michael Dobson, is taking the right approach in moving into specialist funds - the new fad among those who advise the UK's pension funds. Amvescap, on 22 times, should do well from the dramatic upswing in mutual fund investment in the US in recent months.

Buy, buy, buy.

Dot.com survivor ADVFN is a buy

ADVFN is the product and the victim of the dot.com boom. The website was created to serve up news, gossip and share price information for investors and day-traders swept up in the technology investment boom. Having battled through the bear market, it has established itself clearly as the market leader, but along the way it has lost a lot of its shareholders' money. From a day one peak of 59.5p, the shares collapsed 95 per cent. Now, though, the business model looks compelling and the stock looks cheap.

The company made a sort-of profit yesterday. Not on the pre-tax level, which will be some time coming as set-up costs are depreciated, but on an ebitda (earnings before interest, tax and write-downs) basis it made £404,000 in the year to June, compared with a loss of £355,000 last time.

The website has continued to attract subscribers through the bear market and the rally since March has reignited the uptake. Meanwhile, additional paid-for services and higher advertising rates are improving revenues. A step-by-step approach to expansion in the United States should also reap rewards.

Yesterday's figures were remarkable for the near- elimination of cash burn at the company, which is set to move into a new phase of earnings growth. Even up 20 per cent to 3.25p, the stock is a buy.

Body Shop attractive after its makeover

Body Shop International knows a thing or two about makeovers. The ethical beauty products retailer has been trying to beautify its business for most of the past five years.

Judging by its erratic financial history, most attempts ended in failure. No wonder when its outmoded shops compete with high street gems such as MAC and Molton Brown.

But after a number of false dawns, there were again signs yesterday that the global retailer might just have scrubbed itself clean. Okay, so a 9 per cent fall in interim like-for-like sales in the UK was less than fragrant. But the group's newish management team is confident it can apply the same magic over here as it has in the States, where underlying sales grew by 1 per cent. New IT means its 310 UK stores actually get the right lotions and potions to sell. Combined with a new-look estate and a MAC-esque (i.e. pushy) approach to selling its new products, margins, cost control and customer service should all improve.

Although the group's sales were weaker, interim profits were £9.1m against a loss last year. Debt has been halved to £34m and capital expenditure cut back.

With 2,000 shops in 50 countries, there is plenty to play for, if all goes according to plan. The shares, down 1.5p to 128.5p, are close to a five-year high, but could still transform your portfolio. Buy.

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