Fund managers seek more solid gains

In a volatile year most of the fund managers who tipped shares for us managed to show solid gains. The average increase was exactly in line with the FT All Share Index at 20 per cent.

Julian Fosh of Scottish Amicable was the clear winner with British Gas. The shares were boosted by the split into two as British Gas became BG and Centrica, and a record pounds 1.3bn buy-back, ending the year 62 per cent higher. A bottle of champagne to our victor.

A worthy performance also from AEA Technology, tipped by Bernard Clark of Hill Samuel Asset Management. The former division of the Atomic Energy Authority reaped the benefits of diversification. British Aerospace, the choice of Vanessa James at Legal & General, had a good year, borne aloft by its strong order book and improving fortunes at Airbus. Sainsbury's fulfilled the promise of Tom Crombie at Scottish Equitable.

At the other end of the scale, the sickly performance of the biotech sector knocked a hole in Skyepharma, Justin Seager's tip at Dresdner Kleinwort Benson.

This year's recommendations come from most of the same fund managers as last year plus a welcome debut by M&G.

Tom Crombie, Scottish Equitable. Tip: Wolseley 483p

It is tempting to choose a financial stock for the best performance in '98 because there will undoubtedly be more rationalisation within the sector. However, picking a single stock in the hope of takeover is a mug's game. My stock is therefore Wolseley, is a well-managed distribution business with big shares in the plumbing and heating materials markets. They have produced good returns over the years. I like the mix of business with exposure in the US and Europe and they should be unaffected by events in the Far East. With building material stocks currently out of favour, Wolseley, at 483p, is relatively cheap.

John Hatherly, M&G Investment Management. Tip: First Choice Holidays100p

First Choice, the UK's third largest tour operator, is on the mend and well placed to benefit from the buoyant demand for holidays and changes in the structure of the industry. The present management team has brought stability to the group, enabling it to exploit its strong market position.

Profits for the year to October 1998 are forecast to increase by roughly 50 per cent to around pounds 30m, implying a p/e ratio of just 13 times. Operating margins of 1.7 per cent are moving swiftly towards the 4 per cent norm for the sector. The changes in the industry should favour First Choice.

Mike Grimble, Norwich Union IM.Tip: British Airways 560p

British Airways offers good prospects for a rebound, having underperformed by around 23 per cent in 1997. Industrial relations problems have plagued the stock in the last 12 months and merger talks with American Airlines have also unsettled confidence. If the merger goes ahead the share price should bounce.

The move into budget airlines is unlikely to be seen as influencing profits enough to affect the share price this year. The shares have reacted to all negative news so far and look set to fly in '98.

Vanessa Williams, Legal and General. Tip: Unilever 521p

Unilever has built dominant market shares in products as diverse as margarine (Flora), detergents (Persil) and ice cream (Magnum). Under the leadership of Niall FitzGerald it has started to focus more clearly on creating shareholder value. Unilever has been shedding non-core business and making bolt-on acquisitions such as a Brazilian ice cream maker.

With an exceptionally strong balance sheet we expect this process to continue. Although the shares have performed well in 1997, anticipating the benefits of the new strategy, we expect further performance in 1998.

Robert Talbut, Royal Sun Alliance. Tip: EMI 508p

Since the euphoric highs reached at the time of the demerger, EMI has significantly underperformed. This has been related not only to the lack of a bid but also to some reappraisal over trading conditions. The turmoil in Asia has precipitated further weakness.

However, trading on only a small premium to the market but with an above- market yield, the shares now offer real long-term value. The company has had to enact some far reaching restructuring of the US business, where industry trends tentatively indicate some improvement. Elsewhere, general trading should produce earnings growth in line with (still to be further downgraded) general market expectations. Finally, EMI could well be party to the closer integration of entertainment media.

Colin McLean, Scottish Value Management.Tip: British Energy, 423p

While events in the Far East have increased risk internationally, domestic businesses should do well. British Energy, the nuclear power generator, has already been outperforming. This has taken it to a market capitalisation of over pounds 3bn, and into the FTSE 100 index, but the shares are still cheap. Institutional investors still have relatively low exposure to the company, privatised in 1996, which is now demonstrating much better than expected profitability.

It is benefiting from the extension of the remaining life of its eight nuclear power stations, which it must ultimately decommission, as well as from increasing output and cost savings.

Bernard Clark, Hill Samuel AM. Tip: Ockham Holdings 104.5p

The restructuring of the Lloyd's insurance market is creating opportunities in the new Lloyd's vehicles and the quoted managing agents. Ockham Holdings comes into the latter category. It is now left with the management of the specialist motor insurance syndicate, Highway, and the private client stockbroker, Wise Speke.

The company recently completed the acquisition of 46 per cent of the underwriting capacity provided by Highway (pounds 100m) and indicated its intention to further build up its directly-owned capacity. It has a good cash position which should be augmented if it sells Wise Speke. At the current price of just over 100p, capitalised at pounds 50m, there is scope for a 50 per cent rise without a sale of Wise Speke, or more with a sale.

Fund managers may hold some of the above stocks and deal in them.

Fund Managers

How they performed in 1997

Tipped at Price now Gain/Loss

British Gas 224.5p *363.5p +62%

AEA Technology 396p 538p +36%

British Aerospace 1280p 1735p +35%

Sainsbury 388p 509p +31%

Cairn Energy 417p 496p +19%

GEC 382p 394.5p +3.3%

Barclays Unicorn Prop 257.6p 264p +2.5%

Skyepharma 73.5p 54p -25%

Average performance +20%

FT All Share 2013.66 2411.00 +20%

FTSE100 4118.5 5135.5 +25%

*aggregate of BG and Centrica prices following demerger in February

Sport
The sun rises over St Andrews golf course, but will it be a new dawn for the Royal and Ancient Golf Club?
sportAnd it's Yes to women (at the R&A)
Arts and Entertainment
Friends is celebrating its 20th anniversary this year
tvSeries celebrates 20th anniversary
Sport
Yaya Touré (left) and Bayern Munich’s Spanish defender Juan Bernat
footballToure's lack of defensive work is big problem for City
Voices
voicesApple continually kill off smaller app developers, and that's no good for anyone
PROMOTED VIDEO
Arts and Entertainment
Liam Neeson said he wouldn't
tv

Liam Neeson's Downton dreams

Sport
Wembley Stadium
footballNews follows deal with Germany
Arts and Entertainment
A spell in the sun: Emma Stone and Colin Firth star in ‘Magic in the Moonlight’
filmReview: Magic In The Moonlight
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
A 'Sir Alex Feguson' tattoo
football

Arts and Entertainment
Ben Whishaw is replacing Colin Firth as the voice of Paddington Bear
tv

Thriller is set in the secret world of British espionage

Life and Style
life

News
ScienceGallery: Otherwise known as 'the best damn photos of space you'll see till 2015'
Life and Style
fashion

Bomber jacket worn by Mary Berry sells out within an hour

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Audit Manager Central Functions

To £85,000 + banking benefits: Saxton Leigh: You will be expected to carry out...

Credit Risk Audit Manager

Up to £90,000 + benefits: Saxton Leigh: Credit Risk Audit Manager required to ...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week