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P&D hammers the market

Underperforming fund manager dazzles after years of failure
PHILIPS & DREW, the much-maligned fund manager, is beginning to make up for years of under-performance with a dazzling performance since Easter.

The recovery seems to bear out the firm's less bullish approach to the stock market, in which it has invested in smaller companies and has maintained high cash holdings.

The value of P&D's UK equity investments has risen by 7 per cent compared with the stock market's 2 per cent increase since the beginning of April, putting it on course for its best quarterly performance in five years.

The news will come as a relief to P&D, which came out last of 68 competitors in a recent survey. It will also go some way to justifying the views of Tony Dye, P&D's chief investment officer, whose bearish attitude has been proved wrong by the market. While other fund managers have followed the herd into the FT-SE 100, Mr Dye has persevered with a preference for undervalued companies.

Since 1 April, companies outside the FT-SE 350 have risen by 6.7 per cent, while the FT-SE 100 has gained barely 1 per cent. P&D's large holdings of cash has also begun to be vindicated.

Manraj Ahluwalia, P&D's director of investment strategy, said that the success of the last seven weeks had made up for about a third of the group's under-performance in the last three years. "We think that the valuation of these small companies is compelling," he said. "Large companies continue to trade at a 55 per cent premium to small ones."

P&D has also invested successfully in oil companies like Shell, Enterprise and Lasmo. Its decision to remain underweight in the pharmaceutical sector has paid off. Some of its long-term bets - Mirror Group and Allied Domecq - have also come good.

In the first quarter of 1999, P&D's Managed Exempt Fund increased by just 3.2 per cent compared with a median industry average of 5.5 per cent. P&D's performance was eclipsed by rivals Gartmore, which gained 6.6 per cent, Mercury Asset Management, up 5.3 per cent, and Schroders, up 4.9 per cent.