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The Investment Column: Friends Ivory

FRIENDS IVORY & Sime's profits come from fees for investing other people's money in growth stocks. With 1999 the year of the cyclical stock, it's no wonder that chief executive Peter Jones is saying it has been a disappointing period.

Even though GDP growth is expected to continue around the globe, Mr Jones says Friends Ivory will retain its growth stock investment strategy. He expects rising interest rates to bring about an economic slowdown, which will see growth stocks outperform.

The founding merger and subsequent acquisition of London & Manchester muddies the reported numbers somewhat, but on pro-forma figures Mr Jones is delivering 10 per cent earnings growth. The group continues to hold market-leading positions in ethical investment and sees scope for new pensions business.

Friends Ivory will be hoping its excellent five-year investment record will continue to entice clients away from rival managers such as Aberdeen Asset Management and Edinburgh Fund Managers. Analysts expect it to post pre-tax profits of pounds 19m and earnings of 12.5p per share this year.

But investing in Friends Ivory on expectations of substantially increased revenue from management fees is perhaps misjudged. Friends Provident retains a majority stake in the business. It handed pounds 700m of fund management responsibility to Friends Ivory during the half-year - and is seen as the next possible demutualisation candidate.

That makes Friends Ivory's future rather unpredictable. Given the present turmoil within the UK financial services industry, the shares are best avoided.