A teenage obsession that turned to profits

Many managers begin their careers almost by accident but Glen Pratt was fascinated by the stock market when he was 15 and started reading the Financial Times to find out more.

Many managers begin their careers almost by accident but Glen Pratt was fascinated by the stock market when he was 15 and started reading the Financial Times to find out more.

Today he is manager of the recently renamed Fidelity UK Aggressive Fund (formerly Fidelity Recovery) and is one of those rare individuals who planned his academic career with a future in fund management very much in mind.

"I joined Fidelity straight from Nottingham University, where I studied economics and econometrics, which is basically mathematics applied to economics. I had started following share price movements while I was at school and chose my A Level subjects - maths, business studies and economics - and a degree that would help me get a career in picking stocks."

Mr Pratt's interest in the stock market had been fuelled by what had happened during the crash of October 1987. "I was 15 when the crash happened and I started wondering what had caused it and looking at the reasons why shares move up and down.

"I started reading the Financial Times and The Economist, and from the age of about 16 I was tracking share prices with the help of a computer program."

He joined Fidelity as a trainee analyst. "I spent five years on the research team covering several sectors - insurance, transport, tobacco, paper & packaging and so on.

"Then, in the summer of 1998, I was chosen to run money, taking over the management of Fidelity Recovery, which had been going through a bad patch. I spent three months alongside the existing manager then formally took over on 1 October 1998."

The investment focus of the fund has changed significantly during his management, and it was renamed Fidelity UK Aggressive, because the type of shares it concentrated on when the fund was launched no longer appear as attractive. "The fund was set up in November 1987, immediately after the crash, with a brief to invest in bombed-out stocks," says Mr Pratt. "It looked at stocks whose prices had fallen by a set percentage, on the basis that they would now be undervalued.

"The problem with running such a fund is that it is something of a poisoned chalice. It means you are tending to invest in sectors which themselves are steadily going down over time - engineers, chemicals, housebuilders and the like.

"The fund was very volatile. It did very well when the economy was booming and interest rates were falling, but not so well when rates were going up. It was either in the top 25 per cent for performance or the bottom 25 per cent, the net result being that it had average performance with above-average volatility and that was not a profile I was happy with."

Mr Pratt's first move was to broaden the fund's definition of the word "recovery". "I took it to mean not just a recovery in the share price, but a recovery in income or in earnings or in profits or even in the health of the chairman. I also felt we should take a more active look at what we were doing, concentrating in picking the right individual companies.

"So the fund now has a maximum limit of 5 per cent underweight or overweight for any sector relative to the market, and within that we try to pick the best stocks."

Fidelity Investments is a research-based investment house with a large team of in-house analysts. Mr Pratt says: "We have 45 analysts researching companies daily. They should be able to pick the good companies over the rest, but they may not be so good at picking, say, telecoms over pharmaceuticals.

"I conduct between 15 and 20 company meetings every week and every time I meet managements there are four questions I ask.

"I want to try to establish whether there will be a positive surprise on earnings or newsflow, which is what we are looking for. I am not going to buy something just because it is cheap and has always been cheap. I want to see something specific that is going to move the share price within a year.

"These questions are: 'Is our earnings forecast for the company above or below the consensus?'; 'Is there an upward trend in earnings momentum?'; 'Is the share cheap, relative to either its peer group or the market as a whole?',and 'What is going to move the share price in the next 12 months?'.

"You will end up with a portfolio that contains some of the biggest stocks in the market, but not all. For example, we will have exposure to telecoms but we will buy Vodafone rather than BT, or in oils we will buy BP and not Shell.

"We will look at whether we want to be under- or overweight in a sector then try to buy the best to represent that weighting."

The result is a portfolio where major blue chips sit alongside smaller growth stocks. Vodafone (5.5 per cent) and BP Amoco (4.5) are the largest holdings, followed by Sterling Publishing (3.2), Cedardata (3), Royal Bank of Scotland (3), Robotic Technology Systems (2.6) and De La Rue (2.5).

Mr Pratt says: "By last Christmas, I was still in a situation where there were stocks I wanted to buy but couldn't because of the restrictions placed on the fund.

"I wanted to buy any stocks of any size from anywhere in the UK market, so from the beginning of January that is what I have been doing and the word 'recovery' is no longer applicable. We chose to call it 'Aggressive' to emphasise that it is a simple stockpicking fund that doesn't follow a particular style.

"It is not a 'growth' fund, 'value' fund or a 'momentum' fund or a 'contrarian' fund, simply a portfolio of our best ideas."