The heavyweights slug it out over your savings

Alison Eadie looks at the performance and investment philosophy at the institutions which pull in the big money

The PEP selling season is reaching its annual crescendo, and indications are that it has been a good one. M&G, Schroders and Perpetual, three of the largest unit and investment trust pep providers, have pulled in impressive sums of money with their new issues.

Fidelity, another heavy-hitter, has repackaged three existing unit trusts into the Triple Performance PEP for investors wanting some overseas exposure. All four houses have played to their strengths, launching issues based on existing flagship funds with strong performance records and managed by star fund managers. The performance message has been backed by hefty advertising and promotional budgets, although no larger than usual for the time of year. Perpetual this year experimented with billboards for the first time.

While nobody disputes the power of advertising there has to be something worth selling. Advertising cuts less ice with independent financial advisers whose recommendations sell many PEP plans. The better ones carefully monitor fund management groups and switch clients out of funds they no longer believe are up to scratch.

David Mossop, chief executive of Perpetual, says, We got to where we are today through investment performance. That is what we hang our hat on."

Perpetual does not have a fixed investment philosophy, but embraces a cross section of beliefs and adapts with the times, he says. He adds that Perpetual's ability to offer good service as a result of heavy spending on information technology is also important.

Track record is the recurrent theme. Bridget Cleverly, assistant director of Schroder Investment Management, says, "The overriding reason why we are big, is because of our outstanding performance record in the UK." Schroders with pounds 9.7bn under management has recently overtaken M&G as the largest UK unit trust house.

M&G, the UK's largest pep provider and oldest unit trust house, has an investment philosophy which emphasises the long term. Roger Jennings, marketing manager, says consistent out performance of stock market indices by the flagship Recovery Fund and Dividend Fund unit trusts over 10 and more years is very important to M&G.

Demonstrating performance can boost smaller fund managers into the big league quite quickly. Morgan Grenfell does not figure among the top 10 PEP providers, but is taking in new money fast. The reason has much to do with its top performing European unit trusts - European Growth and Europa - and its UK Equity Income unit trust, a consistent top 10 performer in its category. Julia Eynon, marketing manager, explains the investment philosophy as a stock-picking approach that "wears out the shoe leather" in company visits. "We choose companies with the best potential," she explains.

The other big providers are high street banks, which sell through branches rather than direct advertising or independent advisers.

Paul Ashby, marketing manager at Barclays Unicorn, the unit trust business of Barclays Bank, says: "Our brand is a big factor for first time buyers. Investors who have not heard of Perpetual or Schroders will come to us."

That dictates investment philosophy, which is not to take big risks and not to develop specialised funds. Unicorn's flagship General Trust is, as its name suggests, a big broadly-based trust reflecting the stock market and aimed at people investing in equities for the first time.Its other top seller is the Gilt and Fixed Interest Income Trust, a 15-year-old trust which fits into the new corporate bond PEP category. Barclays now counts itself the biggest in the market for corporate bond PEPs with pounds 130m under management. Mr Ashby points out that the Gilt Trust also wins awards for performance and as a result has given Unicorn a foothold in the IFA market.

Lloyds Bank's self-select PEP is its flagship product with pounds 786m invested. Derek Booker, a senior PEPs manager, says Lloyds is the biggest provider of self-select PEPs and offers competitive pricing and low cost switching. Its unit trust PEPs are positioned for steady growth rather than high performance.

With caution in mind, Lloyds this month launched its Millennium Fund, a capital-protected PEP. It will invest in FT-SE 350 companies and on its fifth anniversary will pay back the guaranteed original investment plus the intervening stock market growth. Debbie Gorski, marketing director of Black Horse Financial Services, says, "In the past, some people may have been put off PEPs by the risks to their capital of investing in the stockmarket. The Millennium Fund offers the growth potential of the stock market, together with the reassurance that if customers hold the investment until 14 June 2001 and encash on that date, they will get back at least their original investment."

Although the big are getting bigger, size is not everything in the PEPs market. Recent entrants like Virgin and Marks & Spencer prove that investors are happy to give money to groups which made their reputations in areas other than financial services. Virgin is snapping at the heels of long established fund managers with pounds 174m already in its tracker and corporate bond peps. It has pinned its colours to the mast of low charges, whereas M&S has gone the route of guaranteeing a return of capital on the fifth anniversary. Like the banks, M&S is selling through its stores.

Catching investors and keeping them is the name of the PEPs game. Repeat business is crucial. Both Schroders and M&G estimate that a good half of subscribers for their latest issues were previous and clearly satisfied customers.

Large and growing providers

Total PEP funds

M&G pounds 2.3bn Perpetual pounds 2.0bn Barclays pounds 2.0bn Lloyds pounds 1.5bn Fidelity* pounds l.0bn TSB pounds 859m Schroders pounds 828m Virgin pounds 174m

*Excludes self-select PEPs held by Fidelity Brokerage

Source: company estimates