The Investment Column: Gloom lifts for M&G

The Investment Column: Gloom lifts for M&G

AFTER a gloomy few years, there might finally be light at the end of the tunnel for M&G, the fund management group.

Eighteen months ago, it began to suffer a haemorrhaging of funds as its investment performance came under fierce attack. The problem was M&G's distinctive identity as a "value" investor. Its strategy of picking small- cap, high-yielding stocks which it believed had strong earnings potential proved to be flawed.

After hundreds of millions of pounds poured out, Michael McLintock was brought in as chief executive and senior management was largely replaced. Stock-picking methods were broadened, and its flagship funds were transformed from some of the worst performing to some of the best.

Unfortunately, independent financial advisers, who bring M&G a large chunk of its new business, tend to judge investment performance over three or five years. On that timescale, its performance record is still tarnished. In the six months to 31 March, the value of PEP investments cashed in rose by 10 per cent to over pounds 100m.

In the middle of a PEP bonanza for other fund managers, this was a cruel verdict on M&G. But investing in smaller companies is now back in vogue and M&G will be well placed when the government launches its individual savings accounts next year.

Profits in the six months to 31 March rose to pounds 38.1m and analysts forecast current-year earnings of pounds 77m.

Takeover speculation has forced up M&G's shares in recent months although they slipped 12.5p to 1862.5p yesterday, putting them on a forward p/e of 26. Despite the better prospects that does not look cheap, given that Mercury Asset Management was sold for a lower multiple. Hold.