Newton gravitates to the top: William Gleeson assesses the fortunes of British pension fund managers in 1993

THE clear winner of the Independent's 1993 league of pension fund managers was Newton Asset Management.

It comfortably outperformed its rivals, including the 1992 victor, Gartmore, which was pushed down to 11th position. Runners-up to Newton were Fidelity Investments and M&G, the latter making it into the top three for the second year running. The wooden spoon went to troubled Invesco.

Last year was a phenomenal one for all fund managers. Even this year's worst performers show big returns. But what distinguishes the good fund managers from the rest is their ability to outperform the market.

The table covers balanced discretionary UK funds, rather than indexed or specialist funds, using a weighted average return for all such funds under management.

Funds' performances are shown with and without property, because of the long cycles on which property investment performance needs to be measured.

According to the annual General Report of Combined Actuarial Performance Services (CAPS), a firm of independent investment performance measurers, the median return for all funds in 1993, including property, was 29.2 per cent.

UK equities showed an average increase of 28.5 per cent, while UK bonds and index-linked gilts produced returns of 26.3 per cent and 22.3 per cent respectively.

Given these levels of growth in the markets, any fund manager failing to produce returns of at least 30 per cent in 1993 was underperforming.

Guy Bowles, a director of Newton Fund Managers, attributes his company's success to being overweight in the overseas equity markets, which did considerably better than the UK stock market.

'We were overweight in Europe and South-east Asia, excluding Japan which was not a good performer last year.'

In South-east Asia, where markets such as Thailand, Hong Kong, Singapore and Malaysia showed an average increase of 94 per cent, Newton achieved a return of 124 per cent.

'Given that we are entirely London-based, we have confounded those cynics who say you need offices overseas to outperform the markets there,' Mr Bowles says.

'Falling interest rates and the lowering of inflationary expectations meant that longer-dated bonds did significantly better than shorter-dated bonds. We were overweight in the long end.'

The strategy of being overweight in South-east Asia appears to be common to the good performers. Mark Henderson, a pension fund investment manager with fifth placed Clerical Medical, said it was important to differentiate investment strategy from competing funds. 'Your underlying investment philosophy has got be different from the competition,' he says.

'We research industry-wide investment policies to find out the average proportion of funds invested in each sector by pension funds. We will then add or subtract up to 10 percentage points to or from the average for each sector to give us more or less exposure, depending on whether we feel positive or negative about the sector.'

Gartmore's David Watts says his company fell from its perch as league leader last year due to the 'swings and roundabouts' that always affect the market.

'We have a consistent approach and there are going to be years when we don't do so well,' he says. 'The market turned on a postage stamp last year. We feel very happy about our five-year performance.'

Gartmore's five-year performance is second only to Newton's, whose five-year performance was given a considerable boost by its 1993's returns. 'The cost of moving a portfolio about in response to every turn in the market would be horrendous,' Mr Watts adds.

Invesco's Adam Cooke, a director of pension funds, attributes its poor performance to having been in the wrong place at the wrong time. 'We had a large number of FT-SE 100 and smaller company stocks and not so many in the mid-250 range, which we thought were over- priced,' he says. 'But this was the sector that did very well in the UK.'

Mr Cooke believes FT-SE 100 companies have a better ability to sustain dividend increases over the years. 'Most of our pension funds are mature and need to make income to make payments to pensioners,' he says.

Invesco's funds under management fell considerably during 1993. 'The prime reason for this is the pounds 750,000 IMRO fine for administrative inadequacies not connected to the pension fund business,' Mr Cooke says.

But big gains in new business were experienced by Schroders, Clerical Medical, PDFM and Gartmore. Mr Watts claims Gartmore's new business was worth more than pounds 3bn in 1993.

'The previous year's performance may have had some marginal impact on new business, but more importantly there has been a tremendous concentration of new business in the hands of managers in which clients have faith,' he says.

Last year's big returns will not be repeated this year. According to CAPS, the value of funds fell an average of 4 per cent in the first quarter of 1994. The main causes have been the fall in the bond market and the UK stock market.

Hopes for recovery lie with the Japanese stock market. Fund managers believe Japan is past the worst and predict its economy and markets will grow during 1994.

Baillie Gifford refused to disclose performance data, as did Mercury Asset Management which said: 'We manage many funds . . . so it would be misleading to our clients to represent our performance by a single figure.'

Legal & General refused to offer performance figures, saying: 'An increasing proportion of our pension fund business is indexed.'

(Photograph and table omitted)