The Investmnet Column: Perpetual's slip

Shares in Perpetual, one-time darling of the fund management sector, fell 5.5 per cent yesterday after the firm revealed it had been battered by disappointing investment performance and the introduction of Individual Savings Accounts (ISAs).

Pre-tax profits tumbled by 11 per cent to pounds 30.2m in the six months to 31 March, and the shares slipped from 3,602.5p to 3,405p. The interim dividend will be held at 37p.

Martyn Arbib, Perpetual's chairman and founder, said a short period of poor investment performance last year had disappointed the independent financial advisers who bring in most of Perpetual's business.

Perpetual stepped up spending on marketing in an effort to exploit the end of PEPs, hoping to mitigate a strong trend to investing in cheaper, index-tracking funds. But the net inflow of funds to the group was just pounds 78m. Perpetual typically attracts at least pounds 500m. It failed to capitalise on the lucrative closing sale for PEPs, which ended on 5 April. Mr Arbib blamed investor confusion over ISAs.

Active fund managers have sharply underperformed the index in recent months, and large pension schemes such as the BBC's are ploughing money into trackers. But if active fund managers begin to outperform the index again this may prove just a fad. Meanwhile, the poor performance at Perpetual, partly caused by over-investment in financial stocks, has begun to turn, notably in the group's flagship High Income fund.

Perpetual has unquestioned management expertise and a strong brand. If the public gets turned on by ISAs it is likely to be one of the firms to benefit.

CSFB expects full-year earnings of pounds 66.5m; the group is on a modest p/e of 22. But there are still too many "ifs" to make this stock a buy.