The Fund Manager: From the daily numbers game to the bigger picture

Mark Bannister became a fund manager through traditional accountancy training. But the numbers game could not hold his interest. "After leaving university, I joined Coopers and Lybrand as a trainee accountant," he says. "But almost on my first day I realised I didn't fancy being an auditor so I started looking around for something more exciting. After a year, I moved to the WH Smith pension fund.

Mark Bannister became a fund manager through traditional accountancy training. But the numbers game could not hold his interest. "After leaving university, I joined Coopers and Lybrand as a trainee accountant," he says. "But almost on my first day I realised I didn't fancy being an auditor so I started looking around for something more exciting. After a year, I moved to the WH Smith pension fund.

"We were managing £500m, large for an in-house pension fund and it was just me and the fund manager, so I got to do a lot. One of the advantages of being part of a two-man team is that you get promoted rapidly. I started as an analyst and three and a half years later I was running a smaller-companies portfolio and the fund's European stocks.

"Then there was a new chief executive who decided to get rid of the non-core activities, and in-house pension fund management was clearly a non-core activity. So I saw the writing on the wall and decided to leave. About a year later, management of the pension fund was outsourced."

He joined insurance group United Friendly as an assistant portfolio manager. "I was part of a six-man team looking at the UK and I had six sectors to cover. After 18 months, I was given my first general insurance fund, linked to the group's car insurance business. I ran it for two years, until the company decided to leave the car insurance market and it was wound down. But its performance was good, largely because it was more concentrated than other life and pensions funds. I had 120 holdings, compared to 200 or more."

Mr Bannister has been working for the same firm since, although the business has expanded through mergers and acquisitions involving, first Refuge Assurance and then the group being absorbed into another assurer, Royal London. Most recently, Royal London has acquired Scottish life and is bringing the businesses together.

The net result has been the rapid expansion of the Royal London investment team and the amount of money it manages. "We have 11 equity specialists, and each have several responsibilities. For example, I cover oils and telecoms, but I am also responsible for running the Royal London UK Equity Growth unit trust and the Scottish Life UK Growth unit trust. I also run the Refuge Assurance Special Situations Life Fund, which I have managed since October 1998."

With its outstanding performance record, the latter fund has built Mr Bannister's reputation. Growth over the 10 years to the end of December 2000 was 629.59 per cent. Although it is not available to new investors, Royal London is trying to restructure the life fund as a unit trust.

"When I took over the Refuge fund it was very small, around £8m, and I was given complete discretion in managing the portfolio, because it is the only higher-risk fund we run. The portfolio is concentrated with 35 to 50 stocks, and I am not tied to a specific type of company or size of market capitalisation. I am investing the portfolio across the 50 or so companies in what I regard as the best proportions.

"There are high risks involved, and we hold large stakes in many of these companies. But this approach is purely for this Special Situations fund and although it has an excellent long-term record, it is volatile in the short term. For example, during last year the return was positive by about 12 per cent, but it was a rollercoaster year.

He said that with a unit-linked life fund "you don't have the same limits and restrictions as when you are running a unit trust: to an extent you have to make your own limits. For example, I've got a large holding in cash, 10 per cent, the largest it will ever get." He said there were several compelling growth stories. "What I am looking for are businesses that can grow profits, grow earnings and grow market share at above-market-average rates. A lot of the best of those are in the small- and mid-cap sectors of the market.

"One of my favourite stocks is Yeoman Group, a location-based services company, which was initially focused on providing marine navigation systems. Then it announced its intention of getting into information delivery via mobile telephony. I got into the stock at about £1, before it announced its intention of delivering wireless telephony services. That was the best-performing share of last year and we still have a large holding in it. Just on a sum-of-the-parts valuation, Yeoman still has strong growth prospects.

"I also have a large stake in Online Classics, an internet company I think is among the best-value stocks on the market. It is capitalised at £6m, but has around £6m of cash and also has an internet product which is valued at a further £6m, which does not take into account its access to musical content. I see this as a compelling value opportunity because we believe it should be capitalised at £15m to £20m."

He emphasises individual stock selection in his fund management style. "Take biotechnology. That is an area with a lot of growth products, but the problem with investing in the sector is that vastly more new drugs fail than succeed. At present, I like the look of Oxford Biomedica, because it has encouraging data and results to come out. We also like Zenith, which is basically a pharmaceutical company that already has five drugs on the market."

FUNDAMENTAL FACTS

Fund manager: Mark Bannister

Age: 32

Fund: Royal London UK Equity Growth

Size of fund: £271.64m

Fund launched: June 1981

Manager of fund: Since July 2000

Current yield: 0.43%

Initial charge: 5.25%

Annual charge: 0.50%

Current bid/offer spread: 5.07%

Minimum investment: £5,000 (subsequently £500)

Minimum monthly savings: n/a

Standard & Poor's Rating (maximum ***** ): ***

Fund performance to 21 May 2001 (offer-to-bid, with net income reinvested):

One year -11.72%

Two years -5.86%

Three years -0.06%

Five years 51.00%

Seven years 95.72%

Ten years 176.43%

Source : Standard & Poor's