The Fund Manager: The secrets of successful investment

NIGEL THOMAS is a relative rarity in unit trust management, because he has been running the same fund for more than a decade. "Only 3 per cent of UK fund managers have run their funds for more than 10 years, so I am part of an exclusive group," he says.

Nigel Thomas has been in fund management since he joined John Carrington's operation in 1979. He says: "I became a fund manager after failing to become a chartered accountant. I answered an ad in the FT. There were 350 applications and John gave me the job, so I must have had some aptitude for the task."

Mr Thomas has been running the portfolio of what is now the ABN AMRO UK Growth fund since it was launched in December 1986. It was originally set up by Carrington & Co, the independent management house, and called the Pembroke Growth Fund. In October 1996, the firm was acquired by the Dutch banking group ABN AMRO.

Apart from one brief period in the mid-Eighties, when he was part of the smaller companies team at Hill Samuel, Mr Thomas has been with the Carrington/ABN AMRO funds for two decades. Given his long period at the helm of the fund, it is not surprising he takes a broad approach to selecting investments. He says: "In the UK, things are not going to get better or worse, they just get different. For example, 15 years ago there was no such thing as Vodafone, and now it is one of the three or four biggest companies in the country."

The trust's brief is to generate capital growth from the UK market. Mr Thomas says: "I focus on growth companies in secular growth trends [those whose growth is not affected by short-term economic factors] and I ignore sector weightings [the proportion of the market accounted for by each sector]. Seventy-five per cent of the UK market is in the service sector, and if I don't want any steel or chemicals in the portfolio, I won't have them."

So the perceived growth sectors, such as telecoms, software and pharmaceuticals, have a prominent place in the trust's portfolio. Mr Thomas tries to keep the total number of holdings below 50. He says: "There are 43 holdings at present. I keep a tight list because I like to hold only companies I know well and I don't like to have a long `tail' I don't know. When I make an investment, 2 per cent of the fund goes into it, although, of course, growth can distort that over time."

The largest holding in the fund is transport stock Trafficmaster (7.5 per cent), followed by Vodafone Airtouch (5.5 per cent), Merchant Retail Group (3.8 per cent) and Whatman PLC (3.6 per cent). The remainder of the top 20 holdings, each of which account for 2 per cent or more of the total, include a selection of pharmaceutical stocks (Celltech and SmithKline Beecham) and Software and Computer Services stocks (RoyalBlue Group, DCS Group, Alphameric and Baltimore Technologies). The fund also holds the hardware company Videologic and representatives from other sectors such as Budgens (food retailing), Chloride Group (electronic and electrical equipment), BT (telecoms), International Greetings (packaging) and Clinton Cards (general retail).

There are no hard and fast rules governing the size of companies in the portfolio. Mr Thomas says: "In a perfect world, I would hold one- third FTSE stocks, one-third mid-cap and one-third small cap. It is not like that now, and probably never will be, but I will maintain a good mixture. You don't have to be in the FTSE all the time. If you track the index you cannot outperform the index."

In fact, out of the current 43 holdings, 15 are FTSE 100, 6 are in the FTSE 250, 19 are smaller listed companies and 3 are quoted on AIM. He says: "Small caps have been driving the portfolio recently. The most prominent is Whatman plc, which developed technology allowing transmission of DNA samples on paper, rather than in a test tube. It has performed well and is now the fourth largest holding in the portfolio."

Whatman is also a prime example of why Mr Thomas does not pay much attention to sector weightings. "It is still classified as an engineering stock, despite what has been driving it forward, which is why the engineering sector accounts for 12.1 per cent of the portfolio." This puts it just behind telecoms (12.4 per cent, but ahead of software and computer services (11.8 per cent ) and pharmaceuticals (9.9 per cent).

He adds: "I hate commodity stocks and I'm not very good at property shares. I believe investors should hold property directly. Also for the growth fund, I avoid cyclical stocks, oils, chemicals and the like. And I really don't like mining stocks - you are just paying for a hole in the ground."

Mr Thomas bases his selection on meetings with company managements. But he does not always get it right. "One of my biggest mistakes was Bowstead, which I held as a value investment in 1987. It had a lot of interests in the Far East and went from 32p to 15p. That taught me a lot about what value investing really means - you can buy something at 50p thinking it represents value and it can stay at 50p for a very long time."

He also cites a couple of other "learning experiences" during the mid- Nineties. "Banner Homes went from 221p to 131p. That taught me a lot about housebuilders and I also halved my money in Cassell Publishing, but the important thing is to cut your losses when you can. The secret to making money in the stock market is to lose the least when you get it wrong. I always make mistakes, it goes with the territory, but if you cut your losses early enough, you will keep the unitholders happy."

And the future seems to hold more of the same. He says: "I am 44 years old, I have my own money in the fund and I would like to carry on doing what I enjoy and establish a 20-year track record. You continually learn something from the market, and company managers have a great habit of surprising you."

The Fundamentals

Fund Manager: Nigel Thomas

Age: 44

Fund: ABN AMRO UK Growth

Size of Fund: pounds 71.92m

Launched: 1/12/1986

Manager of Fund Since: Launch

Minimum Investment: pounds 500 (subsequently pounds 100)

Minimum Monthly Savings: pounds 35

Standard & Poors' Micropal Rating (HHHHH maximum): HH

Fund performance (to 2 August 1999):

One Year 11.85%

Two Years 55.19%

Three Years 64.94%

Five Years 121.76%

Ten Years 346.31%

Current Yield: 0.66%

Initial Charge: 5.0%

Annual Charge: 1.25%

Current Bid/Offer Spread: 6.0%