The Investment Column: M&G's crown slips askew

M&G once had a claim to be described as the Marks & Spencer of the retail savings industry. But unlike the retailer, M&G's crown has been slipping a little of late. On the face of it, yesterday's 18 per cent rise in interim profits to pounds 31.2m for the six months to March was respectable enough and M&G's shares dipped just 8p to pounds 11.96. Gross sales of unit and investment trusts soared by pounds 161m, or 41 per cent, to pounds 558m in the period, helping M&G retain its position as market leader in the sector. But maintaining this leading role has been achieved at some cost. In January 1994, the group dropped the traditional "front-end" charge on its key PEP products to revive flagging sales.

That has clearly had the desired effect, although M&G had a following wind from a booming stock market and a buoyant unit and investment trust market. It also had the benefit in the latest six months of the launch of the M&G Equity Investment Trust, which pulled in pounds 156m of new funds, including pounds 131m in Peps.

In all, funds under management were 25 per cent higher at pounds 15.3bn over the past year, which looks impressive until you compare it against rivals. Perpetual has seen funds grow by a massive 60 per cent a year over the past five, admittedly from a low base.

M&G has done well with its unsung institutional fund management side, which added pounds 355m of new money in the six months and now represents well over a third of the total. Early signs of the long-awaited recovery in life and pensions is also good news.

But M&G faces a number of problems. Margins are clearly increasingly under pressure, the performance of its funds has been less than sparkling and, perhaps most seriously, a flood of retail money into unit trusts is usually a sure sign of the end of a bull market. Pre-exceptional profits of pounds 73m this year would put the shares on a forward rating of 18. High enough.