The fall and rise of Phillips & Drew

LESS than two years after being the object of ridicule in the City, Phillips & Drew is set to be confirmed as the country's most successful major fund manager.

When the latest performance league tables are published on Tuesday, P&D is confident it will be top of the pile, even though its strategy has hardly changed since the departure of Tony Dye, its influential former head of investments. He became known as Dr Doom for his pessimistic outlook on stock markets.

Paul Yates, now chief executive of the business, does not like to use words such as 'vindication'. But he makes no bones about the fact that P&D still believes in value investing.

He said: 'We're certainly one of the most humbled fund managers around and we've got a lot better at listening. But we have stuck true to our strategy of investing in stocks where we see intrinsic value.'

It was this tactic that saw P&D plunge to the bottom of investment league tables. It spurned the tech bubble and stuck to boring old-economy stocks while rivals were picking up every piece of dotcom or telecoms paper they could grab.

P&D's comparative performance was knocked for six and Dye, once regarded as one of the City's foremost investment gurus, was hounded out of his job. But only days after Dye quit, the tech bubble burst. Markets went into reverse and P&D's performance against its rivals began to rally.

Yates thinks it is unlikely that P&D's investment strategy will be tested for a long time by markets as polarised as they were two years ago.

P&D's investment managers are also encouraged to hold their nerve and run with winners for longer. Fifteen months ago, when most of the rest of the investment world had written off Marks & Spencer as a hopeless case, P&D dived in. It has ridden that company's massive outperformance ever since.

The firm has also avoided some of the spectacularly poor investments such as Colt Telecom, which have cost other fund managers dear. But P&D's phoenix-like rise in the Russell/Mellon Caps performance league has yet to translate into new business. The big pension funds that defected when times were tough may still send Yates Christmas cards, but their money has not, so far, followed their festive greetings.

Though the overall asset management business of Swiss owner UBS has about £262bn under its control, Yates will not say how much of that is controlled in London. 'We tried the patience of some of our clients and gave them a tough time. But UK business is starting to pick up and in recent days we've had a record number of new business inquiries,' he said.

'Our performance has surpassed everyone's expectations. But we've got to become better at getting our message across.'