We look basically at the price earnings ratios of companies trying to buy as cheaply as possible those with the greatest promise

“We look basically at the price earnings ratios of companies, trying to buy as cheaply as possible those with the greatest promise. “If you find a stock with a history of good returns, this is likely to continue,” explains Simon White of RCM Dresdner Kleinwort Benson. “It helps if the shares are underpriced, that they haven’t been spotted by the rest of the market.”In other words, “growth followers are after companies with above- average growth prospects,” says Bob Yerbury of Perpetual, a leading group using this investment theory. “Growth followers don’t mind paying a high price for a share, as long as that particular company’s earnings continue to grow,” says John Ross of Fidelity.Its followers believe that the long term value of any company’s share is solely determined by its future income stream.

After this, they would then switch to defensive stocks, such as food retailers, gainers when the screws were tightened.Managers with a growth investment policy ignore this search for value. These so-called cyclical stocks were typically industrial companies, usually medium sized or smaller.So when interest rates were near their high point in the cycle, sectors such as engineering fell out of favour, squeezed as they were by the high costs of borrowing and high rates of sterling, making their exports expensive.Value managers would buy these shares knowing that, when the government of the day took corrective measures, these stocks would come back into favour. Looking at it simplistically, value followers would seek to invest in companies whose shares were out of favour at the time, holding them for the next phase in the cycle. “So while looking for a low share price relative to a company’s prospects, we also look at the quality of the company.”For much of the post-war period, the UK has had a high inflation, high interest rate economy, with its boom-bust cycles.

And while the battle between them may appear to be over, this is because the leading value management groups, such as M&G and Fidelity, have refined their investment philosophies to suit today’s market conditions.
In fact, much of the poor performance of the recent past at M&G was seen by outside financial advisers to be a result of the group slavishly following its investment policy without adapting it to meet the changed economic environment.”We don’t just look for low valuations, it’s more sophisticated than that,” says John Hatherly of M&G. The division between the two styles, however, is a fundamental one. But nowadays, with the change to a low growth, low inflation economy, the growth followers have the upper hand. But what goes around comes around – and in this case it will be back in a different wrapper the day after PEPs are withdrawn.. In the past, active fund managers were divided into those who favoured growth stocks and those trying to find the greatest value. Alternatively, you can set up mini-ISAs, into which either pounds 3,000 can go into stocks and shares, pounds 1,000 into insurance products or pounds 1,000 into cash (pounds 3,000 in 1999/2000). Tessas will be scrapped, although you can still invest in one opened before 5 April.