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Man Group joined a London market rally on Monday as the FTSE 100 put in its best performance in a month.
Shares in the hedge fund manager rebounded from its lowest since May after Shore Capital dismissed concerns that Man’s benchmark AHL futures fund is broken.
AHL last year reported its first annual loss due to the effects of quantitative easing, which damped the market trends that the fund would usually ride, Shore said.
Investors are remaining confident that, once stimulus packages have wound down, the performance will recover, it added.
The broker also argued that, while new customers will be put off by AHL’s losses, existing ones are likely to add to funds in the hope of mean reversion.
“There can be no guarantees that AHL’s negative performance will end tomorrow but we do detect a belief from AHL that the investment environment will better suit their clean clear managed futures model in 2010 than it did in 2009,” analyst Phil Dobbin said.
Man shares closed higher by 3 per cent to 244¼p with the move also helped by some speculative theories.
One story doing the rounds was that Man might consider bidding for a rival UK hedge fund such as Marshall Wace.
After an uncertain start, the FTSE 100 followed Wall Street to close up 1.1 per cent at 5,247.41, a gain of 58.89 points.
The rally was powered by recent underperformers such as Barclays, up 4.3 per cent to 282¼p, and Royal Bank of Scotland, ahead 7.9 per cent to 34¾p.
Insurers found support after the European regulator published late on Friday a feedback document that eased some of its previously proposed capital requirements.
Legal & General was the main beneficiary, rising 3.8 per cent to 77¾p.
Break-up speculation helped Vedanta Resources gain 5.2 per cent to £25.53 with the Indian mining group said to be looking at spinning off its copper and aluminium subsidiaries.
Utilities jumped after a press report revived hopes that Northumbrian Water could face a bid from its biggest shareholder, Ontario Teachers.
Neither group would comment and analysts were cautious of the story.
Nevertheless, traders were encouraged by a suggested 325p-a-share price- tag, which would value Northumbrian at about a 13 per cent premium to its regulatory asset base compared with a sector trading at about par value.
Northumbrian closed up 11.8 per cent to 289p. Severn Trent rose 4 per cent to £11.70 in tandem while United Utilities added 2.8 per cent to 551½p and Pennon rose 5 per cent to 540p.
Better-than-expected earnings from Ryanair helped lift British Airways, which reports on Friday, by 3.3 per cent to 213p.
Its shares were also aided by Goldman Sachs “buy” advice. The broker argued that BA’s merger with Iberia may be completed ahead of schedule and should come with deep job cuts on both sides.
Retail stocks found support amid gossip about potential buy-out fund interest in the sector.
Home Retail Group, one name linked to the tale, was up 2.2 per cent to 261½p.
Schroders led the blue-chip fallers, down 2.8 per cent to £12.11, after Credit Suisse downgraded to “neutral” and forecast a near halving of fourth-quarter fund inflows.
Among the mid-caps, Cranswick gained 2.6 per cent to 755p after the pork supplier reported better- than-expected sales. There was also positive trading news from SThree, the recruitment agency, which added 2.5 per cent to 312½p.
Close Brothers was up 2.4 per cent to 709p following a press report that Nomura might bid £500m for its Winterflood market-making business. But Close management told investors that there had been no approach and people familiar with Nomura played down suggestions that the bank was interested.
Chaucer added 0.5 per cent to 46p on renewed rumours that it was a potential target for fellow Lloyds insurer Ascot Underwriting. Analysts cautioned that such a deal might be classed a reverse takeover.