Are professional fund managers any better at picking winning stocks? If the recent performance of our Share Challenge competitors is anything to go by, the answer is a resounding "no".
After 14 weeks of our share-picking competition, expert fund manager Colin McLean, chief executive of SVM Asset Management, has managed to rack up losses of 25.4 per cent. The Bucket & Spade investment club is holding the lead, with a 4.6 per cent overall loss, closely followed by the 16-year-old girls from Moat Community College, who are down 6.1 per cent. However, none of the teams has managed to keep pace with the FTSE All Share index, which is down 1.9 per cent over the same time period.
The teams each started with a notional £5,000, but the sideways stock market has made prudent stock picking even more difficult and profits remain as elusive as ever.
McLean has suffered the most damage. His 25 per cent drop has already wiped £1,270 off his initial £5,000 notional portfolio. The professional is now trailing the amateurs by more than 20 per cent.
"My portfolio has clearly taken a turn for the worse," admits McLean humbly; he has been hit hard by the recent downturn in his natural resources stocks. First Calgary Petroleums, the Alternative Investment Market-listed oil company, is McLean's poorest performer. The share, which accounts for nearly a quarter of the expert's competition portfolio, has fallen 50 per cent since he invested and is now trading at 435p.
Despite the tumble, McLean remains bullish. "First Calgary is currently in a development phase and the real value lies in its untapped acreage," he says. "It needs money to complete this exploration and to develop its existing finds, which are beyond its own resources right now. The same risks and potential apply to other oil companies who are at similar stages in their growth, but I believe First Calgary has been harshly treated by the market."
Investor anxiety with Aim-listed shares has intensified the stock's drop, but McLean still thinks there is more upside than downside ahead. "The company is currently in discussions with potential partners and if it can find the financing it needs I believe the share price could exceed £10," he says.
McLean has his work cut out if he plans on climbing his way back to the top and winning the £2,000 cash prize by the end of the competition.
Meanwhile, the Bourne-mouth-based Bucket & Spade investment club is holding on to the lead and continues to fight off any further losses. David Lawrence, the club's chairman, agrees that it has been a frustrating period for investors; however, he says he is optimistic that the team is on track to repair its 5 per cent hole with the addition of several new defensive stocks.
He says: "We've basically followed the general downturn in the market since mid-April, and we've had to sell some shares to stabilize our position and avoid any serious losses.
"We are now beginning to emerge with some strong performers, including Synergy Healthcare, and we've added some new defensive holdings like Cattles [the debt recovery business] and Kelda [the water utility]."
The group operates a strict stop-loss policy, which led them to sell out of McCarthy & Stone last month, after shares in the building company dropped more than 10 per cent below the purchase price.
The team took a small hit and sold out at 565p, after which the share continued to slide to 518p. "Using stop-losses in our competition and club portfolios has been to our benefit," explains Lawrence. "With McCarthy & Stone, we opted to take an acceptable loss rather than follow a falling share down even further."
The most improved performance over the past month has come from the all-girls student team, which is currently in second place behind the investment club. The 16-year-old business studies pupils from Moat Community College, in Leicester, who had never traded shares prior to taking part in the competition, have managed to stem their dud shares and turn around their portfolio.
With the exception of supermarket group Somerfield, all of the team's holdings are turning a profit. Recent punts in consumer goods makers have proved solid earners, with Allied Domecq, the spirits company, and Cadbury Schweppes, the chocolate and beverage maker, both top performers.
Shares in Cadbury have been rising steadily since the girls bought into the confectioner in March, despite a recent softening at the end of May. The shares hit a high of 567p last month, after Cadbury announced it was expanding its plant in Bournville, south of Birmingham, to meet increasing demand for its Dairy Milk products.
The company has also added Green & Black's, the organic chocolate business, to its stable of brands.
"With Cadbury, the girls have learnt to stay with shares they have researched and feel will perform," says Claire Jackson, the team's teacher. "They are now more confident in their own judgements and they are not trading as often as they were when they first started out."
McLean, the fund manager, adds: "The pupils have done well to pick a range of defensive shares that continue to perform. Many defensives, including food businesses and utilities, are reaching multi-year highs and I expect investors to continue to move towards them, and out of some riskier sectors such as banks."
Defensives shares make up a large portion of the portfolios that McLean manages professionally at his firm, including the SVM Select Opportunities Fund, which is up 20 per cent over the past 12 months.
However, it's still early days in the Share Challenge, and only time will tell which team will bank the most profits and come out winning. One thing's for sure: the amateurs are just as good at picking winning stocks, and there is no doubt they are going to give our fund manager a run for his money.
To be able to see real-time updates on the Independent Share Challenge, or to start your own virtual competition, you can log on to http://www.bullbearings.co.uk/independent/.
Abbey Sharedealing, the discount broker, is sponsoring the Independent Share Challenge. For information on Abbey's new low-cost dealing accounts, visit http://www.abbeysharedealing.com or call 0800 389 2324.
To find out how to set up and run an investment club and earn while you learn, you can visit the website http://www.proshareclubs.co.uk or telephone 0906 802 2222.Reuse content