Share race: Expert leaves pupils in his wake
Five months into the race, the fund manager leads the pack, says James Daley
Saturday 28 June 2008
Almost five months into this year's Share Race, and it's the professional fund manager – Colin McLean of SVM Asset Management – who is out in front, leaving the students and the investment club fighting it out for second place, having already lost 13 and 15 per cent of their portfolios respectively.
McLean is now building up a commanding lead. While he too has made an overall loss, his portfolio was down just £75 (out of £5,000) – or 1.5 per cent this week. Since the competition started in February, however, the FTSE All-Share index is down more than 5.5 per cent.
The students, from Leicester's Moat Community College, and the investment club, from the UK's biggest lime producer Singleton Birch – have had a torrid couple of months since we last looked at their progress. But with seven months to go until the conclusion of the contest, neither team is yet out of contention.
Since we last looked at the teams' progress in April, McLean has had some mixed fortunes in his portfolio. Of the five holdings he had in the spring, there's only one left – BG Group – and this is showing a relatively healthy profit of 8 per cent. However, the rest of the portfolio has been turned over several times, as McLean has gone in search of defensive stocks that can deliver steady returns in the continued difficult conditions.
"I'd like the portfolio to be reasonably defensive, but at the moment, there's not much out there that is defensive," he says.
The portfolio's biggest winner has been Tullow Oil, which was added to his portfolio in the middle of April, since when it is up more than 40 per cent. "Tullow's been a big winner," he says. "It's had some drilling success in Uganda, and it's potentially got a very large field. So it should have encouraging news flow for the remainder of the year."
Although he admits the rising oil price has helped the share price along, he does not believe oil prices need to go any higher for Tullow to continue prospering.
Another new addition to the portfolio in April, British Energy is also showing a small profit, but the other two slots have proved harder to fill.
After two attempts to make money out of the tobacco industry, McLean has cut his losses and moved on. Investments in Imperial Tobacco and then British American Tobacco cost the portfolio more than £100. While he was attracted to these due to their potential growth in emerging markets, renewed fears about the global slowdown spreading through Latin America and Asia have taken their toll on the tobacco share prices. He also blames fear over the stability of emerging markets for the losses sustained on another new holding – the consumer group Unilever, which lost the portfolio more than £100 in just over three weeks earlier this month.
One of the portfolio's original holdings Randgold Resources was also sold at a hefty loss in May, making way for Pennon, the water company. Another new addition is the public transport company FirstGroup, which McLean believes will benefit from the rise in oil prices, as more people substitute buses and trains for their cars.
Back in April, the students at Moat Community College in Leicester were narrowly winning our contest. They'd made their money in oil and engineering stocks, and had shown a good selling discipline when companies in their portfolio had begun to perform badly. Alas, the last three months have proved much tougher, and while they're still beating the investment club, they're a long way behind the fund manager, Colin McLean.
After cashing in profits in the engineering group Costain – which helped build the St Pancras Eurostar terminal – and Aquarius Platinum in April, as well as crystallising a £50 loss in BAE Systems, they started moving into leisure stocks, with PartyGaming, the online poker site. Alas, a computer error showed them to have made an enormous profit on this investment, and teacher Claire Jackson admits her students had begun bragging about what they were going to spend their winnings on, now victory in the competition was all but certain. When the mistake was corrected, the team was devastated.
In the end, they made a small profit on Partygaming, but carried on with their leisure theme, recently investing in Cineworld, the cinema chain, and easyJet, the budget airline.
Shahid Sattar, one of the students, says many of his ideas have come from doing research on the BBC website. But he says the group's decision to go for a cinema stock was born out of slightly different reasoning. "We think during a recession, people will go to the cinema to cheer themselves up." He also believes people are more likely to go for the budget airlines when times are tough.
Unfortunately, easyJet's share price – like all airlines – has been hammered by the rising oil prices, and the group has made a loss of £250. But they're hanging on to it for now.
Dragon Oil and Costain – two early success stories – have both recently been re-recruited to the portfolio, but this time round have only added small losses to it.
While the students may be 14 percentage points behind the fund manager, they are not out of the race yet.
The investment club was trailing the students and fund manager by a long way in April, and has done little since to improve its position. Dismayed by its ailing fortunes during the first two months, the club split up into pairs, each of which would be responsible for managing the portfolio for a month.
In April, the pair in charge turned over the entire portfolio, selling out of Anglo American, Balfour Beatty, Rio Tinto, Hamworthy and Barclays at a small profit, and replacing them with Centrica, Tesco and Albidion. A quick profit of £141 was turned on Albidion, which was duly sold in May, when Alliance & Leicester and Xstrata were brought in.
Although Rentokil has proved a good buy, and Centrica has just about kept its head above water, Tesco's shares have slumped over fears of a consumer slowdown, and shares in Alliance & Leicester have fallen by more than 25 per cent.
Ellen Rainey, the investment club's treasurer, says she plans to make some changes this week. "Tesco definitely needs to go. And Alliance & Leicester, I don't think that's going to recover." She says she's been looking at water company Pennon as a potential replacement.
The club's got some work to do though. Having made up a large chunk of its losses, its investments in A&L and Tesco has put it back at the bottom of the pile.
The Share race is sponsored by Abbey
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