The Share Challenge: A messy market still sees the students out in front

As the Independent Share Challenge enters its fifth month of trading, the 16-year olds from Leicester continue to trounce the investment club and the professional fund manager at their own game.

As the Independent Share Challenge enters its fifth month of trading, the 16-year olds from Leicester continue to trounce the investment club and the professional fund manager at their own game.

Not that any of the teams have much to glow about. It's been a messy market, as fears of inflation and interest rate hikes have sent stocks tumbling and erased the groups' earlier gains. The students' portfolio has suffered least, down just 5 per cent, while fund manager Sean O'Flanagan is nursing a 19 per cent drop and the Lexar Investment Club is down 21 per cent. And all three teams are under-performing the FTSE All Share index, whose 0.6 per cent profit is looking quite admirable.

Past performance is not a sign of future growth, and nobody knows that better than Sean O'Flanagan, manager of the Unicorn Free Spirit Fund, one of the top-performing funds in the UK All Companies sector. Although he is trailing the students by 14 per cent, the City expert is unperturbed. "It's only been a couple of months," shrugs the long-term investor.

O'Flanagan's stock picks include Sportingbet, Morse Holdings and Acal. Many were trading near 12-month highs when he bought them, but O'Flanagan remains confident. "Sales haven't recovered as well as expected for Morse, but I still think it's a good choice," he says. "It's early days and things can change rapidly. I've got to hand it to the students; one thing they've done well so far is to sell out at the right time."

The teens' lack of experience has been to their benefit, he says, because they have taken an objective approach. The boys have been quick to dispose of shares showing signs of retreat, such as Manchester United, Robotic Technology and Yell Group, whose share prices have plunged in recent weeks. They have suffered some losses - as they did when they sold Robotic at an 11 per cent loss for 67p - but the stock has since sunk to 61p.

In today's volatile markets, the boys are not unusual in their enthusiasm for momentum investing. Momentum enthusiasts rarely hold onto any share for long, buying into accelerating stocks and selling out at the first sign of a dip.

Has the technique worked for the students? Not quite. They are down 5 per cent - and that's without considering trading costs. Had they stuck with their original stock selection - Man United, WH Smith, Robotic Technology, HSBC and Safeway (now William Morrison) - they would have made a 1.5 per cent profit.

At the other end of the spectrum is the Lexar Investment Club, whose discomforting 21 per cent loss is largely due to Bookham Technologies. The club, which invested nearly a third of its initial capital in the optical component maker, sold out last week at a 54 per cent loss. "We should have been out of it much earlier," admits Gerry DeLacey, Lexar's chief stock analyst.

The club has also been taking profits in Geest, the food manufacturer, and Greene King, the brewer. Their latest buy? Robotic Technology - the Manchester-based robot maker that the students cast off two months ago. "The price had fallen and we thought it was the right time to buy in. We think it's a share that holds long-term promise," says Mr DeLacey.

Abbey Stockbrokers is sponsoring the Independent Share Challenge. To find out about Abbey's competitive new share dealing service call 0845 600 1623. If you are interested in starting your own investment club, visit www.proshareclubs.co.uk.