The Share Challenge: Volatile market hits novice and expert alike

March proved a rough month for the competitors in Save & Spend's Share Challenge, our fantasy investment competition that pits a team of 15-year-old novices and an amateur investment club against a City expert to see who can pick this year's winning shares and earn the most profits.

As the challengers near the end of their third month's trading, the schoolboys from Moat Community College, Leicester, continue to outperform the seasoned share pickers. Yet even our star pupils proved susceptible to last month's bout of market volatility, which dragged their portfolio into negative terrain for the first time. The boys are now nursing an overall loss of 3.6 per cent. The investment club and fund manager fared even worse, with declines of 9.6 and 10.5 per cent, respectively.

A double-digit loss in shares of J. Sainsbury, the underperforming supermarket chain, has overshadowed an otherwise healthy performance by the student team. After selling out of the grocery stock at 265p at the end of March and missing out on a 20p recovery, the boys are clawing back ground with the help of their smaller share picks, including Brit Insurance, the specialty insurer. The London-based finance group has defied the tepid performance of larger insurance shares recently, delivering a solid seven per cent return since the team invested two months ago.

In June, the teenage shareholders will travel to London for a meeting with Brit Insurance's management, where they will discuss the company's business model and learn more about the insurance industry.

The pupils are trailing the FTSE All Share index by six per cent. The investment club and the fund manager are lagging by 12 and 13 per cent respectively. As all the teams are failing to keep pace with the broader market, does it pay to be an active investor? Would amateurs be better off stashing their cash in a low-cost tracker, or giving it to a top-performing professional fund manager?

"In this instance, the answer is no, they would not be better off investing with the professional," laughs the fund manager, Sean O'Flanagan. Fortunately, Mr O'Flanagan has fared far better as manager of the Unicorn Free Spirit Fund, which delivered a massive 82 per cent return over the past twelve months.

Mr O'Flanagan reiterates that it is too early in the competition to jump to conclusions. Although the blue chips have proved to be solid earners, he suggests they look overvalued and investors will have to work harder to scout out smaller companies and shoulder more risk to match the past year's growth.

Acal, the electronic components distributor, and Morse Holdings, the software company, are largely responsible for Mr O'Flanagan's recent losses. "Investing in smaller companies means you're exposed to both the ups and the downs in the short-term," he says. "We're seeing a pick-up in corporate spending and that is excellent news for software and IT companies like Morse and Acal, which depend on their corporate customer base for profits."

March delivered better results for the Lexar Investment Club, the Surrey-based wine tasters who have scooted into second. Several shares, including Greene King, the brewer, and Mowlem, the building group, have posted small recoveries. Bookham Technology, the IT provider that has been a loss-making albatross throughout the competition, also showed turnaround signs.

The team cut their losses in Legal & General, the life insurer, and scooped up Geest, the fresh food and salad supplier, which Mr De Lacey, the club's chief stock analyst, says is a defensive addition that should benefit from the public interest in healthy eating and new contracts with McDonald's. Geest has delivered a seven per cent gain since the club bought in two weeks ago, boosted by upbeat trading figures and plans for a share buyback.

Sponsorship for the Save & Spend Share Challenge is being provided by Abbey Stockbrokers, who will be launching a competitive new sharedealing service next month. For real-time updates on the Share Challenge, or to start your own fantasy investment portfolio, log on to www.bullbearings.com.