The Share Challenge: Girls take on the gents in new contest

After a landslide victory in last year's contest, Claire Jackson and her team of students from Leicester are back. The Moat Community College kids will take on new rivals in this year's Independent Share Challenge, the virtual investment competition that pits the novices against a fund manager and an experienced investment club to see who can rack up the most profits.

At the end of 12 months, the winning team will take home a £2,000 cash prize, sponsored by Abbey Sharedealers, the discount stockbroking website.

The other teams vying for the title are the Bucket and Spade Investment Club of Bournemouth and Colin McLean, chief investment officer at SVM Asset Management.

Jackson fresh troupe of stock pickers is 10 girls from the business studies course that she teaches. "I'm looking forward to seeing how my female pupils get on," she says. "The girls tend to take things more seriously, whereas the boys have more confidence. It will be interesting to see how these characteristics pan out in terms of picking stocks."

The rules of play are simple. Each team starts with a virtual sum of £5,000, which they must invest in five shares. All companies listed on the London Stock Exchange or the Alternative Investment Market are eligible, provided they have a minimum capitalisation of £75m and the share price is above 50p. Each team is allowed to buy and sell up to five shares a month. No one share can account for more than 25 per cent of portfolio value. Trading fees and commissions are excluded. The team with the most profits after one year will take home a cheque for £2,000.

Winning comes naturally to the Bucket and Spade Investment Club. In four years they have already won a number of prizes, including £1,000 in a national competition. The 11 members met at British Telecom, where they all work as diagnostic engineers. "It was a rocky time in the market when we started in 2001, but we have pulled through and we're now up 19 per cent," says Robin Sowter, a club member. Each member put in an initial £50 and then contributes £25 a month. They now have more than £15,000 invested.

The group balances their portfolio between long-term investments in blue-chip shares with smaller, more speculative plays that they hold for shorter periods. Dana Petroleum is one of the club's most recent small-cap successes, its share having doubled off the back of higher energy prices. Another profitable punt was Marconi, the troubled telecom business. The group bought in after the stock plummeted to 16p in October 2001, selling up just 12 days later after the price jumped above 30p for a cool 100 per cent profit.

The club will not invest without first scouring a company's annual report and picking apart its financials beforehand. "We really look into our shares before investing and we try not to pay too much attention to the stockbroker tips touted in the newspapers," he said. "I suspect the students will be more interested in those types of quick-pick gains."

At the moment, Sowter is keen for the club to invest in Rexam, the canning and bottling giant. "After posting steady gains for past six months the share price has tailed off , but in terms of fundamentals the company is still in really good shape for growth," he says.

Both the students and the investment club know that the next 12 months will not be easy if they hope to end up ahead of this year's City expert, Colin McLean.

McLean is chief investment officer at Scottish Value Management, the UK equity fund specialist, and is one of the industry's most respected and accurate stockpicking analysts. With over 30 years of experience, the Edinburgh-based manager says his formula is inherently value-, rather than growth-driven, but he prefers not to be coined as any particular type of investor. "I am pragmatic above all else."

Instead, McLean says he looks for British companies of all sizes across a broad range of industries that fit his investment criteria. The SVM UK Opportunities Fund, one of the stable of unit trusts that McLean oversees, is a top performer in the All Companies sector and is up 40% over the past three years.

The next twelve months look promising for shares both large and small, says McLean. "In the short term the market should make some more progress," he says. "The FTSE is the highest it has been for over two-and-a-half years, but many shares are still well below their 2000 peaks. There is no reason we shouldn't see more progress going forward, especially in those companies that have brought in new management teams and improved things internally," he said. McLean points to Reuters, British Airways and Legal & General as just some of the blue-chip examples that could make headway in the forthcoming months. "These shares have all restructured but continue to trade 30% below their five-year highs," he says.

In terms of smaller shares, McLean likes Fun Technologies, which provides software for online gaming companies. The stock has already risen 23% since the start of the year and McLean thinks it will benefit further as the internet gambling craze continues.

McLean also thinks the year will bring opportunities in sectors that have recently been falling out of favour, including housebuilders, retailers and transportation businesses, whose cheaper share prices could spark takeover bids from rivals and private equity firms. "The potential for takeovers could be one of the surprises of 2005," he says.

So is the fund manager worried he might be humbled by the amateur stockpickers as the contest progresses? "There are some very smart students and investment clubs out there," says McLean with diplomatic grace. Yet the expert is quick to add that the rising market reflects the fact that investors are relying on fundamentals rather than fear when choosing stocks - and that's good news for seasoned professionals with analytical expertise like himself. "As the market improves, we will see less indiscriminate rallies and pricing will be based more on the underlying health of a company's balance sheet," says McLean.

Next week: The competitors select their first stocks using the Bullbearings website, a virtual stock market for those who want to learn about stocks and spread betting without putting real cash at risk. Readers can track the share challenge at www.bullbearings.co.uk.

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