The Share Challenge: School students beat fund managers at their own game

Investors in The Independent Share Challenge competition breathed easier after advances in the stock market helped nudge their portfolios higher, but all three teams still have their work cut out if they hope to take home profits by the end of the year.

Ten months in, and the students from Leicester are still leading the way with a fragile gain of 0.2 per cent, while fund manager Sean O'Flanagan nurses a drop of 13 per cent and the Lexar Investment Club, headed by Gerald Delacey, struggles under a 30 per cent loss.

Had the teams tucked their £5,000 initial sums into the FTSE All Share index in February, they would each have £5,325 today - a profit of nearly 7 per cent, excluding dividends. Instead, the teens from Leicester have gained £38, the fund manager is £657 out of pocket and the investment club has squelched a hefty £1,527.

It's been a frustrating start to the new term for the 16-year-old student team from Moat Community College. Despite an active trading schedule, the team has been stuck within the same narrow band.

Like most investors, the boys find it difficult to let go of good performers that turn south.

Claire Jackson, their business studies teacher, explains: "The boys tried really hard to climb out of their rut when they returned to school. It did work for a short period and their shares thrived, but they held on to some of their banking and retailer shares for too long."

The students like to trade quickly, jumping in and out of blue-chip, financial and retail stocks. The strategy has proved doubly frustrating lately, with even solid retailers caught under the gloomy analyst forecasts for consumer-led sectors.

Small profits in Next and Burberry, the clothiers, were off-set by losses in Brit Insurance, the reinsurer, and Sainsbury, the ailing supermarket retailer.

The students had hoped earlier successes with takeover targets (Safeway; Manchester United) would bode well for their shares in Abbey National, the UK bank that was bought by Spain's Banco Santander Central Hispano in September. But speculation on the merger's benefits, combined with weak third-quarter results, saw many Abbey shareholders selling - but not our students.

Looking ahead, the boys have their eyes on the December holidays with a recent purchase in confectionery giant Cadbury Schweppes.

Stock expert Sean O'Flanagan, who oversees the Unicorn Free Spirit Fund, is trailing the students by over 13 per cent. Unlike the teens, O'Flanagan takes a long-term view on cyclical shares and IT names, including Morse Holdings, the IT firm (down 32 per cent), and Harvey Nash, the recruiter (down 20 per cent). The shares have been unfairly hit by an anxious market, says O'Flanagan.

The good news is that many of O'Flanagan's shares have fallen so low, they now look quite cheap, and investors are starting to show interest. The consensus among City analysts puts both Morse and Harvey Nash as Strong Buys, according to Digital Look, the financial information website that tracks broker recommendations.

Finally, the Lexar Club has started to rebuild their portfolio after a devastating spring. Shares in Intertek Testing Services have rocketed up 34 per cent since the club bought them in May. Watch this space.

Abbey Sharedealers is sponsoring The Independent's Share Competition. Visit www.abbeysharedealing.com for more information on Abbey's new low-cost share dealing services. To track the competition in real-time, or to start your own fantasy portfolio, visit www.bullbearings.co.uk