More than a feline

A cat selecting small company stocks for a dummy share portfolio has beaten the sector's professional fund managers in his first year.

Schrodinger, our feline financier, picked his stocks by choosing 35 pieces of dry catfood from a grid of 250 numbered squares, representing companies in the FTSE mid-250 index. We called the resulting portfolio the Consolidated Accumulation Trust - or CAT for short.

In the year to 12 August, CAT's value, with net income reinvested, grew by 4.35 per cent. The average UK Smaller Companies unit trust grew by just 3.25 per cent in the same period. CAT also substantially outperformed its benchmark index, which grew by only 0.37 per cent.

Alan Gadd, managing director of HSBC Asset Management, says: "With the rise in sterling, the smaller companies sector has been particularly difficult since the beginning of the year, so Schrodinger's numbers are pretty good.

"Nine out of 10 investors would be very happy with that performance."

Richard Wastcoat, who heads Fidelity's European retail operation, adds: "He's done 4.35 per cent, the index has gone up 0.37 per cent, and the average fund has gained 3.25 per cent, so he's doing pretty well. He'd be all right for his bonus - he'd be getting that extra bowl of milk."

Schrodinger's performance over the past three months has been even more impressive. CAT grew in value by 5.71 per cent over that period, while every real trust in the sector fell.

This came thanks to a strong performance from portfolio selections such as St James' Place and Scottish Hydro, two of Schrodinger's shrewder selections, which rose 116 per cent and 43 per cent respectively.

Matthew Harragin, a director at stockbrokers Albert E Sharp, says: "CAT has picked some winners, like St James' Place, which has done extremely well, and the portfolio looks well-balanced. Schrodinger hasn't been getting stale brokers' stories, so he brings a fresh approach."

CAT's nearest rival in the last quarter has been Baring UK Smaller Companies, which lost 0.4 per cent.

The average decline in the sector over three months was 5.47 per cent.

Amanda Davidson of independent financial advisers Holden Meehan says: "If my cat turned in such a good short-term performance, I'd be the one who lazed in the sun, and she could do the work."

On a one-year view, CAT ranks at number 31 in a field of 76 UK smaller companies trusts. This puts Schrodinger comfortably into the second quartile, in the same bracket as well-respected managers such as Clerical Medical, Flemings and Sun Life.

The best-performing fund in the sector over one year was Baring UK Smaller Companies, which showed growth of 9.73 per cent over the year. The worst was Guinness Flight's Granville Smaller Companies, which lost 12.76 per cent of its value.

We have also been measuring CAT's performance against trusts in the UK Equity Growth sector, despite the fact that it suffers from considerable disadvantages in that arena.

Unlike real equity growth managers, Schrodinger has not had the opportunity to dump his worst performers, or to select stocks from the FTSE 100 list of the UK's largest companies.

Ms Davidson says: "At the moment, Schrodinger really should be judged against UK smaller companies, because that's all he's been allowed to invest in.

"Trusts in the UK Equity Growth sector have been allowed to invest in larger companies and, of course, that's where the growth has been."

Given these disadvantages, CAT stands up remarkably well among UK Equity Growth trusts. Its growth in the last quarter puts CAT at number 85 in a field of 166 trusts, near the top of the third quartile.

Now we plan some changes to rebalance CAT's portfolio to bring it properly into line with the UK Equity Growth sector.

As of 13 August 1997, we are dumping the 10 worst performers in the current portfolio and allowing Schrodinger to select 10 more FTSE 100 stocks as replacements, using the same method he used to pick the original shares.

Faced with a smaller grid a few days ago, this one representing the FTSE 100, Schrodinger picked: Abbey National, BTR, Cadbury Schweppes, General Electric, Grand Metropolitan, Great Universal Stores, Lasmo, Pearson, Reed International and Reuters Holdings.

Will these choices prove to be the CATalyst which CATapults Schrodinger to new heights, or has he picked a load of old dogs? Join us here in three months to find out.