No fund managers, just the cat's whiskers

A portfolio of shares chosen by an unusually feline fund manager has grown almost twice as fast as its benchmark index in the last three months. Investors who followed in the tracks of the CAT portfolio - which contains 37 stocks picked by a cat named Schrodinger - would have seen its value grow by 5.1 per cent in the three months to May 12.

The portfolio's rise in value compares with growth of just 2.8 per cent in the FTSE mid-250, the index from which its shares were drawn. This ranks CAT at number 71 in field of 165 UK equity growth unit trusts, well ahead of funds from managers such as Fidelity, Mercury, M&G, Henderson and Martin Currie.

The average unit trust in the UK equity growth sector lagged behind CAT, managing growth of only 4.2 per cent. The best trust over the three months was Gartmore's UK Capital Growth trust, which grew by 11.9 per cent, and the worst was Henry Cooke Lumsden's Arkwright Recovery fund, which lost 4.3 per cent of its value.

The shares in the portfolio were selected on August 12 last year by Schrodinger. He did this by picking 35 pieces of dried cat food from a numbered grid with 250 squares.

We then matched the numbers he selected to an alphabetical list of companies in the FTSE mid-250. Finally, we persuaded a friendly fund management company to run the portfolio on its own computers, just as if it were a real unit trust.

Shortly after we set up the portfolio, St James' Place Capital hived off its investment trust role to a newly-created trust called VRT. St James' Place shareholders were given three shares in the new St James' Place, plus one VRT share and 52.5p in VRT's loan stock for every three shares they owned in the old St James' Place. This expanded our portfolio from 35 stocks to 37.

The top-performing share in CAT over the past quarter has been construction group Taylor Woodrow. Renewed interest in the housing market also helped house builder Wimpey and materials supplier Polypipe into the top 10.

Chris Bingham, a construction analyst at stockbroker Quilter & Co, says Taylor Woodrow's strong performance comes partly from reducing its property investment portfolio to pump cash into other areas, such as property development, which offer a higher return.

"Basically, they've had a large investment property portfolio in the past and now they're reducing it down a bit," he says. Taylor Woodrow has also benefited from its construction activities outside the UK, where margins are higher.

Mr Bingham adds: "House price inflation is emanating from the South-east and London in the main and Wimpey, being such a large housing company, is quite well exposed to the South-east market. Therefore, the market is assuming that Wimpey's earnings are going to increase."

Schrodinger's other shrewd move was in financials, which also figure heavily in the top 10. Invesco, one of his best choices, merged with another fund management group named AIM at the end of February, creating Amvescap, our fourth best-performing share.

Retailers in CAT had a tougher time, with both Anita Roddick's Body Shop and MFI Furniture near the bottom of the table.

Jill Osborne, another Quilter analyst, says: "If interest rates go up, the retail sector tends to under-perform. We all know interest rates are going to go up, and that does affect the sector in terms of sentiment. Also, of course, there's a mini-Budget coming up and we don't know what Gordon Brown is going to do on the fiscal side. Consumers don't know where they stand."

MFI in particular, Ms Osborne adds, has been hit by a recent trading statement warning of disappointing sales.

Of course, in the real world, three months is far too short a period in which to judge a fund's performance - the figures for five years or more are what really count. In its first nine months, CAT has slightly under-performed the market, showing growth of 3.7 per cent against an FTSE 250 figure of 4.5 per cent. In three months' time, however, we plan to drop the 10 worst performers and let Schrodinger pick 10 replacements.

For a full list of shares in the CAT portfolio and their performance in the past three months, write to: Nic Cicutti, CAT Portfolio, The Independent, 1 Canada Square, Canary Wharf, London, E14 5DL.