Smaller stocks beat the giants

INVESTORS in blue chip stocks were relieved to see the FTSE 100 bounce back 13% in 2003, ending a three-year decline which saw, at its worst, 48% wiped from the leading UK share index.

However, the backers of medium-size companies in the FTSE 250 have more to celebrate this New Year – the FTSE 250 rallied by a spectacular 34%.

Photo-Me, one of the world's biggest makers of photo booths, led the winners with an incredible 492% rally to 116p.

The company, which also makes digital processing minilabs, expanded too fast and took on too much debt during the euphoria for technology. Its shares raced up to 400p before falling back.

However, this year it has cut debts and demand is also increasing – that has triggered analysts to upgrade their future profits estimates and the shares have rallied. The company is now expected to earn £15m rather than £10m this year.

Filitronic rose 364% in 2003. It is another former belle of the technology boom. Sales have grown steadily for Filtronic's main businesses - making masts and systems for mobile networks and antennae for handsets – as it has won more contracts and taken greater market share.

Mast sales have risen as third-generation networks have been rolled out. In handsets, it makes a quarter of the world's aerials and nearly half of the popular internal ones. High demand in Asia has been a driving force for the shares this year.

Engineering group WS Atkins, which will be responsible for a number of London Underground station overhauls in 2004, delivered a 375% rise to 467 1/2p.

The company has a mixed bag of private finance initiative contracts from the Government ranging from the Tube to schools. A rise in the perceived risks of such schemes and problems with the firm's IT systems helped drive the shares down from 650p to a low of 52p last year.

But profits are back on track and the firm has picked up some high-profile fans. In September, when the shares were half their present value, Neil Pegrum, respected manager of the Insight UK Dynamic fund, told This Is Money that Atkins was his top play. 'The company remains a market leader and its customers have remained supportive,' he said.

Telecoms equipment maker Spirent has given its shareholders a Marconi-style white-knuckle ride over the past few years. The company, formerly the industrial giant Bowthorpe, has bounced back from 5 3/4p in 2002. This year hopes it will return to profit have driven up the shares 240% to 38 1/4p.

Paul Mumford, star manager of the Cavendish Opportunities fund, revealed his backing of the stock in August. 'Concerns over telecoms meant the shares had fallen out of bed,' he says. 'But directors were buying shares by the bucket-load when they were at 8p.'

But of course even in the bull market of 2003, there were losers. Fears that engineer Invensys might not be able to sell off bits of the business quick enough to avoid a cash-crunch send the shares spiralling 66% to 18 1/4p.

Construction firm Jarvis endured an awful year as it scaled back school refurbishment programmes after problems with the PFI contracts and more recently its quit a £180m rail maintenance contract after a derailment at London's Kings Cross and the fatal accident at Potters Bar. The shares fell 27% to 207 1/4p.

Other fallers included insurer Jardine Lloyd Thompson, down 28% to 527 1/2p, and retailer WH Smith, which crumbled 19% to 275 1/2p amid tougher competition on the High Street.