A select group of finance majors got the school project of a lifetime last semester: assume total responsibility for investing $1 million of the University’s general fund.
Undergraduates in the Student-Managed Investment Fund course showed they were equal to the task; the fund returned 4.5 percent over three months, ending on April 30.
“It was excellent. It all worked according to plan,” said James R. Kelly, lecturer in finance, who designed the course.
Although Fordham’s treasurer retained final control of the money, decisions on how to manage the fund were made entirely by the students, who were chosen for the class from dozens of applicants.
“We had students who were analysts and others who were portfolio managers,” Kelly said. “The analysts did research before investing. Then over the course of the semester we evaluated new recommendations to rebalance the portfolio, take some profits and make new investments. It was very realistic.”
That’s exactly what Kelly wanted in designing the course—to replicate the structure of a real asset management company as a supplement to the portfolio-management theories learned in other finance courses.
“It’s as if the University subcontracted the money to the students and they ended up getting a good performance,” he explained.
Throughout the duration of the two-semester course, which began in the fall of 2009, students were expected to generate investment ideas, investigate investment opportunities and make recommendations based on their analyses. The first-semester students were the analysts. They were mentored by the more-experienced second-semester students, who were the portfolio managers.
Research was performed individually in an equity—or macro-team—environment. Students were responsible for initiating research ideas and recommending investment actions.
While the class bounced some ideas off of Kelly, he did not take part in the decision-making process.
“They actually chose a conservative asset allocation with more bonds than equities,” Kelly said. “Neutral would be 50 percent equities, 40 percent bonds and 10 percent hard assets.
“Typically, students tend to be aggressive. You would expect them to have 55 to 60 percent in equities, but they weren’t like that. They saw the risks in the market as a result of the downturn and they wanted to protect the University’s money.”
Student-managed investment funds (SMIFs) are well established at other major universities, yet most SMIFs allow students to invest only in domestic equities, Kelly said.
“Our students were able to invest all over the world—in foreign equities from emerging markets or domestic and foreign bonds,” Kelly said.
All of the investments were sold in May during the market decline and the proceeds invested in a money market account pending reinvestment this month. The year-to-date return of the fund is currently 1.2 percent.
“Last year’s group did a great job, and I’m sure the next group will do the same,” Kelly said.