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Iowa Among Top Student Endowment Managers

Equity managers looking for investment talent may want to create a recruiting pipeline with The University of Iowa.

For the fifth year in a row, the graduate student group running a portion of Iowa's foundation assets was among several schools winning a recent student portfolio competition sponsored by the University of Dayton.

The competition selects winners based on their risk-adjusted performance for the most recent calendar year. To make sure the competition is comparing similar investment styles and strategies, the competition includes several different categories based on each portfolio's makeup. Students share their portfolio holdings with Morningstar, which then determines which category they will compete in.

The graduate students at The University of Iowa had the best risk-adjusted returns for a core-style portfolio. Anderson University, based in Anderson, Ind., had the best-risk adjusted returns for a core-style portfolio among undergraduate student groups participating in the competition.

At The University of Iowa, graduate students manage $1.36 million as part of the University's $766 million foundation. The student-run portfolio, called the Henry Fund, is a part of the larger foundation’s equity portfolio, and is benchmarked to the S&P 500.

"We’re basically treated like an external manager," says Todd Houge, a professor within the University's Department of Finance, who teaches the two classes involved with managing the fund.

The Henry Fund has been delivering solid above-benchmark returns for more than 15 years. The fund has outperformed the S&P 500 for the most recent one-year, three-year, five-year, and 10-year periods. Last year, the fund returned 39.22%, compared to 33.14% for the S&P 500. Since its inception in 1994, the fund has returned 11.62%, compared to 9.22% for the benchmark.

While performance is always important, Houge says the main purpose of the fund is to give the students valuable experience conducting research on stocks, writing reports on those stocks, and doing everything else that goes into an investment analyst or research associate’s job.

"The number-one academic goal is that you have the skills to model companies, to be able to analyze, be able to value and produce research you can defend to our advisory board or the class."

To showcase the professional nature of the research involved to potential employers, the web site for the Henry Fund displays all of the students' research reports.

Houge says the student groups have fared well in the competitions at the annual University of Dayton competition because the students spend a lot of time making sure to diversify risk in the stocks they pick, as well as ensuring that those stocks do not have a strong correlation to each other.

"A lot of student funds end up with concentrated risk, and we're careful to avoid that," he says.

For undergraduate students at Anderson University, some sector allocation changes and some good stock picks led to outperformance of the S&P 500.

"Several particular picks by those students led to great performance for the year," says Kent Saunders, a professor of finance and economics who teaches the class associated with the student-run portion of the endowment. Some of the better stock picks included Lowe's, Whirlpool, and Unilever, he says.

Saunders notes that his students, who manage $350,000 of the endowment's assets, overweighted the consumer discretionary and technology sectors in their portfolio last year. Their portfolio returned 43% in 2009.

He hopes the high returns, and recognition at the recent competition at the University of Dayton, will encourage the University to invest more in the program.

"Now we can use that to get a larger portion of the endowment, a trading room, or other things like that," Saunders says.

Winners of Student Portfolio Competition

Stetson University

fixed-style portfolio, undergraduate division

Henderson State University

hybrid-style-portfolio, undergraduate division

University of North Dakota

growth-style portfolio, undergraduate division

College of New Jersey

value-style portfolio, undergraduate division

Anderson University

core-style portfolio, undergraduate division

Villanova University

hybrid-style-portfolio, graduate division

Cleveland State University

growth-style portfolio, graduate division

HEC Montreal

value-style portfolio, graduate division

The University of Iowa

core-style portfolio, graduate division


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