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UI student stock portfolios post excellent returns

Stock portfolios managed by University of Iowa finance students have once again beaten their market benchmark (the S&P 500 Index) for calendar year 2000.

The Henry Fund, the MBA student portfolio, gained 7.17 percent over 2000, outperforming the S&P 500, which was down 9.10 percent. The Krause Fund, managed by undergraduate students in the Henry B. Tippie College of Business, was down 6.79 percent for 2000, but still beat the S&P 500.

The Henry Fund has outperformed the S&P 500 in six of the seven years since its inception in May 1994, while the Krause Fund has beaten the S&P 500 both years since December 1998.

The top performers in the Henry Fund portfolio included Frontier Airlines with a 172 percent return and Philip Morris Companies with a 91.3 percent return. Eleven MBA students manage the fund composed of 27 stocks in ten sectors.

The portfolio management experience helps students sell themselves in the competitive finance job market, allowing them to give concrete examples of their analysis during job interviews, said Todd Houge, a UI assistant professor of finance who oversees the student portfolios. Students perform an in-depth fundamental valuation of each company.

"These classes provide students an analytical framework for determining the core value drivers of a company," said Houge. "We do not claim to have all of the answers; rather, we want students to leave with an understanding of how financial markets work and the difficulty of identifying undervalued firms. However, the track record of the Henry and Krause Funds suggests that we are on the right track."

The Henry Fund is named after alumni benefactors Henry B. Tippie and Henry Royer. Investing the funds held in the UI Foundation endowment, the MBA students present their stock recommendations to a board of investment professionals.

In the Krause Fund, the portfolio's top stocks included Enron, which posted an 87.3 percent return, and Merrill Lynch, which returned 63.7 percent. A total of 60 undergraduate students from a security analysis class manage the 12-stock Krause Fund portfolio. At least 25 percent of the fund's assets are invested in firms with a significant presence in the state of Iowa.

Endowed by W.A. "Bill" Krause, president and chief executive officer of the Krause Gentle Corp., the $140,000 Krause Fund provides undergraduate UI students real-world portfolio management experience. The 1957 graduate of the UI also established similar funds in 1998 at Iowa State University, the University of Northern Iowa and Drake University. Undergraduates at the four universities compete in the annual Krause Challenge, to show the best return on their investments. One student from each of the four universities serves on the board of directors of the Krause Gentle Corp. and presents the portfolio for board approval each year.

For more information about the UI student-managed funds, contact Houge at (319) 335-3754.


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