Students in the Darwin Fenner Student Managed Fund course are doing more than just studying fund management. They're actively managing nearly $3.25 million in three separate equity portfolios and beating the benchmark indexes in the process.
A $100 investment in the fund's large-cap portfolio in May 2002 would be worth $216 as of July 2013. If that $100 had been invested in the S&P 500 index, the large-cap portfolio's benchmark, the investment would be worth only $184. Similarly, a $100 investment in the mid-cap portfolio since its inception in May 2005 would be worth $240 as of July 2013. A $100 investment in the S&P 400 index, the mid-cap's benchmark, would be worth just $207. Based on that record of success and given a desire to allow more students to participate in managing the fund, a small-cap portfolio was launched in May 2013.
"The students have done a remarkable job and appear to have skill," says Sheri Tice, professor of finance and instructor in the course. "They have been able to create more wealth than we would have earned by investing the money in equity indexes."
The Darwin Fenner Fund was started as part of an MBA investment course in 1999, but Tice reorganized it in 2002 to be the centerpiece of an invitation-only honors seminar. Students spend the semester learning sophisticated methods for analyzing stocks and managing a portfolio, and they develop highly advanced processes to screen stocks and choose positions using the same research and electronic databases that professional fund managers use, including Bloomberg terminals, ThomsonOne.com and Standard and Poor's Net Advantage. At the end of the semester, the students put those skills to work as they buy and sell S&P 500, S&P 400 and S&P 600 stocks with the goal of generating higher returns than their respective indexes without taking higher risk.
Since 2002, the students have consistently achieved that goal. As of July 2013, the large-cap portfolio had outperformed the S&P 500 by an average return of 0.11 percent per month, which translates to an annualized excess return of 1.33 percent. The mid-cap portfolio, which launched in 2005, has outperformed the S&P 400 by an average return of 0.13 percent per month, which translates to an annualized excess return of 1.57 percent. In addition to generating excess returns, the portfolios have also outperformed on a risk-adjusted basis, generating higher average monthly returns per unit of monthly volatility than their respective benchmark indexes.
Along with the Burkenroad Reports and Freeman Reports equities research program, the Darwin Fenner Student Managed Fund is a major part of the Freeman School's experiential learning initiatives, which provide students with practical skills to give them a leg up in job placement. With Burkenroad Reports, Freeman Reports and the Darwin Fenner Fund, students generate tangible projects to show prospective employers. Graduates of the Darwin Fenner Fund have gone on to careers in both investment banking and portfolio management with companies like J.P. Morgan Asset Management and Goldman Sachs Global Investment Research.
"It's a unique program." Tice says. "We have BSMs, MBAs and MFINs taking the class, and each group manages a different portfolio. The BSMs manage the large-cap portfolio, the MFINs manage the mid-cap portfolio, and the MBAs manage the small-cap portfolio. The course is academically rigorous and not just an extracurricular exercise. We invest real money--a lot of real money--instead of investing using simulated portfolios. And the students themselves make the final investment decisions, not an advisory board of investment professionals. That adds up to a learning experience which would be hard to find anywhere else."