News

Students fund managers beat "The Street"

July 31, 2007

Students in the Darwin Fenner Student Managed Fund course are doing more than just studying fund management. They’re actively managing a $2.4 million stock portfolio—and beating many Wall Street mutual fund managers in the process.

Over the last five years, the portfolios in the fund—a large-cap portfolio managed by undergraduates and a mid-cap portfolio managed by MBAs and MFINs—have beaten their respective major stock indexes by as much as 19.6 percent in a year.

“The students have done a remarkable job,” says Sheri Tice, associate professor of finance and instructor in the course. “In fact, they’ve done better than most mutual fund managers.”

The 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 advanced-level strategies for analyzing stocks and managing portfolios, and they develop sophisticated processes for screening stocks and choosing positions using the same research and databases that PhD students and professional fund managers use. At the end of the semester, they put those skills to work as they buy and sell S&P 500 and S&P 400 stocks with the goal of generating higher returns than the respective indexes without taking on higher risk.

The students have achieved that goal. The large-cap portfolio has outperformed the S&P 500 index by an average of 2 percent per year after fees, and since its launch in 2005, the mid-cap has outperformed the S&P 400 index by 4.3 percent per year after fees.

While the students can take pride in their performance, the real beneficiary of their skills is Tulane University. The fund, part of the university’s endowment, has grown to $2,418,952 over the last four years, a gain of $991,578. Had the principal instead been invested in the S&P 500, the value today would be only $2,189,519.

“The chief investment officer of Tulane was very concerned about the fund at first,” Tice says. “He didn’t want the students to generate less money for the university than he could make investing in an index fund. Needless to say, he’s happy with the performance of the fund.”

Along with the Burkenroad Reports equities research program and trading classes, the Darwin Fenner Student Managed Fund is a major part of the Freeman School’s experiential learning curriculum, which provides students with practical skills to give them a leg up in job placement. According to Tice, the combination of Burkenroad Reports, trading and the Darwin Fenner Fund gives students a comprehensive package of skills 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 JPMorgan Asset Management and Goldman Sachs Global Investment Research.

“We’re unique,” Tice says. “We have BSMs running a portfolio as well as MBAs and MFINs. The course is academically rigorous and not just an extracurricular. We invest real money—a lot of money—instead of doing it as a simulation. And the students themselves make the final investment decisions, not an advisory board of investment professionals. I think that adds up to a learning experience you won’t find anywhere else.”

Darwin Fenner Large-Cap Portfolio, 5/02 to 6/07
	DFF	S&P 500
Cumulative Wealth of $100	$169.01	$153.39
Average Monthly Return	.90%	.74%
Std Deviation Monthly Returns	3.2%	3.5%
Mean Return/Std Dev.	.28	.21

Darwin Fenner Mid-Cap Portfolio, 5/05 to 6/07
	DFF	S&P 400
Cumulative Wealth of $100	$161.47	$148.49
Average Monthly Return	1.93%	1.57%
Std Deviation Monthly Returns	3.8%	2.8%
Mean Return/Std Dev.	.51	.56