The received financial advice last week from four of its portfolio managers: students enrolled in an investment course in the .
The student investors have a solid track record. Their portfolio management acumen has made nearly $100,000 for the University in the past three years.
The Â鶹AV Foundation invests and manages all private gifts to the University. In 2015, its Board of Trustees decided to invest up to $1 million in a student-managed investment portfolio. It allocated $100,000 in December 2015 and in May 2016. Additional contributions will continue as the program grows.
Students determine how the funds are invested. They first evaluate an economic sector, then compare an individual stock’s strength to the performance of its sector. Students use their research to write reports similar to what a Wall Street analyst might do for a client.
Those reports were the basis for last Tuesday’s presentations to the Foundation board, said Dr. Praveen K. Das. The associate professor of finance has taught the investment class each spring and fall semester since its inception.
“The course helps students develop a greater understanding of financial markets and stock price movements, and gain valuable investment research skills,” Das said.
There are safeguards. The Foundation narrowed the selection of stocks to securities in the S&P 500, an indicator investors use to evaluate market performance. The index contains 500 leading companies divided among 11 industrial sectors, including energy, health care, information technology, utilities and communications services.
There are also limits as to how weighted the portfolio is toward any one sector, and no stock purchase can exceed 2 percent of the portfolio’s total value. In addition, recommendations students make to buy new stocks or to trade, sell or hold existing securities are reviewed by the Foundation’s investment committee.
Thomas L. Kreamer, a Lafayette financial adviser and 1980 University graduate, is the committee’s chairman. He said the Foundation has followed “every piece of advice students have given us – buy, sell or hold” since the class began. “They have done a great job.”
And reaped dividends for the University, too. By the end of September 2018, student investments had grown the portfolio’s value to $294,124, a 15.2 percent annual return. By comparison, the S&P 500 returned about 16.1 percent to investors during the same period, Kreamer said.
The student-managed portfolio contains 28 stocks, including familiar names such as Amazon, Procter & Gamble, Lockheed Martin and Stanley Black & Decker. If the Foundation board accepts recommendations students made last week, the portfolio will gain four securities and lose one.
The class is open to juniors and seniors. Finance majors Drake Bodin, Michael Guillot and Courtney Quebedeaux – who all graduate Friday – and accounting senior Katelyn Ward collectively reviewed eight stocks in the fall semester.
Some were current portfolio holdings; others were possible additions. Students provided board members with four-page reports that outlined revenue and earnings data, growth estimates and how each company compared to others within a sector.
Students balanced recommendations with anticipated risks. Quebedeaux urged board members to add Apple to the portfolio, but cautioned that – despite the stock’s consistent overperformance against competitors such as HP, Facebook and Google – the company relies too much on its signature iPhone for revenue.
In addition, trade tensions between the United States and China, a substantial market for Apple products, further muddies the company’s outlook, Quebedeaux noted.
Guillot advised that the portfolio maintain, or hold, its current investment in General Dynamics. The aerospace and defense company beat six of the last eight earnings estimates, he explained. Increased defense spending in the U.S. and worldwide bodes well for the company’s continued strength.
“We already hold it, and I find that as a fairly priced company, it is better to hold and seek the possible benefits of recent government budget increases in defense rather than get rid of it now,” Guillot said.
The course received a boost this fall with the opening of the Maraist Financial Services Lab in F.G. Mouton Hall. A $2.5 million gift from alumnus Michael P. Maraist and his family funded construction of the lab, site of last week’s presentations.
The facility has a dozen Bloomberg Terminals, which Das said students relied on “extensively” in their analyses.
The service provides students and faculty the same platform used by the world’s leading banks, corporations and government agencies. It includes real-time price, news and trading data that enable users to build and analyze portfolios, and compare investment strategies.
Before the Bloomberg Terminals, students would have to rely on other analysts’ work to make recommendations. Now, they can create their own models using data the service provides in just a few keystrokes, Kreamer said.
“The Maraist Lab opens up a completely new world for them to do fundamental research like they have never been able to do before. It’s an incredible tool.”
Photo caption: Â鶹AV finance major Drake Bodin presents investment research to members of the University’s Foundation board on Dec. 4 in the Maraist Financial Services Lab. The lab opened this fall in F.G. Mouton Hall on campus. (Photo credit: Doug Dugas / Â鶹AV)