While many investors have gotten whipsawed in the rollercoaster ride of the stock market during the past few years, the Manning School of Business Student Managed Fund has been enjoying a steady climb upward. The student fund is up almost 65 percent since its inception in 2008, handily beating Wall Street.
For the fiscal year that ended June 30, the fund gained 11.6 percent, compared to a 5.4 percent return for the Standard & Poor’s 500 Index during the same period.
What’s the secret to the successful stock-picking? The students have followed the principles of billionaire investor Warren Buffett, seeking out well-managed companies with long-term competitive advantages in businesses they understand, says Assoc. Prof. Ravi Jain, the fund’s faculty adviser.
“It’s a well-defined, simple strategy,” says Jain, who teaches Investment Management, a required course for students participating in the fund. “They’re not doing exotic arbitrage.”
Investing real money in the stock market has provided students hands-on experience in researching companies, analyzing financial statements and market conditions, picking stocks and building a case for their investments, says Jain.
“It puts the burden on them to get it right,” he says. “They feel empowered to make a decision.”
The fund was one of four created by the UMass Foundation on the Amherst, Boston, Dartmouth and Lowell campuses. Each campus received an initial $25,000 to invest in the market for real-world lessons in fund management. The students compete in an annual intercampus contest to see which fund will post the best returns. UMass Lowell’s fund has earned top returns three times and has come in second twice. For the year that ended June 30, it trailed only UMass Boston’s fund, which gained 16 percent. As a result of smart investments and contest prize money, UMass Lowell's fund now totals nearly $60,000.
“The objective is to get them started in investing. This has proved to be a great learning experience for our students,” Jain says.
The students have to conduct market research, analyze the companies’ balance sheets and management teams and make a case to their classmates, who must support the proposed investment. The students also get feedback from the fund’s outside advisers: alumni Warren Isabelle, a principal of Ironwood Investment Management, and John Kattar, president of Eastern Bank Wealth Management and vice chairman of the UMass Foundation’s investment committee. The actual trades are executed by the UMass Foundation. Each stock is typically held for three to five years, Jain says.
“I want them to watch their stocks,” he explains. “This prepares them for the real world.”
Students’ tools for learning investment management are expected to take a big leap forward once the Manning School’s new building is constructed. Plans are in the works for a state-of-the-art trading room on the first floor of the new building.