Today's Students, Tomorrow's Money Managers

By Will Ashworth | May 27, 2009 AAA

In student-managed funds, universities put aside real money from their endowments to give graduate as well as undergraduate students a chance to be unpaid professional investors. While this past year hasn't been successful for most of them, there are a number of cases where the students have beaten the men and women who manage the university's actual endowments. What better way to learn the ins and outs of money management then by taking it on the chin just like the pros do. Today's students are tomorrow's money managers. And who knows, maybe the next Peter Lynch or Warren Buffett lives among them. (See our slide show World's Greatest Investors.)

Failure To Report
You might think finding a record of portfolio holdings for student-managed funds would be as easy as 1-2-3. It turns out some universities are better than others are at reporting this information. The University of Dayton, which sponsors a nationwide annual student portfolio competition, has little information on its website detailing performance or its holdings. Frankly, it seems odd that the university issues press releases about the endowment funds it makes available to the student managers, yet does not present the results of their work. Even worse, MBA students at NYU's Stern School of Business have attracted congratulations for a job well done in 2008 but, the most recent holdings the school's student investment fund website shows are from 2004. It would certainly be nice to see more easily how these funds were doing. (Read our related article, Ace Your Business School Courses.)

Picks and Pans
Let's look at a few recent highlights and lowlights from the stock picks of student-managed funds. For instance in 2008, University of Dayton undergrads, who run $9 million in funds, beat all of the school's endowment fund's professional managers and outperformed the S&P 500 by 4.4%, losing a mere 33.6%. A lesson learned that someday could reap far more for the school than the current losses harm.

TrinityUniversity's SMF is run by undergraduates from its business program. Go to their website and you'll notice everything is well presented (more difficult than I would have thought) and easy to understand. For instance, you can quickly tell that they've beaten the S&P 500 in 2007 and 2008 by 649 and 414 basis points respectively. Further, in the 11 years they've been doing this, students have beaten the pros six times and usually by a wide margin. You won't get this sort of clarity at the websites of either the UConn or NYU Masters programs. These undergrads are doing a better job than many MBAs.

Trinity University Top & Bottom Performing Stocks (As of April 14, 2009)

Company Return
Occidental Petroleum (NYSE:OXY) 358.39%
Oracle (Nasdaq:ORCL) 226.93%
Quest Diagnostics (NYSE:DGX) 81.42%
Sears Holdings (Nasdaq:SHLD) -57.83%
Nasdaq (Nasdaq:NDAQ) -45.55%
Goldman Sachs (NYSE:GS) -40.62%

TrinityUniversity got this party started in July 1998, proving $500,000 in seed money to the fund. As of April 14, 2009 it was worth $935,990. That's a cumulative return of 87.2%, which compares very favorably to the S&P 500, down 21.8% in the same period. Looking at their latest April newsletter, the students cite Buckle (NYSE:BKE) and Mosaic (NYSE:MOS) as their best picks and Sears as the worst. I couldn't agree more.

The Bottom Line
Offering a real hands on approach may not be what universities are known for, but these student managed funds not only offer the chance for students to get their feet wet, they are making these schools good money. Personally, I'd be trying to find out the names of some of these students. They'll be known soon enough. (For more on this topic, read Should You Head Back To Business School?)

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