Purdue News

April 4, 2005

Krannert again 'rises' to top in investment fund contest in four-peat

WEST LAFAYETTE, Ind. – A Krannert School of Management team earned a first-place award for the fourth consecutive year in the nation's largest student-managed investment fund contest, which took place Thursday (March 31) at the University of Dayton.

Second-year MBA students Sarah Biegert and Ben Hollenshead made the winning presentation in the growth-style investing category in the Redefining Investment Strategy Education's fifth annual Global Student Investment Strategy Symposium. Biegert and Hollenshead lead the Krannert School's Student-Managed Investment Fund (SMIF), which racked up total returns of 36 percent in 2004. Teams were judged on fund returns, presentations and responses to judges' questions.

In the past four years, Krannert teams have claimed two overall awards and two category awards.

Hollenshead, from Ann Arbor, Mich., says SMIF has about 80 members, most of whom are MBA students, that divide up into smaller research groups to backtest data on stocks' performance and to try out new investment strategies.

"The larger group looks at figuring out which variables are the most important in predicting future stock prices," Hollenshead says. "Sarah and I work as the point people and implement what the larger group finds."

The implementation includes coordinating the research, buying and selling the stocks, and doing the final analysis.

Biegert says that each year's SMIF results build on past efforts.

"We test data from the past, looking for dusty corners that could give us an edge," Biegert says. "We employ two main strategies every year. In the first month of the year, we do our first strategy, the 'January effect,' which essentially means we buy a basket of stocks that have been oversold in the end of the previous year from tax-loss selling.

"Our research indicates that these types of stocks tend to bounce back strongly in January. Then our second strategy is to identify undervalued firms, stocks that according to different measures of value are underpriced, and invest in those 'value stocks' in the remaining 11 months of the year."

In 2004, Biegert says the January-effect stocks returned 11.3 percent versus the Standard & Poor's 500 index return of 2.8 percent. The value stocks returned 20.3 percent versus the Standard & Poor's 6.4 percent.

The investing approach is 100 percent quantitative, which means SMIF seeks out funds with given sets of performance parameters without considering any qualitative investing factors, such as industry, management, prospects for the economy, interest rates, etc.

"We literally had never heard of most of the stocks we invested in," Biegert says, ironically noting that after graduation she's planning on doing equity research in New York City.

Hollenshead says SMIF began in 1998 with a $100,000 gift from Krannert School alumnus Richard Hansen, CEO of Investec PMG Capital, who wanted to give the next generation of students the opportunity to test investment strategies with real money.

"The fund currently stands at about $290,000," Hollenshead says. "That's a 190 percent return."

Hollenshead and Biegert give credit for the team's success to faculty adviser Michael Cooper, an associate professor of finance.

"What's interesting about this year's win in investing terms is there tends to be a lack of 'persistence,' in the mutual fund industry," Cooper said. "Funds tend to be up one year and down the next. But with essentially the same strategy, the Krannert students have been able to demonstrate persistently good returns for four years in a row now. So you begin to conclude it's not just luck."

The RISE symposium is sponsored by the University of Dayton School of Business Administration, the New York Stock Exchange, The Wall Street Journal, CNBC and Deutsche Asset Management.

Other winners in the graduate division were Rice University in the blend-style equity portfolio category and Michigan State University for the value-style equity portfolio category. There were more than 1,000 students and faculty from 132 colleges and universities from five countries attending the symposium.

Past Purdue SMIF teams have opened the NASDAQ stock exchange, rung the closing bell at the New York Stock Exchange and been featured in BusinessWeek magazine.

Writer: Mike Lillich, (765) 494-2077, mlillich@purdue.edu

Sources: Ben Hollenshead, (765) 430-8139, bhollens@purdue.edu

Sarah Biegert, (765) 404-0802, sbiegert@purdue.edu

Michael Cooper (801) 585-6258, mcooper@purdue.edu

Related Web sites:

University of Dayton news release

 

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