The Undergraduate Student Investment Fund (USIF) is a primary function of the Marshall School of Business capstone Investment Management course, “Advanced Practicum in Portfolio Management.” This course offers a year-long experiential learning seminar in applied investment management. It is designed to give students rigorous exposure to contemporary investment and portfolio theory and practice. It also allows the students to learn the skills of actual money managers. Analytical framework and tools for valuation of stocks, bonds, options, futures, risk management and portfolio optimization, and performance attribution will be presented. In addition, behavioral finance will be introduced. Students will demonstrate and refine their understanding and ability to apply analytical concepts and techniques through fund management, industry reports, company research reports, and stock pitching exercises.
With the generosity of the various donors to the University, the USIF program was established in 2008. As of April 1, 2011, a total of $550,000 was donated to USIF by various donors and the total assets under management for the USIF was about $612,000.
The inaugural USIF class consisted of 14 graduating seniors who are establishing processes and procedures for a new student investment management company. In future years, approximately 20 high achieving Marshall students will manage the fund each year.
The purpose of this seminar is fourfold
- To provide a select group of up to 16 undergraduate students with hands-on experience in managing a portion of the University’s equity endowment;
- To provide an academic background for the consideration and appreciation of security analysis and portfolio management through assigned and self-selected readings;
- To enhance academic framework through interaction with individuals and institutions engaged in the money management business;
- To produce an present an Annual Report which will provide a record of achievement in each of these areas.
The performance objective of the Undergraduate Student Investment Fund (Fund) is to generate excess returns from a diversified portfolio, with a risk profile similar to the S&P500 Index.
Two-thirds of the Fund is actively invested in the ten sectors of the S&P500 and the remainder of the Fund is invested in a completion fund. While the Fund employs a sector-neutral principle, it can under- or over-weigh the benchmark sector by 20%. The combination of an active portfolio and a completion fund helps minimize the tracking error of the Fund with respect to the S&P500 Index.
Student Managers Selection
Students who are interested in the program submit an application in January. The Selection Committee reviews the applications and makes recommendations for first round interviews. These 30-minute first round interviews are conducted by the current USIF managers; the second and final round interviews are conducted by USIF faculty in consultation with an ad hoc faculty committee. Prior to enrolling in USIF, undergraduate students are required to complete or be concurrently enrolled in Financial Analysis and Valuation (FBE 421) and Investments (FBE 441).
The students are selected based on their genuine interest in pursuing a career in the investment management field. The number of students allowed to enroll in this two-semester program is limited to 16 so that (a) each student may have direct experience in portfolio management and (b) the class as a group can visit with a variety of money managers. The class requires a daytime availability on Mondays and Fridays so that the student managers can meet with each other and make off-campus visits during normal business hours. The expected daytime commitment is 10-15 hours a week, which includes regular meetings with co-managers outside of class
Resources for the Undergraduate Student Investment Fund Managers
The Capital Markets Training Room is located on the second floor of Bridge Hall and has all the elements of a state-of-the-art trading room with information screens, monitors, extensive software packages and research capabilities in real-time. These teaching/research tools and resources aide students in managing their funds. In addition to Barra (Portfolio Optimization and Performance Attribution) and Capital IQ and Morningstar, we also have a Bloomberg terminal. With Scott Johnston’s (MBA ’69) assistance, we have received a generous gift from William O’Neil of its (WONDA) Database for the students.
Suh-Pyng Ku, Professor of Clinical Finance & Business Economics.
September 17, 2012
John Snider, Group Managing Director at Trust Company of the West, recently shared his story with and imparted wisdom on the Undergraduate Student Investment Fund’s 2013 class of student managers. The class was inspired by his non-traditional path to co-managing a multi-billion dollar portfolio. Additionally, Mr. Snider admonished the class to invest only in companies with the highest quality management, and shared some strategies for how to make this evaluation. Graciously, he helped the class by assessing individual names in the USIF 2013 portfolio and identifying key areas for the class to direct their attention.
October 1, 2012
Michael P. Reilly, Chief Investment Officer – Equities at Trust Company of the West (TCW), was gracious enough during the past week to visit the USIF class of 2013 to share his insights on what he considers, “Best Practices in Equity Research.” Drawing on his 20 years of experience in the investment management industry, Mr. Reilly emphasized 10 common mistakes that new research analysts and even seasoned portfolio managers routinely make. These ranged from mistakes as simple as falling in love with a CEO or a company, to more subtle missteps such as failing to distinguish between “accretive” growth and “profitless” growth. He also generously took the time afterwards to have dinner with a few select managers, where he continued to impart nuggets of wisdom and share his extensive knowledge of the industry.
USIF 2011 Alumni quotes
“USIF allows me to convert the conceptual knowledge to practical actions, and prepares me well before I step into the real world.” – Candice Cao
“The thing I value most about USIF is the ability to apply the concepts learned in my finance classes with real money.” – Matthew Gilbert
“USIF has provided me with the tools to be a rational, opportunistic investor in any sort of market environment. – Matt Holtz
“USIF offers students the opportunity to learn practical skills and knowledge that can be applied to any profession in the finance industry.” – James Hwang
“USIF has complemented my theoretical knowledge from other finance courses with real-world investment experience that has enhanced my understanding of the financial markets and prepared me for the corporate world.” – Nick Khoury
“USIF has enabled me to apply my financial knowledge and market research into portfolio management. It has also provided me with the opportunity to engage in active discussions during stock pitches.” – Felix Leung
“USIF has been an invaluable tool for learning how to operate in a professional environment and showing future employers that you are a high-quality candidate.” – Kevin Osman
“USIF has taught me how to make informed investment decisions by applying many of the financial concepts I have learned in other classes while being at USC. – Nil Patel
“USIF has taught me how to see a stock from multiple perspectives. No other class offers you the chance to discuss stocks in a group setting like this.” – USIF alumni
“USIF has allowed me to gain hands-on experience and valuable insight into the world of portfolio management; it’s proved much more informative and interesting than many of the more academically-focused classes I’ve taken.” – Jonathan Plummer
“USIF has been a class where the classroom learning feels like it extends into the real world and is actually something I’ll use in the future, not something to be forgotten at the end of the semester.” – Caitlin Price
“USIF has provided me with the tools to better navigate and understand the forces at work in the market.” – Nicholas Sanchilli
“USIF has been extremely valuable in helping me understand the practical application of various financial concepts we learn in the classroom. It was also extremely useful during the recruiting process and definitely gave me additional credibility as well as a good experience to discuss.” – Mamta Shah
“What I found best with USIF was that i managed to better understand how the markets work, their inter-relationships and it most importantly offered me a framework to be a better individual investor.” – Aaron Wong
USIF 2012 Annual Commentary (taken from the USIF 2012 annual report):
The global economy over the last year was characterized by uncertainty and turmoil. As the 2012 USIF class inherited the Fund, we faced the triple threats of a U.S. credit downgrade, a severe debt crisis in Europe, and inflation uncertainty in China. Consequently, the class responded to these challenges with motivation and excitement, approaching the unpredictable macro environment with a detailed and effective investment thesis. The portfolio managers worked diligently to find the investment opportunities for the Fund that offered the most long term potential. During our management, our active portfolio returned 6.39%, while the S&P 500’s gross return was 8.54%.
Within the ten sectors constituting the S&P 500 Index, we achieved the greatest return with the Information Technology, Consumer Discretionary, Consumer Staples, and Industrials sectors. Conversely, the Materials, Utilities, Telecom, and Energy sectors trailed the Index over the same period.
Our best-performing stocks this past year included Apple, IBM, Wells Fargo, American Express, and Microsoft. At the same time, we experienced the largest setbacks with Apache, Schlumberger, Walt Disney, 3M, and Baker Hughes. As a group, we have conducted a great deal of research within our mandated investment universe and have rebalanced the portfolio based on our findings. This included selling a number of our laggards and investing in new companies with more growth potential and/or attractive dividend payouts. We believe that our additional portfolio holdings are strategically optimized to best capture future gains in the market with less downside risk.
As we hand over our holdings to the USIF class of 2013, we are optimistic that the markets may be less volatile in the coming year. The Dow Jones Industrial Average, NASDAQ Composite, and S&P 500 are all near their highest levels since the financial crisis of 2008. We wish the best of luck to the new class and trust that they will enjoy managing the Fund as much as we did.
USIF Class of 2012