UND student-managed investment fund watches portfolio expand, contract It is often said that the best lessons in life are learned first hand, which couldn’t be truer for a group of students in the College of Business and Public Administration who manage an investment portfolio called the Student Managed Investment Fund (SMIF). Instead of doing simulations, students actively learn every step in the intricate decision-making process regarding the management of a $700,000 portfolio; and it is all done in “real-time” in a state-of-the-art trading room, the A. Kirk Lanterman Investment Center. Thirty-six business students are part of the investment team, guided by a faculty member and an investment council, who work in small groups to analyze nine sectors of the stock market about which stocks to buy, sell, or hold. In the group’s first active year of investing (2007), the students outperformed the S&P 500 by 2.81 percent. The SMIF business students had a return on investments of 8.30 percent at 2007’s year-end, versus the S&P 500’s return of 5.49 percent. On average, only 20 percent of funds beat the S&P 500 in any given year, and this puts UND’s group among the top levels of all professionally managed mutual funds in the country. The students will present their performance for 2008 from 4:30 to 5:30 p.m. Tuesday, Feb. 10, in Room 9, Gamble Hall. The public is invited, but please RSVP to Pam Burkes at 777-0879. For more information about the Student Managed Investment Fund, please contact Steve Dennis at 777-3700. The students traveled to Dayton, Ohio, in March 2008 to compete in the annual RISE Competition, which recognizes student managed investment funds around the world. UND’s fund performance placed them in the top five in the undergraduate student category, an impressive result for their first year of active fund management. They will enter the competition again this March. “We are training students to manage money in a professional setting, and this is the essence of what it means to create ‘hands-on’ learning,” Steve Dennis explained. Dr. Dennis is the Aarestad Endowed Chair of Financial Services in the College of Business and Public Administration, and also serves as the faculty advisor to the Student Managed Investment Fund. “The Lanterman Center and the Student Managed Investment Fund give UND students a unique experience, an experience that is a distinct advantage in the job market.” Yet, the stock market was about to teach the SMIF students a lesson about stock market volatility. Michael Mathsen, SMIF president, watched their investment portfolio experience serious gains and losses during 2008 as the market experienced the greatest amount of fluctuation since the Great Depression. According to Mathsen, “During the week of September 22, several financial institutions failed. The SMIF owned (and continues to own) bonds issued by Credit Suisse, General Electric Capital Corporation and Wachovia, among a few other companies. We were concerned with credit quality, particularly with the Wachovia bonds. Thursday night, Sept. 25, CNBC reported that Washington Mutual was seized by the FDIC and that all debt holders would lose their entire investment (bond holders later received 57 cents on the dollar, but the report at the time said they would be wiped out). We awoke to our own Black Friday, Sept. 26, in that our Wachovia bonds had fallen in price from about 90 cents on the dollar a few days earlier to 50 cents that morning. Panic ensued in the SMIF. We had a tough time deciding whether to sell at 50 cents, or to hold and perhaps go to zero. We wanted to sell, but Dr. Dennis told us to hold. He said we had two outs: one, the government bails us out, or two, we get bought by another bank. On Monday morning, Citigroup offered to buy Wachovia, and they were later acquired by Wells Fargo, who is a AAA-rated bank. The Wachovia bonds now trade at greater than 95 cents on the dollar. The SMIF members and I got a great deal for our educational dollars just in that one week.” “The current stock market is not something you can simulate. These students lived it and learned many valuable lessons throughout the process,” Dennis added. For the first six months of the 2008, the SMIF continued to outperform the S&P 500, at times by as much at 3.3 percent. However, the last quarter of 2008 proved to be a great test for anyone investing in the stock market. In the end, the S&P 500 was down 38.49 percent for all of 2008, and the students’ portfolio was down 42.12 percent, or 3.63 percent worse than the S&P 500. “Despite the roller coaster ride of the last half of 2008, the Student Managed Investment Fund has been a highlight of my education at UND. It will always be an incredible memory to look back on how much I learned in such a short while due to what was happening in the market and around the world. This was something I could read about, but instead I experienced it in real time…and for that, I feel more prepared for what life can be like outside of the classroom,” said Jeff Baumgartner, the SMIF vice president.