Student Managed Fund Pays Big Returns
April 12, 2012
Every Monday night, about 30 undergraduate financial analysts gather in a basement room in the Healey Library to discuss the state of the market, review how much money their investments earned and lost over the last week, and pitch new investment ideas.
As Accounting and Finance Department Chair Arindam Bandopadhyaya presides over the meetings, his students debate earnestly on gross margins, capital gains, interest rates, and market caps with the expertise of Wall Street traders.
These meetings are no simple class exercise: at stake is about $40,000 of their investors’ money. The amateur analysts are the proud stewards of a student-run investment fund that has consistently outperformed the market since its inception, with a return rate of 23.49 percent as of this writing.
The Student Managed Fund (SMF) at the College of Management at UMass Boston was created as a club in 2006, says Professor Bandopadhyaya, by a group of students who were passionate enough about investing to do it with no rewards. In 2008, the members approached Bandopadhyaya to ask if he would help them expand the club.
“My first reaction was that I didn’t have time. I’m not in financial management,” he said. But the students were persistent, and eventually convinced him to advise them.
“We started doing this with fake money and hypothetical trades,” Bandopadhyaya explained. But as interest in the SMF grew, so did the club’s aspirations. The same year, members approached the UMass Foundation and asked for a donation to invest, so they could gain hands-on experience with real money in the market.
Because of UMass Boston students’ initiative, the UMass Foundation decided to give each undergraduate campus $25,000 to use in student managed funds. With the receipt of the investment money, decisions had to be made on how to best move forward.
“We couldn’t have it as a club, with people coming and going – this is people’s money. We went from informal to formal,” said SMF Honorary Board Member and former President Kostian Iftica ’11.
Now, the SMF meets as a class for credit, and has received donations from various investors and friends of the university, bumping up their fund to about $40,000. Bandopadhyaya holds the class, Special Topics in Finance, once a week.
“The students run the show,” Bandopadhyaya said. “I’m there to represent the client [the UMass Foundation] and make sure they’re doing their job.” Bandopadhyaya also acts as portfolio manager, entering in the group’s agreed-on trades online through their Morgan Stanley account.
“No one is paid returns on their investments,” Iftica explained. “This is purely for educational purposes.” However, according to the class prospectus, should the fund exceed $100,000, any money above that total will be donated to scholarships for UMass Boston students.
The prospectus also specifies that the students invest responsibly, avoiding the risky and complicated stock market maneuvers that created the global financial crisis.
“We can’t bet that a company will go down; that’s not how we run the fund,” Iftica said.
And although investment is inherently risky, Iftica explained that the students use stop-loss protections to keep from losing too much money.
“If a stock drops too much, the stop loss prevents further financial losses. If the market crashes, stop loss also prevents us from losing too much,” he said.
Bandopadhyaya splits the class into nine groups, each of which is responsible for covering one sector of the market, such as consumer goods, or technology. Each group chooses stocks in their sectors, prepares reports on their performance, and makes a presentation to the class. A quorum of the class – 70 percent – must vote to buy or sell stocks based on the presentations.
Their model has been so successful that College of Management graduate students have begun their own SMF, led by Associate Professor of Finance Atreya Chakraborty.
At a recent class meeting, senior and SMF chief economist Jeffrey Soriano argued passionately for purchasing four shares of fast food restaurant Chipotle, predicting big returns as the chain expands and more Americans tap into the local-foods trend that Chipotle embraces. Others pushed back, asking tough questions about the chain’s costs of sourcing raw ingredients locally and their potentially problematic labor practices.
“The experience of being active in the Student Managed Fund is invaluable,” said current president Devansh Bajaj, also a senior. “[It] helps to bridge the gap between the theoretical knowledge students learn in school with the actual knowledge that comes from working in a corporate environment.”
To learn more about the Student Managed Funds at UMass Boston, or to make a donation, contact Arindam Bandopadhyaya.