Student Managed Investment Fund closes above benchmark

Areas of Study , Coursework , Finance Stories | May 21, 2012 | Nicole Gesualdo

by Daniel Keyes (GSB ’12)

Gabelli’s Student Managed Investment Fund wrapped up another great semester of performance in April, beating its benchmark by 30 basis points, or 0.30 percent. Led by Professor James Kelly, 24 students manage a principal investment of $1 million from the Fordham endowment using an array of equity investments, bond funds, hard asset indexes and options strategies. Due to a limited risk appetite, the fund measures itself against a blended benchmark of equity, fixed income and hard asset indexes. In the period from January through April, the benchmark returned 6.1 percent versus our fund’s 6.4 percent.

The fund’s outperformance was driven largely by superior returns in the fixed-income portfolio and in the technology and industrials equity sectors. A heavily overweight position in corporate bond funds and an underweight position in treasuries drove this outperformance in fixed income, while allocation and successful stock selection contributed to the alpha in tech and industrials. However, it wasn’t a simple task achieving these returns without taking on excessive risk.

In making a closing presentation to university officials and Professor Kelly on May 9, the students discussed some challenges the fund faced. Managing Directors Sean O’Connor (GSB ’12), Steven Cirincione (GSB ’12) and Gabriella Krasnitsky (GSB ’12) said that the primary investment theme for the semester was financial market uncertainty — the fund saw a potential for increased volatility and tremendous headline risk due to the European debt crisis, a slowdown in emerging markets, and a potential turnaround in the U.S. economic recovery. To hedge these risks, the students utilized options strategies and defensive stock selection.

The ability to take hedge positions using options and to make investments into hard assets, such as commodities and real estate, is something that some other schools’ student-managed funds don’t have. Gabelli students benefit from this flexibility of investment while they learn crucial real-world finance skills. The class features lectures on portfolio management issues, guest speakers, and access to published research that helps students become more knowledgeable about various sectors and asset classes. Additionally, first-semester students in the year-long program prepare a 20- to 30-page research report that incorporates macro analysis, industry and company analysis, and discounted cash flow and value investing valuation methods.

Many of the fund’s 12 graduating seniors will be putting their skills to use beginning this summer in full-time positions at Goldman Sachs, JP Morgan, Credit Suisse, Citigroup, Nomura and Capital One, in divisions ranging from commercial and investment banking to asset management. Congratulations to the portfolio managers and analysts and to Professor Kelly on another successful semester.