Learning in 360: Portfolio Practicum

Apprentice Money Managers Take on Multi-Million Dollar Fund

by Brian Calhoon

The halls of the Hankamer School of Business are beginning to resemble Wall Street more and more. And it’s not in the students’ formal dress or increasing age, but their amplified business savvy and the fresh, new state-of-the-art digs.

The world-class Southwest Securities Financial Markets Center is the new home to finance course 5381, Practicum in Portfolio Management, which has provided hands-on experience for top students with an eye on the market since its inception in 2001. These apprentice money managers learn how to research securities, evaluate risky assets and allocate assets by actually managing Philip M. Dorr Alumni and Friends Endowed Investment Fund, one of the largest student-run portfolios in the nation – currently worth over six million dollars.

“We now have one of the top facilities of this kind in the country,” said Brian Bruce, the main instructor of the class that manages the fund. Bruce is also director and head of Equity Investments for PanAgora Asset Management. He was a natural choice for teaching money management. Not only is Bruce the Editor of several journals, including the Journal of Investing, Journal of Trading and the Journal of Behavioral Finance, but at his day job, he is responsible for a team of 17 portfolio managers who oversee almost 18 billion dollars in equity assets in Boston, where he also lives. Bruce has taught the class with William Reichenstein, the Pat and Thomas R. Powers Chair in Investment Management, for the past four years. Reichenstein acted as the on-campus instructor and Bruce taught via teleconferencing.

“We are grateful to have someone with great work experience helping Baylor to lead this class,” said Reichenstein about Bruce. “There is no one who manages that much money in the city of Waco.

Not just anyone has the opportunity to learn from such accomplished money managers, either. There is a selection-by-committee process for each student interested in joining the portfolio practicum, to guarantee that the multi-million dollar fund is in safe hands. More than grades are taken into account in deciding who will be selected for the course. Each student must apply for the course and if selected go through an interview and screening procedure, where interest and experience is also considered.

One of the students selected by the committee in 2002 was Scott Pittman. Pittman received his MBA from Baylor later that year. Prior to receiving his MBA, Pittman worked for five years as a financial analyst in healthcare. After obtaining his MBA with a finance concentration, Pittman joined the faculty at Baylor where he taught finance and economics for two years before becoming a Baylor Investment Officer, where he works with Baylor’s CIO Jonathan Hook, managing the university’s endowment.“The portfolio practicum class helped prepare me for real life situations,” said Pittman. He is excited for the opportunity to return to the classroom and challenge these students with such a demanding course.

“The students will be involved. They are not only going to be learning, but there will be times when they are teaching each other,” said Pittman. The experience gained from the course will also aide the students in developing their presentation skills and confidence.

During the semester, the students in the class will manage 18 to 21 stocks.

“We intentionally keep it small because we would rather have a more detailed analysis of fewer stocks than a cursory analysis of 40 or 50 stocks,” said Reichenstein. The primary objective of this course is to provide students with money management experience that mirrors the experience available in the profession.

The students in the class are broken up into ten different sectors: industrials, information technology, materials, healthcare, financials, utilities, energy, telecommunication, consumer staples, and consumer discretionary. One or two students are appointed to manage each sector.

The schedule is then divided into two different rounds for the semester. The analysts for each sector present their stock pick to their money managing peers in the first round. The audience is also responsible for researching each stock that is presented to them and must have their arsenal of questions prepared. The first round involves an existing stock in the portfolio. The class decides on whether to sell now, sell later or hold on to it for another semester.

The second round involves a discussion of the industry and presentation of potential stock purchases. This round is similar to the first round in that each student is still required to research each stock that will be presented by each sector. Some of the popular stocks that the class has dealt with in the past have been Capital One Financial Co., Dell Inc. and XTO Energy, among others. The students write a fundamental analysis report on each stock they present to the class.

“The students are responsible for the performance of the fund. We are working with actual money-this is one thing that makes the class valuable,” said Pittman. “The students in the class must be able to handle the responsibility of making real investments that will realize the losses and gains of real money. This gives each student an experience that cannot be duplicated by using a simulated program.”

Since inception, Philip M. Dorr Alumni and Friends Endowed Investment Fund has done something that many professional money managers have not achieved. The Dorr Fund has outperformed the market, as measured by its benchmark the S&P 500 index, on a long term basis. The students have beaten their benchmark every year since inception, with the exception of 2003. In 2003, the market exceeded the Dorr Fund’s return of 21.3 percent. Overall, students in this class have added 3.85 percent of additional value above the S&P 500 since the fund’s inception. This has been accomplished while taking on less risk than the market. The Dorr Fund’s performance has been accomplished with lower volatility and higher risk adjusted returns.

A unique aspect to the money earned through this class-related project is that some of it goes toward scholarships. An amount of $193,000 was earned this past year and went directly toward scholarships: $175,000 went toward athletic scholarships and $18,000 went toward business school scholarships.

Companies are starting to recognize the importance of this class as a resume builder. Several students this past fall have found positions with companies such as Goldman-Sachs, Lehman Brothers, JP Morgan and Morgan Stanley.

“We’re doing a much better job of landing students at prestigious firms,” said Reichenstein.

The state-of-the-art center in the business school gives students a different dimension to learning that can help them with future jobs. “Now the students have access to real time financial data that they wouldn’t have otherwise. With access to sophisticated tools, the students can function like any institutional investment manager,” said Bruce. “That means these students will be completely ready to step into a portfolio management position upon graduation.”

Baylor Business Review, Fall 2005

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