Finance students run real share portfolio

By

18/05/2018

Sydney University business school is now replicating a real-world investment management firm on campus.

The student managed investment fund is a course in which finance students run an equity portfolio for an academic year – with real money. The fund is in its second year and is going rather well, outperforming the ASX 200 by 1 per cent this semester. All profits from the portfolio are used to help fund scholarships for disadvantaged students.

The class of 20 students has about $110,000 to manage and works to assess potential shares in which to invest. The group is divided into economic sector teams, such as industrials, healthcare or IT, and functional teams that are more like those at an investment firm. They work together in these groups and make suggestions about stocks to the full class.

‘Rigorous debate’

“It’s really about selling your idea and convincing everyone else of what you’re doing,” Sydney University senior finance lecturer Andrew Ainsworth says. “There’s rigorous debate and everyone tries to pick apart the idea to see how thorough and robust it is.”

The macro-economy team, for example, looks at big-picture factors such as inflation and currency, guiding the overall group with a broad perspective of what’s going on in the economic world. Functional teams also cover quantitative analysis, portfolio construction and performance in forming their investment pitches.

By contrast, sector teams dive into a specific industry to find stock opportunities, which are also presented as a thesis to the group. The class then votes to decide whether stocks pitched will be included in the overall portfolio, with 60 per cent of the vote required for the investment to move ahead.

This process makes up 30 per cent of the students’ assessment, ensuring their work goes beyond their own stock report, equally equipping them with the skills needed in an actual investment firm.

Students from various backgrounds

All of the students are finance majors but there are also those studying other fields such as medicine, law or economics as part of a double degree. This not only helps diversify the knowledge that’s brought into the portfolio but also allows the lecturers to distribute students across their respective fields and cater the portfolio to their interests.

“That’s how you’d do it in the industry as well,” senior lecturer Jiri Svec says. “If you worked at an investment bank, you’d be allocated a sector and you’d be part of a team. We thought about breaking it up so the students could interact with different people and do some of the things they need to do in the industry, such as the processes or putting together portfolios and managing risk.”

The students use Bloomberg terminals on campus to buy shares. The terminals also give them all the tools of a real investment banker, including financial and accounting information, risk metrics and forecasts. Furthermore, the class closely follows the ASX 200, so there’s proper benchmarking for their investing, Ainsworth says.

“The quantitative team provides some screens on different variables, such as PE ratios, past returns and other valuation metrics,” he says. “So, they come up with a score for all the stocks, ranked best to worst, and that gives a bit of structure.”

The lecturers are also to point out that the students are custodians of a long-term portfolio and are not day traders looking for a quick pay off. As expected then, there have been plenty of successes and failures along the way.

When one group pitched software company Aconex earlier this year, the students weren’t aware that a takeover was on the cards for that business. Luckily for them, the transaction resulted in a 20 per cent premium. Meanwhile, when Qantas was pitched last year, it didn’t draw much interest from the group and so wasn’t voted in. Its share price has since done well.

This all provides useful experience in managing money ahead of time, as one would in the real finance world, Svec says. “It’s their money,” he says. “We’re the mentors but they’re driving it.”

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