Managing a Financial Crisis: How student-analysts overcame COVID-related challenges and persevered in bear market
College of Business student-analysts recently presented the Student Managed Investment Fund (SMIF) annual report to industry professionals during their virtual advisory board Spring meeting. The $1 million fund, established through the generosity of alumni, is managed by undergraduate finance majors who are responsible for all investment research, portfolio positions, and reporting.
For senior finance major Andrew Turnage, this course was the perfect cap to his undergraduate studies.
“This experience marries the theoretical and the practical of the financial world and gives you experience that definitely puts you ahead of the competition going into the work force,” said Turnage. “Most people have learned about options and bonds, but have no idea how they actually work and that’s what you gain from this class. It shows what we are learning in class and how it relates to the real world.”
This quarter, student-analysts were met with real-world challenges—more than ever before—as the world began to feel the economic impact of the COVID-19 pandemic. Associate Professor of Finance Dr. Bill McCumber, who leads the SMIF course, helped guide students through an extremely volatile market.
“The student analysts have learned—under enormous pressure and dramatic volatility—what it means to be responsible for institutional funds,” said Dr. McCumber. “They performed admirably, essentially doing what all professional institutional fund managers are doing right now—trying to make sense of the impact of COVID on global asset prices, determining which industries and countries are more or less harmed by current conditions, looking for opportunities in industries and regions that are more likely to recover more rapidly from the global slowdown, and otherwise looking to diversify into assets that will shield the portfolio from wild swings in prices while protecting income the fund earns from its positions.”
Notably, the fund managed to post gains beating the benchmark despite dramatic volatility in global markets, only recently dipping below the benchmark due to the global pandemic. According to Dr. McCumber, the fund is invested in exchange traded funds and is a global asset allocation portfolio comprised of domestic and international equities, debt, and alternative investments.
“While such a portfolio should, over the long term, dramatically outperform the benchmark, the fund is also subject to significant volatility (especially under current circumstances, e.g. trade wars and COVID),” said Dr. McCumber. “The resilience of the fund speaks to the benefits of a diversified portfolio.”
While the coronavirus brought many challenges to these novice investors, Turnage considered his first quarter in the class the most difficult. “There is a steep learning curve on the tools we use and with the analytics and financial lingo that has only been presented in books,” he said. “If you put the time in, though, it begins to make sense.”
To Turnage, though, presenting a year’s worth of work was rewarding and worth the initial learning curve. Now, as a recent finance graduate, he feels prepared to enter the real world. He’s landed a position with Gibsland Bank & Trust, where he will continue to hone and build on the skills developed during his time as a student in the College of Business.
Lucius McGehee, ’85, who serves as executive vice president for Argent Financial Group and is a member of the SMIF advisory board, has followed the group’s progress since the Fall quarter, often visiting the class to offer advice.
“Witnessing the students communicating what they observed in what may be the most disruptive events in the economy and financial markets of their lifetimes showed their grasp of market dynamics and critical thinking,” said McGehee. “Being honest about what they got right and what they got wrong shows both confidence and humility, and will serve them well in their careers.”
McGehee also noted that experiences like the SMIF also provide invaluable networking opportunities.
“During the discussion with board members, the students received a firsthand demonstration of how networking benefits both the individuals as well as the group,” he said. “Every board member wants to see each student succeed, and the practical knowledge and experience brought by the board sharpens the academia to produce a holistic experience for the students.”
That holistic experience is one of the key objectives of the course which Dr. McCumber has often said is not a typical classroom experience.
“This is experience with professional, real-time data and tools, making analyses and decisions that have immediate and long-term, real-world consequences that is measured in real dollars,” he said. “I am very proud of the professionalism and dedication with which these student-analysts approached the management of institutional funds throughout the year. They have exemplified what it means to be a fiduciary.”
For more information about the Student Managed Investment Fund, click here.