- The Washington Times - Wednesday, September 25, 2002

DAYTON, Ohio (AP) Rick Davis has more than a grade riding on his performance in an investment class at the University of Dayton: He could lose millions of dollars that aren't his.
At the university's Center for Portfolio Management, 15 undergraduate students have been entrusted with $2 million from the school's endowment to invest. So far, they have outperformed the average investor.
"The added pressure makes people a lot more in tune with what's going on. You can't take a day off," Mr. Davis said.
Dayton is one of 110 colleges and universities across the country that give students school money to invest rather than have them work with hypothetical portfolios, according to the Association of Student-Managed Investment Programs at Stetson University in Florida.
At the University of Maryland's Robert H. Smith School of Business, an elite group of second-year students pursuing a master's degree in business administration manage the Mayer Fund, a mutual fund valued at more than $1 million. Using the university's endowment, they select stocks to enter into the fund and perform equity analysis and research, under strict supervision and guidance from faculty members. The fund pays a dividend to the dean's office to fund other programs at the business school.
"We're hoping the students learn to do equity analysis and portfolio management," said Meg VanDeWeghe, the fund's faculty adviser and a former managing director at JP Morgan. "We ask a lot of tough questions. It is absolutely, positively, not just playing around with money."
Twelve students are selected by their peers to manage the fund. Their average age is 28, and they come to the fund with real-world experience in sales, business development and marketing.
Three students are named fund managers and are helped by nine equity analysts specializing in areas ranging from technology and telecommunications to health care and utilities.
Though the fund has lost some value in the past year, Ms. VanDeWeghe said, it has outperformed the market.
The number of schools with such programs is "increasing all the time because schools are recognizing the value of having the students do fundamental research," said Larry Belcher, chairman of Stetson's finance department. "It's always better than simulation because they learn from their mistakes. And there's a penalty for making mistakes, just like for professional money managers."
Mr. Belcher said students are graded on their research and efforts.
Students at the University of Arkansas manage an $820,000 fund begun in 1972 with a $100,000 gift to the school.
"They sit down with the trustees as if they were their clients," said Craig Rennie, assistant finance professor. "It's totally different because the students feel responsible for their losses and celebrate their gains."
Dayton's program began in 1999, and the trustees were planning by the end of the year to increase the amount students could invest to $3 million. If the fund continues to perform well after that, the trustees will increase the amount to $5 million. Profits go into the university.
The Dayton students have outperformed the Standard & Poor's 500 Index by 5.5 percentage points in each of the past three years, a period marked by sharply falling stock prices. While the S&P; 500 had an average annual decline of 9.2 percent over the period, the value of the students' portfolio decreased 3.7 percent, said David Sauer, director of the center.
"It's no longer a theoretical student exercise," said student adviser Robert Froehlich, a financial analyst for Scudder Investments in Chicago. "This isn't about getting a grade in class anymore. They now have this added fiduciary responsibility."
The students manage the funds from a lab that simulates Wall Street. They use the same computer software and subscription services used by major financial institutions.
Televisions are tuned to CNN and CNBC, and two Bloomberg News terminals provide news and securities information. Microphones embedded in the ceiling enable students to hold teleconferences with analysts. A ticker board displays real-time information on stock trades.
"We're trying to create an environmental as parallel as we can to an investment house," Mr. Sauer said.
Before being allowed to invest real money, the students must take corporate finance, investment and portfolio management courses and do simulated investing.
The students decide as a team how to invest, with a two-thirds vote required. They trade through three different investment firms and have about 40 different securities in their portfolio.
Half of the money is invested in bonds and the other in fixed-income securities for stability. Mr. Sauer said his students tend to invest in large and midsized companies.
Each student is assigned an industry to research. They currently are leaning toward investing in the health care, utility and defense industries.
"We feel very confident in the program and confident in our team," said student Brian Atenucci.
Still, "we've definitely been kind of stressed, getting all of our data together," he said. "We've been doing constant research. We bring it to the table, and then we need more to back it up. Any spare moment we have we're on the computer or we're looking in the [Wall Street] Journal for more information."
The students received a 60 percent return when they invested in Home Depot, but took a bath when they bought stock in Tyco, which had been tainted by corporate scandal.
Mr. Sauer said the bear market has enabled the students to practice risk management.
"It's an excellent time to learn," he said. "During that bull market, sometimes it's a little more difficult to see the relevance of that."
Staff writer Tim Lemke contributed to this report.

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