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For endowment fund managers such as Michael Glickstein, it has been a nail-biting few months. Earnings at US companies have dropped for five consecutive quarters and the S&P 500 index has had its worst year since 1931.
But Mr Glickstein’s fund has held up well, outperforming its industry benchmark by about 6 per cent.
Mr Glickstein does not work for a big-name fund company, nor is he a professional portfolio manager. Instead, he is an MBA candidate at New York University’s Stern School of Business, enrolled in a year-long course where students manage a portion of the university’s endowment.
The aim of the Michael Price Student Investment Fund (MPSIF) is to expose students to the world of money management and give them solid credentials to help them line up summer internships and jobs after graduation. Students manage a family of funds and are responsible for all activities from screening and evaluating stocks, to presenting pitches for buy and sell recommendations, to strategising cash positions.
Competition to secure a spot in the 50-person class is stiff and there are always more applicants than places.
“This class has given me real world context,” says Henry Barash, a second-year student who manages the value fund. “It has helped me pull everything I’ve learned at Stern together.”
The funds are part of the NYU endowment and were started with a $1.8m gift from Michael Price, the investor. The fund pays an annual 5 per cent dividend to the University of Oklahoma’s Price School of Business, Mr Price’s undergraduate alma mater, which enables students there to attend summer classes at Stern.
Since inception in March 2000, the Michael Price family of funds earned a cumulative return of 55.6 per cent, compared with 31.8 per cent for the industry benchmark. The fund was down about 18 per cent from September 1 to the end of November, but has outperformed its combined industry benchmarks by about 6 per cent.
Richard Levich, who teaches the class, attributes this outperformance to the collaborative nature of his students’ decision-making. “I think they show a great deal of prudence, in part because all decisions on whether to buy, sell or hold are collective decisions,” he says.
“The students have a natural sense of optimism about the markets and the country,” he says. “Many of them subscribe to the notion that America is still going to be an economic powerhouse in the coming decade.”
The investment group does bottom-up fundamental analysis to select stocks. Some of the best recent picks include CVS Caremark, the drugstore group, which is up 26 per cent since the fund bought in.
“The theme was that pharmaceutical prescriptions are more of a necessity [even in an economic downturn],” says Prof Levich. “And we may be going into a political administration where healthcare benefits are more widely available and CVS could benefit.”
The turbulent markets have created many teachable moments. The most memorable, for Mr Glickstein, the fund’s president, came at the beginning of the semester.
Over the summer, when the school is not in session, the fund operates using stop orders – orders to buy or sell when a specified price is reached – and limit orders – orders to buy or sell a stock at or close to a particular price – to prevent big losses and lock in profits. When students returned, the market turbulence left the fund with about one-third of its holdings in cash, which was unusually high.
The question of what to do prompted vigorous debate. Some students argued that the fund ought to move into exchange-traded funds – baskets of securities that trade on an exchange like stocks – as a holding ground before buying particular equities. They referenced Warren Buffett’s attitude: “Be greedy when others are fearful.”
Others felt that staying in cash was wiser. They noted that hedge funds were moving to cash and more bankruptcies were yet to come.
Mr Glickstein was on the losing side of the debate – the fund stayed in cash. He is now grateful for the cautiousness of his classmates, but remains bullish about the stock market.