Student-Managed Investment Funds Walk the Walk

Patricia Pickett ’82 APR

from Fall 2018

When Steven D. Dolvin arrived on Butler University’s campus in 2004, he came with a resume in both education and the investment industry and had an an inkling of an idea that seemed unlikely. He wanted to create a program in which undergraduate students managed a real investment portfolio and did so with real money. 

“To create a student-managed investment fund made total sense to me,” said Dolvin. But how to convince the University Board of Trustees? Dolvin created a structured platform with safety nets and guidance, yet enough freedom and encouragement to emulate the real world. 

Dolvin went through the proposal with Vice President for Finance Bruce Arick and Butler Trustee Rollin (Rollie) Dick and pitched the idea to the Trustees. The seed money for the fund was initiated using a small portion of the University Endowment. 

“In retrospect, Dick laughs and says the University should have kept $1 million and given the rest to the students to manage,” shared Dolvin. Since its inception, despite experiencing the worst financial crisis since The Great Depression, the Student-Managed Investment Fund (SMIF) has grown to over $2 million. A second fund launched in 2014 reflects a value of slightly more than $1.3 million. While the SMIF has slightly trailed the performance of the S&P 500, since inception it has outperformed the S&P on a risk and fee-adjusted basis. 

Nearly a decade later, Dolvin is now the Ratliff Endowed Chair in Finance. And today, the SMIF invests $3 million annually in primarily large capitalization, publicly traded firms (S&P 500). The Butler Business Consulting Group (BBCG) Investment Fund, which was seeded using funds from a Lilly Grant in the early 2000s, invests $2.5 million in private equity, split evenly between private equity fund managers and direct investment deals. More than 300 students have participated in the SMIF and approximately 60 have been involved with the BBCG. 

Dolvin says while many schools have a managed student fund for the Finance students, Butler’s is unique. “Most of the larger funds are focused on graduate students, while Butler’s program is primarily for undergraduates,” he said. Also setting it apart is the fact that the funds are managed through a structured class. Many universities sponsor investment clubs that exist without much formal structure and are limited to allow only a select number of students. 

“Structuring it as a class has made it accessible to all students who meet prerequisites including a basic investments class (how markets function, differences in stocks, devaluations) that puts markets and trading in perspective,” Dolvin explained. “The class size is 16, and we split into four teams. Each team is responsible for overseeing two to three sectors of the S&P—e.g., healthcare/industrials; technology/utilities, etc. 

Students research the investment and make a formal class presentation on a proposed trade, said Dolvin. The class vets the recommendation and, like real life, some are turned down as non-viable investments. 

“I was surprised at how personally and seriously the students take it. They were much more conservative than I thought they would be,” he said. “I really believe that market volatility helps from an academic perspective.” 

Dolvin sees these student-managed investment funds as a significant catalyst in the increasing profile of the University’s business program. 

“When I started, we had about 600 students in the entire College of Business,” he recounts. “Today, Finance is the second largest major in the Lacy School of Business. While it is just one small aspect of the many great things going on in LSB, I’d like to think the SMIF programs have played a role in attracting students.” 

The other thing the program has attracted is the Central Indiana business community as well as returning alumni speakers and advisors. The speakers’ list reads like a “who’s who” of business, and students benefit from making those connections through the program. Program graduates have obtained jobs with JP Morgan, Google, Bristol Myers, and Indiana PERF. 

The program can look forward to “new digs” to be located in the state-of-the-art Lacy School of Business building in fall 2019. Classrooms will include a realistic trading setting complete with Bloomberg terminals. The reality of the equation that plays such an important role in the class will only be amplified. According to Dolvin, “When you put real money to work, they approach it differently. The amount of work students put into it reflects that.” 

 

Investing in Real Results

Many parents send their children off to college with serious (and often justified) concerns about their financial knowledge. At best, students hearing the word “investment” may conjure up a memory of a regular statement of an account perhaps set up by a grandparent or something they’ve heard on the news or glanced at on the Internet. 

However, for Finance majors at Butler University, the word “investment” gets real with the Student-Managed Investment Fund (SMIF) and program. The class, created and taught by the Ratliff Endowed Chair in Finance Steven Dolvin, provides students the opportunity to manage real money—nearly $3 million to be exact. 

Finance and Marketing major Nicholas Y. Huang ’18 admits he had limited exposure to the stock market through family members, but he was not an active investor. “Before participating in the (SMIF) program, I was very intimidated at the thought of managing a $3 million portfolio.” 

Taylor Viti ’18 initially visited the Butler campus as a potential Dance major, but the rigors of the program and vocation initiated a rethinking of her career goals. She found her way to Finance as her major and a seat in Dolvin’s Student-Managed Investment Fund class. “The class acts as a real-world application of everything learned during the course of four years,” she said. “When you’re dealing with the University’s millions, you have a real sense of due diligence that I think was very valuable.” 

Huang concurs. “I loved it. As a Finance student, it is fantastic to have an expert like Professor Dolvin in the classroom. The SMIF provides real-world experience that you simply cannot get anywhere else.” 

While the class pace reflects the frenetic energy that exists in the high-stakes world of investments—including five formal stock presentations for each student team throughout the semester as well as a final overview evaluation—the methodical approach guided by Dolvin and supplemented with Central Indiana business leaders and alumni as speakers and advisors provides countless, lifelong lessons for students. 

“As students, we have access to outside investors who manage portfolios for a living. This, alongside Professor Dolvin’s expertise, creates a supportive learning environment,” said Huang. “Throughout the course, I truly learned the importance of teamwork. With 90 percent of our work being team based, it can be challenging with so many diverse perspectives at the table. Our group took time to understand each other’s individual strengths and used that to fuel our results.” 

In addition, Huang learned the value of storytelling … something one might not associate with the financial industry. 

“In the business world, storytelling applies to us just as much as a liberal arts student studying English. Johnson & Johnson (J&J) isn’t just a massive healthcare company with billions in revenue; it’s a company fulfilling the vision of a family who wanted better, healthier, and happier lives for their children. Whether you’re a new mom using baby powder on a newborn or a high schooler using Clean and Clear face wash before heading off to school, J&J serves millions of families every day. These narratives push investors to see themselves, and what matters most to them, beyond the numbers on an income statement. And, this is what gets money on the table.” 

The biggest life lessons learned by Huang (one that many people twice his age might heed) is to invest early. “One thing Butler professors reinforce, especially in Finance courses, is the importance of saving for retirement. It pays off big even though it’s far from your mind as a 21-year-old college student.” 

We’re pretty sure there will be some well-informed Butler graduates to help you plot your financial future. 

 

Expertise, Insight, and Real Returns

It is no secret that Butler University graduates have a soft spot for their alma mater. It’s not unusual for alumni to be frequent visitors to campus as guest lecturers, advisors, and volunteers. Corey Waddell ’08 is one of those Bulldogs tenacious about finding a way to give back. 

Waddell grew up visiting the Butler campus and attending basketball games at Hinkle Fieldhouse. His mother, Darlene, was an Administrative Specialist at Butler; his father, Greg, graduated in 1979; and his older brother, Drew, graduated in 2006. The Butler Way was a way of life at the Waddell house. So it wasn’t much of a surprise when the younger Waddell chose Butler, majoring in Finance. In fall 2007, Waddell found himself in Professor Steve Dolvin’s inaugural section of the Student-Managed Investment Fund (SMIF) class. “I was lucky enough to be there in fall 2007 and it was a class I really enjoyed. Professor Dolvin identified me as a group leader, so I was able to pick who was in the group. I thought that was a huge honor.” 

Today Corey Waddell is a Certified Financial Analyst and Senior Consultant at Capital Cities LLC. His primary responsibilities include supporting the investment process and serving clients and prospects. He is also a member of the Capital Cities’ Investment Committee. And he serves as one of several outside advisors to the SMIF. 

He salutes Dolvin, the current Ratliff Endowed Chair in Finance, in getting the class off the ground and the University’s Board of Trustees for allowing the class to take place. 

It wasn’t all profits, profits, profits, according to Waddell. “We got pretty heady when some of the first stocks we picked made money. And then there was the fall after the October 2008 crash, and we took a sizeable loss.” 

That experience and story is a great one for Waddell to relate to Dolvin’s SMIF students. “Looking back, we were all so green. There was a ‘fake it ‘til you make it’ mentality. As an advisor, it’s something I try to relay. You are not going to know everything about picking stocks as a 20-year-old. You have to be able to make mistakes—that is when you will learn the most.” 

Case in point, the most recent semester presentations. Waddell was present during final class group presentations this past spring. He shares that he witnessed one of the best final presentations overall, but in terms of stock picking, they had a very mediocre performance. Often the fear is the group with the banner portfolio for the short, two-month holding period may not have learned as much as the group facing failure who had to revise their thesis. 

But, that is reality. 

What knowledge does he pass along as an advisor? “I try to stay out of the weeds with the groups on specific financial metrics or how a chart is looking. I make sure their logic is sound, but analyzing market trends can take years of practice. I really try to get them to think outside the box on what to analyze,” he said. 

What does that mean? Waddell shares, for instance, that the group assigned to the tech industry has most likely heard of Apple and Facebook, and those are easy investments to pitch. But, the semi-conductor business is going to require a lot more research on the group’s behalf for the entire class to be comfortable with the stock. These more researched presentations end up being more complete. They’ve identified the ideas they should be diving into. 

Like everyone involved in the course, Waddell points to the real-life experience as the prime benefit of the Student-Managed Investment Fund program. “If you’ve taken this course, talk about it in your interviews,” he said. “Even a decade later, it’s a rare class and opportunity. Bring examples of what you’ve done in the class. You may not be interviewing to be an equity analyst, but this class and its real-life learning and management experiences can translate to almost any career opportunity.”