Weighing in at $62 million, you would think that being one of the world's largest student-run portfolios sets the University of Wisconsin's Applied Security Analysis Program (ASAP) apart from its peers. But ask its student managers what makes their program worth talking about, and size isn't the first thing that springs to mind. Here's a look at what does.
Membership: Approximately 16 students per MBA class
Money under management: $62 million
Approximate allocation: $2 million actively managed equities, $10 million actively managed fixed income investments , $50 million passively managed index securities -- mainly fixed income
Investment breakdown (benchmarks): Long-Short Portfolio (LIBOR +2%), Long-Only Portfolio (Russell 3000), Actively Managed Intermediate Bond Portfolio (Citigroup Broad Investment Grade Index)
Number of Holdings: Approximately 50 equity, 40 fixed income
Time-horizon: Long-term appreciation
While Wisconsin's investment program is possibly the biggest in the world in terms of money, its size isn't the sole draw for potential students. "I decided to come to Wisconsin because it had something that other schools couldn't offer," says Chris Carter, a first-year MBA student who will help manage the fund next year. "In the first year, we have a local hedge fund manager from Madison, who teaches us the ins and outs of doing high-quality stock analysis... something that we'll be doing this summer in our internships."
"That was a big point of differentiation. There aren't a lot of other programs out there that offer a practitioner who teaches the class, and who brings in other professionals to talk to the students. We've had people from T. Rowe Price (TROW_) talk to us about interviewing company management, someone from Jefferies and Company (JEF_) told us about financial modeling, and an alum from Citigroup (C_) that talked to us about fixed income."
Another point of differentiation is ASAP's relationship with the CFA [Chartered Finacial Analyst] Institute. According to Carter, the University of Wisconsin is a CFA Program Partner, which means that as students complete their MBAs, they're completing the requirements they need for the rigorous CFA designation.
No Holds Barred Investing
Another thing that the ASAP program prides itself on is their lack of a "safety net." In other words, students have complete discretion over the investments they hold in the fund's portfolio.
"As a result," says second-year student Don Henken, "we probably spend a much larger portion of our time managing this portfolio than most other [college investment] programs do."
But that doesn't mean that students aren't accountable for their portfolio's performance. ASAP has an advisory board made up of some of the program's most successful alumni, including CEOs, portfolio managers and investment analysts. The board is responsible for keeping the students on track without getting in their way.
Watch Those One-Sided Bets
Like most of the investment programs TheStreet.com's Investment Club Watch has looked at this year, the University of Wisconsin's ASAP program has seen its share of ups and downs in this post-subprime economy.
"We had some one-sided bets that went the wrong way in January that hit our performance a little bit. Outside of that, we've done well," says Jason Schultz, a second-year student in ASAP's long-short group.
Schultz says that the timing of January's downturn was unfortunate -- the group had to present their performance later that month. Shultz recalls, "We did have to report underperformance and that was not fun. At the end of the day, they [advisory board] treat us like professional money managers that they've hired, and we had to explain what we attributed our underperformance to, and what we planned to do differently to make sure that we came out on top by the end of the year."
One of the one-sided plays that took a bite out of the group's performance was Children's Place (PLCE_), a children's retailer that saw share prices fall 62% in 2007. "We felt the stock was undervalued , but it didn't go our way. We ended up closing our position in [Children's Place]," explains Schultz.
Retail turned out to be an unfriendly place for many investors last year, with apparel retailers underperforming the S&P by 32%. Children's Place's industry peers like Gymboree (GYMB_) Carter's (CRI_) also saw double digit hits in 2007.
Another one-side investment that took a bad turn for ASAP was Microsoft (MSFT_). "We had a long in Microsoft which was working out well for us until Microsoft made its bid for Yahoo! (YHOO_). Now it's down," says Schultz.
In the end, Schultz and his cohorts have found that sticking with pairs is a lucrative investment decision for their portfolio: "There are times when we make long or short-only bets, but in general, we try to be diligent about finding a pair so that we remain neutral to the market."
With the school year coming to a close, the ASAP group says its fixed income and long-only portfolio teams are beating their benchmarks, while the long-short team is still trying to make up for their January losses. How? Smart pair trades.