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Release: May 17, 1999

UI student stock portfolios post excellent returns

IOWA CITY, Iowa — University of Iowa finance students rode the wave of the Wall Street's recent bull market and saw excellent returns on their stock portfolios compiled as part of securities analysis classes.

The Krause Fund, managed by undergraduate students, has returned 30 percent since Dec. 22, outperforming the Standard & Poors 500 return of 11. 3 percent over the same period. The Henry Fund, an MBA student portfolio, returned nearly 17 percent over the past year.

The students didn't produce the gains by making day trades on volatile Internet stocks; they carefully picked stocks for long-term returns. The portfolios benefited from huge gains in technology stocks and survived last fall's market volatility.

"They were very disciplined in their investment criticism, looking at factors such the competition in the industry and how efficient and profitable a company was," said Tim Loughran, a UI associate professor of finance who oversees the student portfolios.

Endowed by W.A. "Bill" Krause, president and chief executive officer of the Krause Gentle Corp., the $100,000 Krause Fund gives undergraduate UI students real-world portfolio management experience. The 1957 graduate of the UI also established similar funds in 1998 at Iowa State University, the University of Northern Iowa and Drake University. Undergraduates at the four universities compete in the annual Krause Challenge, to show the best return on their investments. Steve Forbes, editor and publisher of Forbes magazine, serves as the Krause Challenge National Advisory Committee chairman and will judge the competition.

Working in Loughran's security analysis class, 75 students recommended 11 stocks for the their portfolio, which must have at least 25 percent of the fund to be held in firms with a significant presence in the state of Iowa. They presented their recommendations to an advisory committee of investment professionals who made the final decisions on buying and selling the portfolio's assets.

One student from each of the four universities serves on the board of directors of the Krause Gentle Corp. each semester. Allison Mercuris, a native of Prairie City, Iowa, served as the UI representative and presented its portfolio for board approval. The experience of investment analysis and being on a corporate board has been invaluable for Mercuris, who will work for a major investment firm after graduation.

"It's a real-life application of what we learn in class," she said. "We work in teams to analyze companies, and we learn a great deal about how to interact with companies and understand their investment practices."

The portfolio management experience helps students sell themselves in the competitive finance job market, allowing them to give concrete examples of their analysis during job interviews, Loughran said.

"This has been one of the best courses I've had. I've had hands-on experience in managing a portfolio, which has also helped me in my job search," said MBA student Michael Ostern. He was transportation sector research analyst for the Henry Fund, which helped him land a job at Morgan Stanley Dean Witter in Tokyo doing equity research in the airline industry.

McLeod USA was a top performer in the UI Krause Fund, increasing 93 percent from a 28 3/4 purchase price on Dec. 22 to 55 3/4 on May 12. Caterpillar returned 47 percent, bolstered by a surge in the stock price late in the semester. All 11 companies in the Krause Fund had positive returns, Loughran added.

In April, the students replaced Lowes and Timkin Co., with Home Depot and Dupont in the portfolio, believing Lowes and Timken to be overvalued and Home Depot and Dupont to be undervalued.

The 10 MBA students who managed the Henry Fund portfolio weighted their portfolio in the technology sector and saw 132 percent return from Cisco Systems and a 49 percent return from Intel. Other top stocks in the portfolio were Ameritech (a 62 percent return) and Enron Corp. (a 51 percent return). As of April 30, the Henry Fund, valued at $291,131, had returned 16.8 percent, slightly below the S & P 500 return of 20.8 percent over the year.

The Henry Fund, established in 1994, is named after alumni benefactors Henry B. Tippie, who recently donated $30 million to the College of Business, and Henry Royer, former president of Firstar Bank in Cedar Rapids. Investing the funds held in UI Foundation endowment, the MBA students also present their stock recommendations to a board of investment professionals.

For more information about the Henry and Krause funds, contact Loughran at (319) 335-0882. For more details on the funds and their performances, see their websites at and