CONTACT: GEORGE MCCRORY
100 Old Public Library
Iowa City IA 52242
(319) 384-0012; fax (319) 384-0024
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
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 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 http://www.biz.uiowa.edu/krause/