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Kellogg MBA Students Learn Defense With ETFs and Blue Chips

Farnoosh Torabi

Last spring, Robert Korajczyk, the Harry G. Guthmann Distinguished Professor of Finance at the Kellogg School of Management at Northwestern University launched a year-long course entitled Asset Management Practicum. Currently, enrolled students manage $2.7 million of Kellogg's endowment and rotate roles -- from analysts to hedge fund managers to traders to portfolio managers.

"It's really meant to give students an experience in investing that's difficult to get just through a textbook style class. So not only do they have to worry about which assets to hold and the risk of the portfolio but how do you trade the portfolio," says Korajczyk. Students are given 100% freedom, he says, in choosing what stocks and funds to trade in the class, which comprises four portfolios of different categories.

Blue Chips Over Hot Tech

Three out of the four portfolios have beaten the S&P 500 since the current students began managing the portfolios last April, he says. How? Most of the portfolios have a cash component, students say, along with a good number of exchange-traded funds like the Market Vectors Global Agribusiness ETF (MOO) and the iShares MSCI Emerging Market Index ETF (EEM), and value-oriented blue chips like Freeport-McMoRan Copper & Gold (FCX) and Nike (NKE).

Students are not as interested as much in growth stocks or hot tech names like Google (GOOG), Baidu (BIDU) or Apple(AAPL), because their sense of the market right now is less than confident, they say.

"People are being a little bit more defensive," says Kellogg student Ben Hockenberg, one of the 23 graduate students enrolled in the Asset Management Practicum. He and his classmates prefer "stocks that will be solid if the economy continues to weaken." One of Hockenberg's latest stock picks was The Goodyear Tire & Rubber Co. (GT). "[With Goodyear,] replacement tire purchases are somewhat elastic... If we end up going into somewhat of a recession , people need to still replace tires on their car," he explains.

Course vs. Club

While the Kellogg School of Management has offered a popular investing club for more than 40 years, Korajczyk decided to introduce a new course because he felt the school needed to offer a more uniform experience to students that forced them to engage in trading practices for an entire year. The existing club, he says, doesn't offer hands-on trading experience and membership is sporadic. Instead, it invites speakers and offers a networking opportunity for students. Most students in Korajczyk's class are in the club, as well. But the Asset Management Practicum course is a more serious commitment. The pressure is on, too, as students are required to report regularly to a board made of donors and the chief investment officer at Northwestern.

Beyond Northwestern, several other universities are showing an increased commitment to teaching students about investing. Some have even taken it a step further. Penn State University's Smeal College of Business built a 1,600 square-foot trading room for students in 2001. It boasts 54 work stations, stock boards and real-time tickers. A year later the Haub School of Business at Saint Joseph's University followed suit, building a high-tech trading room. In 2003, the University of Washington opened a simulated trading room. Nasdaq(NDAQ) CEO Robert Greifeld hosted the official unveiling of the facility.

Video: Kellogg MBA Stock Pickers Are So Money