From Penn State to Goldman Sachs, Hear the $4.2M Nittany Lion Fund Roar

Some things were just too good to be true in college. I spent four years at Pennsylvania State University's plush main campus in University Park, Penn. -- appropriately called "Happy Valley." It was one of the few places on earth where you could actually share a snack with a squirrel and a religion with your classmates -- football. The Nittany Lion was and, in some ways, still is our deity.

And then some things were really too good to be true, so much so that they basically never happened. For example, if a Penn State graduate were to ever land a full-time job at Goldman Sachs GS, I'd wonder what magic strings his or her dad must have pulled. Even as recently as 2002, hardly anything we did as students assured an entry-level position at a major investment bank on Wall Street -- forget "connections" or a 4.0 grade average. The crème de la crème on Wall Street were mainly Ivy Leaguers.

In fact, I remember when my friend Amy, at that time, an English major at Harvard, received a letter in the mail from an investment bank, asking her if she'd like to work in its fixed income division after graduation. Meanwhile, my classmates, who majored in finance, held E*Trade ETFC accounts, worked three summer internships and made the Dean's list each semester, would probably need to transfer to Wharton before making their way to a trading room.

Now, the trading room has found its way to Penn State -- literally. During my visit to campus last week, I watched as students employed a state of-the-art trading room in the brand new business building on campus. Jim Cramer, a Harvard grad, kicked off his "Mad Money" college tour in Happy Valley last week, too, and was quite impressed with the university's Smeal College of Business, in particular, its Nittany Lion Fund (the NLF).

Penn Staters Beat the Street

The NLF, founded in 2005, is a $4.2 million student-managed investment fund with 65 individual investors and 31 student-managers. It is one of the few university student-managed funds with actual investor money -- not endowment dollars. The minimum initial investment per investor is $25,000. Most of the fund's investors are Penn State alumni who work on Wall Street, but being a former grad is not a requirement.

The NLF is modeled after the S&P 500 and holds about 40 to 50 mid- to large-cap stocks across 10 sectors. Smeal finance professor J. Randall Woolridge is the CEO of the fund. Woolridge and a Board of Directors, which is comprised of faculty and alumni, are responsible for overseeing the student portfolio managers. Students say that while the university was hesitant to provide initial funding for the NLF, Woolridge helped gain support from alumni on Wall Street.

The NLF started with $2.2 million in capital and has beaten the broader market index by more than 1.5% annually. Student fund managers are mostly undergraduates and are chosen after a rigorous set of interviews and assignments.

First, students need to take a training program on the financial markets, economic analysis, valuation, modeling comparables and ratios. They also need to complete a case study of a particular stock and present in-depth analysis, valuation and a buy, sell or hold recommendation to the current fund managers of the stock's particular sector. The second round of interviews includes behavioral and technical finance questions related to the stock.

From Happy Valley to Wall Street

The prestigious NLF at Smeal has investment banks like Goldman Sachs, Merrill Lynch MER and JP Morgan Chase JPM proactively hiring undergraduate business students for internships and full-time positions.

Morgan Samet is one of several students at Smeal with entry-level positions at top firms. Within six hours of interviewing with Goldman Sachs, the firm called her back and offered her her own desk, starting in July. The 22-year-old says the Goldman opportunity is thanks partially to working for the Nittany Lion Fund. "I really learned how to follow the financial markets... the fundamentals of analyzing a stock, analyzing companies," says Samet, who was a lead analyst and president of the NLF, until recently.

On March 26, Samet appeared on CNBC's "Mad Money" show during the "Lightening Round" and pitched Nike NKE, one of NLF's oldest holdings, much to Cramer's liking. Why is Samet "long" Nike? "In this market...you want to pick solid companies with a good sound future," she says.

While there are no "professionals" ruling the fund, the students do provide their investors with comprehensive weekly reports and often invite them to the trading room to speak with students.

Every student appointed to a leadership position must have been a part of the Nittany Lion Fund or the Penn State Investment Association (PSIA) for at least a year. The PSIA assists the NLF and is open to all university students, offering them hands-on experience investing in the stock market through research and analysis. The PSIA also helps members develop a stock portfolio.

The NLF in Action

The Nittany Lion Fund has a "top-down" approach to investing, whereby a group of students evaluate economic trends and determine sector allocations. Then fund managers screen stocks by looking at their qualitative and quantitative factors. Based on that, students recommend stocks, but in order to qualify for portfolio placement there needs to be at least 66% (or two-thirds) approval from the organization.

NLF member Bill Schulz, a junior finance major, will be joining Samet at Goldman Sachs this summer as a summer analyst. Schulz is the lead analyst of consumer staples for the Nittany Lion Fund, one of ten sectors in the fund, which includes consumer discretionary, energy, financials, healthcare, industrials, information technology, materials, telecom and utilities. He has holdings in Altria MO, CVS Caremark CVS and other large-cap companies like Coca-Cola KO and Pepsi PEP.

"The safest bets are with the big companies," he says. "Their steady earnings provide investors with a safe-haven for their money in times of volatility , and usually payout strong dividends . Also, large companies tend to have more diversified product lines and pricing power within their markets."

Buddy Blaine Hauser, a junior, will also be rolling up his sleeves at Goldman this summer as a summer analyst. Hauser is the NLF manager for the utilities sector. His two top stock picks right now include Brazilian electric utility CPFL Energia CPL, which he likes for its robust 7.5% dividend and expansion plans, and Exelon Corp. EXC, a great "anti-recessionary stock," he says. The company has a market cap of over $50 billion and is responsible for more than three percent of all U.S. power generation -- more than any other utility company domestically. "Exelon is a steady, stable, and consistent performer with strong historical performance in bear markets ... They also have a strong track record of working with local governments to establish fair rates and avoiding legislation that has burdened many of their competitors."

Since inception, the NLF has outperformed the S&P 500 by 1.76%. In 2007 alone, it outperformed this broad market benchmark by 8.65%. However, year-to-date, the NLF has underperformed the S&P by .06%.