U of Maryland's Undergrad Fund Earns 'Street Cred'

The student-run Senbet Fund looks at HealthSpring and the financial sector.
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How much money did you manage in college? With the Lemma Senbet Fund, undergraduate students at the University of Maryland's Smith School of Business have the opportunity to manage over $100,000. Here's a look at what they do with those six figures.

Now in its second year, the student-run Senbet

Fund was designed to be the undergraduate version of the Smith School's $1.2 million MBA-run Mayer Fund. Smith Professor Sarah Kroncke, the faculty advisor for both funds, explained that the Senbet Fund is managed by a 12-member team (two

portfolio managers and 10

equity

analysts) of senior finance majors who represent the school's top tier of students.

Becoming a member of this fund is no small task. What's involved? Most students spend around 10 hours developing their application package, which includes an analyst report offering a buy, sell or hold recommendation on a stock. Once selected, fund members are required to serve for one year in the fund, including meeting on a biweekly basis. At the end of their one-year run, fund members earn six undergraduate credits toward their degree.

The Senbet Fund considers itself a long-term

growth fund that invests primarily in

stocks, but has the option to put money in other financial instruments like

bonds and

derivatives if the student managers decide to do so.

Stocks Rule

As of Nov. 7, the fund was made up of 94% stocks (composed of about 28 individual companies) and 6% cash, and was beating the

S&P 500

by 0.92% (since the fund's inception on Oct. 26, 2006).

At each fund meeting, one of the student analysts presents a stock to all of the fund members for consideration.

With so much of the fund invested in individual stocks, what are these student money-runners' most notable stock picks?

The Senbet Fund's five biggest stock holdings:

1.

CVS Caremark

(CVS) - Get Report

2.

Coca-Cola

(KO) - Get Report

3.

Apple

(AAPL) - Get Report

4.

CONSOL Energy

(CNX) - Get Report

5.

General Electric

(GE) - Get Report

The Senbet Fund's five best stock performers:

1.

Apple

(AAPL) - Get Report

2.

CONSOL Energy

(CNX) - Get Report

3.

McDonald's

(MCD) - Get Report

4.

Air Products & Chemicals

(APD) - Get Report

5.

Chesapeake Energy

(CBK) - Get Report

The Senbet Fund Checks HealthSpring's Pulse

The latest company presented to the Senbet Fund's members was

HealthSpring

(HS)

, a managed care organization that provides healthcare services to qualifying Medicare subscribers in five states. Arkady Gelman, the fund's healthcare analyst presented HealthSpring as a buy.

But the buy recommendation wasn't based on a gut feeling. Much of it was based on a very impressive

discounted cash flow analysis that puts HealthSpring's projected

share price well above its recent sub-$20

trading range.

Gelman's argument focused on the idea that HealthSpring's potential for growth and

small

market cap would provide a nice bit of

diversification for the fund's healthcare positions.

What does HealthSpring actually do?

Essentially, HealthSpring's business works like this: The company signs up Medicare recipients and takes care of their healthcare in exchange for a check from "Uncle Sam." The company makes its money by keeping healthcare costs lower than the money they're paid by the government. Gelman says, "HealthSpring's business model is based on economies of scale.

HealthCare can create lower costs through higher volume."

It's a business plan that's worked so far -- HealthSpring's

net income increased over 170% from 2005 to 2006 ($29.3 million to $80.8 million) -- and it's a plan that Gelman feels will continue to work.

While fund members did have some concerns over the lack of analyst and media coverage of the stock (only three analyst reports came out after its latest earnings call, according to Gelman), they ultimately decided to add the stock to the fund.

A Look at the Financials

It has been a

markedly tough time for the financial sector. The effects of the subprime lending fiasco were seen big-time recently, contributing to the high losses seen by

Citigroup

(C) - Get Report

and

Merrill Lynch

(MER)

-- two stocks held by the Senbet Fund.

As of the fund's Nov. 7 meeting, Citigroup and Merrill were each down around 20% for the week, with other financial holdings like

Lazard

(LAZ) - Get Report

and

AIG

(AIG) - Get Report

trailing by a bit.

During their recap of the state of things for that week, the Senbet Fund's financial sector analysts, Chad Olin and Daniel Paris, suggested that

losses be taken in context -- Senbet was still ahead of the S&P.

A fair amount of time was spent discussing the current state of Citigroup, specifically whether or not the company should be dropped from the fund's

portfolio. "We can't call a bottom right now," warned Daniel Paris. With the group unable to make a decision on Citigroup right then and there, they decided to give the stock a stay of execution and to discuss things more at their next meeting.

At the time of this publication, the Senbet Funds still holds Citigroup and members await a new (replacement) financial company to be pitched in the coming weeks.

The Big Picture

Ryan Shain, a portfolio manager for the fund noted that working on the fund is as much about learning as it is about making money. Shain says, "Group interaction's really big. Performance is good, but it's not our only focus."

Still, this group of Maryland undergrads

is

pretty pleased with the Senbet Fund's performance, thus far. According to portfolio manager Jay Nargundkar, "We'd love to see some big

gains, but as long as we stay ahead of the S&P, our

benchmark, we're happy."

Jonas Elmerraji is the founder and publisher of Growfolio.com, an online business magazine for young investors.