As the fall semester comes to a close, the University of Oregon Investment Group has more to think about than grades. This team of undergraduates is responsible for a $1 million investment portfolio and holding the lead in an 18-college portfolio competition. How do they do it? Here's a look inside the UOIG.
How the UOIG Works
Since 1998, the University of Oregon Investment Group (UOIG) has existed to provide the school's undergrads with a chance to get hands-on experience investing real money.
The group is composed of 33 members who each act as a either a
analyst or one of three portfolio managers.
Sector analysts research stocks in a given sector (UOIG splits companies into consumer goods; industry, materials, and energy; healthcare; technology; and financial companies) and during the group's Friday morning meetings, they pitch their buy or sell recommendations to the other members.
Portfolio managers supervise the analysts and are responsible for tracking and analyzing the performance of the portfolio of funds as a whole, as well as give guidance to the analysts.
Senior Darren Crook, the portfolio manager for the group's Tall Firs portfolio, explains: "We work a lot with our sector leaders on identifying different subsectors, or different companies that we like, trying to exploit opportunities that we see. The analysts themselves have the opportunity to
value or research any company they'd like, but sometimes they would like some help figuring out which company
to focus on."
In total, the group manages three portfolios: Tall Firs, DADCO and Svigals. And like other investment clubs, stocks are only added to the UOIG's funds after a group-wide vote.
About the UOIG's Three Portfolios
: Tall Firs is the group's largest portfolio by far, accounting for over $800,000 of UOIG's
assets under management. Named in honor of the University of Oregon's 1939 national champion basketball team, Tall Firs has long-term
appreciation in mind.
: On the other hand, the DADCO portfolio focuses on "
growth at a reasonable price" (GARP). DADCO is the group's first portfolio and was created as part of the D.A. Davidson Student Investment Program, a portfolio competition developed by Montana-based investment firm D.A. Davidson & Company to give college students the chance to invest real
capital. The UOIG splits the DADCO fund's earnings with the Davidson program.
The DADCO portfolio is rebalanced at $50,000 each September, and its performance is ranked against the program's 18 other competing schools, including nearby Portland State University.
: The newest addition to the UOIG is the Svigals Portfolio. Wholly owned by University of Oregon alum Howard Svigals, the portfolio adds more than $100,000 to the group's assets under management.
Competition, University of Oregon-Style
The University of Oregon has produced competitive greats like Steve Prefontaine (running) and Ahmad Rashad (football), so it's no great surprise that the UOIG likes to compete.
The UOIG is currently ranked No. 1 in the Davidson Student Investment Program for 2007-2008 (which started Sept. 1, 2007).
According to senior Ben Brookins, DADCO's portfolio manager, "We are by far the best performer of the schools
in the Davidson competition. If
the fund was never rebalanced, our
compound annual growth rate
would be around 12% over the last seven years, while the next schools'
compound annual growth rates would be near 3% or below that."
So how does the UOIG beat its peers?
Big Bets on Small-Caps
UOIG's approach to stock-picking is a bit different from that of other schools. The student analysts use a
bottom-up approach when analyzing stocks, and they focus largely on
small-caps. In fact, Brookins says "The only two stocks in our
DADCO portfolio that are over $1 billion
market cap are ones that
appreciated that way."
DADCO's current five stock holdings:
- FTI Consulting (FCN) - Get Report
- HealthExtras (HLEX)
- Oshkosh Truck Corp. (OSK) - Get Report
- ArthroCare (ARTC)
- General Communication (GNCMA)
You won't find a lot of financials in the UOIG's portfolios. But the reason for this might not be what you think. Crook says, "I'd love to take credit for the group that we saw the whole credit crunch coming, but we didn't." According to Crook , the group's exit from the financial sector was largely based on the issues they had using traditional valuation methods on these stocks.
Crook explains: "Last year we had two regional banks (
Pacific Continental Corp.
), we had a couple of insurers (including
American International Group
) and a re-insurer (
Everest Re Group
), and slowly but surely we started getting out of them. We had difficulty valuing some of these banks and insurers that are asset-based and not fee-based for the fact that we didn't know how to value
their assets correctly, in a way we felt good about."
A Financially Healthy Financial?
Today, the UOIG does hold one financial-related stock. In fact, one they're quite proud of,
. The company (one of those fee-based financials) makes its money consulting for companies with issues relating to (among other things)
valuation, fraud, anti-trust and contract disputes. The stock is up about 106% since January and about 230% since the group bought into it three years ago.
Other successful small-caps owned by the UOIG include technology stocks like
and healthcare picks like
, up over 20% and over 30%, respectively, since January.
In the coming months, Brookins and his DADCO portfolio plan on stepping back from domestic stocks and looking toward
emerging markets and
Sell the Losers
Regardless of the brand of investment strategy you subscribe to, Brookins offers a piece of advice worth listening to from his time with UOIG: "Sell the losers."Brookins explains: "Most of our success has been in getting rid of the bad stocks. We take a lot of
risk with this
DADCO portfolio, and when we see that a stock looks like it's going to go down, we cut our losses. If we didn't do that, I don't think we would have performed nearly as well as we have."
The UOIG's Best Performers
Will the UOIG hold the top spot in the Davidson Student Investment Program? We'll find out next semester. Until then, here are the group's current five best-performing (portfolio-wide) stock holdings, with their original purchase dates and share prices:
- FTI Consulting (FCN) - Get Report: Feb. 20, 2004; $16.30
- Deere & Co. (DE) - Get Report: Oct. 28, 2005; $29.64
- Baxter International (BAX) - Get Report: Nov. 3, 2003; $27.39
- Tsakos Energy Navigation (TNP) - Get Report: Oct. 28, 2005; $17.19
- ArthroCare Corp. (ARTC) : Mar. 19, 2007; $36.30
Jonas Elmerraji is the founder and publisher of Growfolio.com, an online business magazine for young investors.