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Release: Dec. 13, 1999

UI student stock portfolios post excellent returns

IOWA CITY, Iowa — Stock portfolios managed by University of Iowa finance students have posted excellent year-to-date returns, outperforming the benchmark S&P 500 stock index.

The Krause Fund, managed by undergraduate students, returned 42.6 percent for the period ending Nov. 30, compared to the 11.2 percent return of the market index. The Henry Fund, an MBA student portfolio, returned 23.8 percent over the same period.

The portfolios benefited from huge gains in technology and telecommunications stocks such as McLeodUSA with a 175 percent year-to-date return (as of Nov. 30), and Gateway with a198 percent return. The 66 undergraduate students from the security analysis class manage the 11-stock Krause Fund portfolio. At least 25 percent of the fund's assets are invested in firms with a significant presence in the state of Iowa.

Endowed by W.A. "Bill" Krause, president and chief executive officer of the Krause Gentle Corp., the $140,000 Krause Fund provides 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.

The student analysts are not day traders; they perform an in-depth fundamental valuation of each company prior to executing any trade. As a result of its long-term approach, the fund only trades once a semester.

"The goal of this class is to provide students with an analytical framework for determining the core value drivers of a company," said Todd Houge, a UI visiting assistant professor of finance who oversees the student portfolios. "We do not claim to have all of the answers; rather, we want students to leave with an understanding of how financial markets work and the difficulty of identifying undervalued firms."

The students presented their buy and sell recommendations Dec. 6 to an advisory committee of investment professionals. Within the healthcare sector, the students replaced Pfizer with Bristol-Myers Squibb. They also added Harrah's Entertainment, Merrill Lynch, Williams Cos. and United Airlines to the portfolio, while selling Household International, Sprint FON Group and Du Pont.

One student from each of the four universities serves on the board of directors of the Krause Gentle Corp. each semester. Pasha Dalen and Jennifer Slabas, served as the UI representatives this semester and presented the portfolio for board approval last month. The experience of investment analysis and sitting on a corporate board has been invaluable for them.

"It's exciting to interact with business leaders in a professional environment," said Dalen. "It's a very different experience between making a class presentation and making a presentation to business people in the real world."

"We're in our 20s and making presentations at corporate board meetings and hopefully we'll be making more presentations in our 30s. We have an advantage others in our field might not have," added Slabas.

The 10 MBA students who manage the Henry Fund portfolio held some top performers from the technology sector such as EMC Corp., which specializes in data storage systems, returned 90 percent over the last six months. The fund also benefited from a 75 percent and 45 percent return from tech stocks Cisco Systems and Intel, respectively. The MBA students sold positions in
Coca Cola, Emerson Electric and AT&T, and bought steel maker Ispat International, Frontier Airlines, MCI WorldCom, and Maytag.

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, said Houge.

Since its inception in 1994, the Henry Fund has consistently met or outperformed the S&P 500, said MBA student Keith Mitchell. "It's testimony to the fact that we do not take a lot of risk, and we perform a thorough analysis of our holdings," he said.

The Henry Fund 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 presented their stock recommendations to a board of investment professionals.

For more information about the UI student-managed funds, contact Houge at (319) 335-3754. For more details on the funds and their performances, see the undergrad securities analysis class page at http://www.biz.uiowa.edu/class/6f112_houge/ and the Henry Fund page at http://www.biz.uiowa.edu/henry/.