Marist Business Review

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An Inside Look at Marist’s Student-Run Investment Fund

The Greystone Equity Fund

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By Steve Morrison | January 12, 2018, Updated 11 PM EST

 

The Greystone Equity Fund is a student-managed investment fund at Marist College in which student analysts get hands-on exposure to investment strategies and security valuation.

 

With currently over $150,000 entrusted to student management, the students actively search to add and remove investment positions that they reason will improve the firm’s growth.

 

The Greystone Equity Fund has been around for over six years, where it started with a value of $100,000 in 2011. Although the fund incorporates itself within the shell of a three-credit academic class, the principles and procedures closely mimic how an investment fund on Wall Street would operate. Each of the analysts in the fund cover certain sectors of the overall market economy, while simultaneously acting in unison for overall portfolio decisions. There are also distinct roles within the fund, such as Portfolio Manager, Economic Analyst, and Valuation Specialist.

 

The participants within the fund follow what is known as an Investment Policy Statement (IPS). This document is essentially the rulebook for the analysts in the fund, as it outlines what can and cannot be done in regard to investing. The IPS also presents the general objectives and goals for the fund, and discusses strategies and risk management practices that the analysts will look to employ throughout the semester. For the Greystone Equity Fund, the main objective is to maximize the long-term total rate of return on fund assets in relation to prudent risk limits and diversification requirements. The performance of the fund is measured to a benchmark index.


The benchmark for this fund is the Standard & Poor’s 500 Index (S&P 500), which is a common stock index that tracks 500 large market capitalization companies in the United States that are listed on either the New York Stock Exchange or Nasdaq Exchange. Thus, the fund looks to beat the benchmark, without sacrificing diversification or practical risk management. This can be done by analyzing sectors (and even certain industries) that look to show higher relative growth in comparison to the general economy. The fund then overweighs these sectors in the portfolio by either investing in sector-based exchange-traded funds (ETFS) or by picking specific stocks that show promising long-term total returns.

 

Outperforming the S&P 500 is not an easy task, especially in a post-recessionary environment, where growth stocks have continued to excel and pull the index to record highs on a monthly basis. In regard to investment style, this has been a slight bump in the road for the fund, as analysts are initially focused on finding value stocks (stocks that are trading at a relative discount to their peers) to invest in. However, over the past five years, the investment style has catered to the evolving trends in growth stocks, and the portfolio has aggressively targeted companies that are considered high growth. It is important to remember that P/E (price to earnings) ratios are not necessarily a sign of a solid discount or premium when purchasing shares in a company. Some companies may be trading at low P/E ratios and appear cheap, but may have underlying problems that make the value investment a poor choice.

 
 By Kyle Kaupenger 

By Kyle Kaupenger 

 

Overall, the Greystone Equity Fund follows a Core/Non-Core approach as an investment strategy. Analysts first perform general overview research on their respective sectors. This achieves an understanding on where overweight allocations should exist, and generates market exposure (beta) that reflects the benchmark. Analysts then perform fundamental analysis strategies, like dividend discount models, free cash flow models, business strategy outlooks, etc., to pick individual securities in the sector. This is where the fund looks to generate its above-average total returns relative to the benchmark (alpha).

 

Investments must also meet certain criteria. These constraints include investments that are traded on U.S. Stock exchanges (they can be international companies that have depository receipts in U.S. markets), have market capitalizations of over $100 million, and cannot be naked derivative investments that have unlimited loss potential.

 

As the world around us grows and changes at an increasingly rapid pace, investment opportunities follow suit. One of the most essential aspects of the Greystone Equity Fund is to stay ahead of these developments and enter investment positions that capitalize on these evolving trends in order to achieve higher returns than the benchmark. Currently the fund has a multitude of trends and ideas being implemented to steer the current investment strategy toward the future.

 

For example, the healthcare sector has been plagued by legislative pressure and uncertainty over this year. However, the student analysts have observed rapid acquisition strategies within the biopharmaceutical industry. This merger and acquisition (M&A) activity appears to be emerging as the new research and development (R&D) activity of the past. Thus, the fund is looking at current and potential holdings to determine the quality of the companies’ M&A decisions in order to predict the success of profitability in an increasingly saturated, albeit multifaceted, drug market.

 

Another close observation has been lended to the retail industry, where technology and online platforms, from companies like Amazon, have disrupted traditional brick and mortar business models. Recently, the fund closed a relatively large position in an apparel company due to these emerging conditions. However, as retail investors pile into Amazon, the fund has been looking at companies that can profit within the small fissures of Amazon’s business strategy. This includes companies that show competence in disintermediation of the value chain, personalized products, and enhanced consumer experience.

 

Apart from numerous other trends, the fund has also looked at more general investment patterns in more recent years. For instance, the distinction between sectors in the economy are becoming obscured, as technology allows companies to expand their competencies across a variety of functions in the market. We can see these how these historically clear distinctions have become murky, especially within the financial and information technology sectors. Many large banks have become progressively involved in the information technology business.

 

Also, investment mindsets across the financial markets have changed over the past decade. People have become increasingly focused on long-term returns, which may explain some of the complacency in the markets currently. Clients are also changing their definitions of how they objectify return objectives. Even strategies like technical analysis have become more mainstream for investing. All of these changes affect how the markets operate and ultimately how the fund operates and navigates through the investment landscape.

 

Despite the long hours in Marist's investment center and constantly taking up the challenging task of performing at an exceeding level of excellence, the analysts in the Greystone Equity Fund earn invaluable experience in the area of equity investments. The fund is a small, tight-knit group of individuals, from a diverse set of backgrounds, that all share a similar passion for understanding the complex world of finance. Throughout all of the Excel spreadsheets, numerous presentations, and report papers, the Greystone Equity Analysts build valuable proficiency and relationships that will last beyond their careers at Marist College. To be a part of this fund, you cannot be afraid to “think outside of the box.” Investing is just as much of a creative art as it is a systematic process.