Thursday, February 23, 2006

By MARIAN ACCARDI

Times Business Writer accardi@htimes.com

Using an "enhanced indexing" investment strategy, a student-run stock portfolio management team at the University of Alabama in Huntsville placed second among 25 universities competing in the 2005 Tennessee Valley Authority's Investment Challenge Program.

The stock portfolio of more than $670,000 managed by the nine students in UAH's Capital Management Group gained 16.55 percent for 2005, beating the Standard & Poor's 500's gain of 4.91 percent for the year. For the period from 2003 to 2005, the UAH portfolio grew at an annualized 22.33 percent, for a third-place ranking over the past three years, compared with the S&P 500's average annual growth rate of 14.39.

The objective of the CMG, a once-a-year, three-hour course, is to enhance the performance of the S&P 500 index by 1 to 2 percent a year, said Dr. John Burnett, an associate professor of finance and the investment group's faculty adviser for the 2005 school year. So the group's 16 percent return is "phenomenal," he said.

Besides getting a chance to dabble in the stock market - and winning $20,000 for their efforts - the students also learned a valuable lesson for all investors:

"If you have a method and stick with it, it's not impossible to be successful in the stock market," said Evan Crouse, a senior finance major at UAH and a member of the investment team last year. "It's all about long-term consistency."

At first, the group's portfolio, which included stock in 57 companies in 10 industry sectors, took some hits.

"For the first couple of months after investing the money (in March), everything was down," said Bill Clark, a CMG member who graduated from UAH last May with a finance degree and is now a senior financial sales representative with Compass Bank in Huntsville.

But the group's research ended up paying off.

The students had started with a portfolio allocated across the 10 sectors of the S&P 500, with a baseline sector allocation the same as the S&P's allocations. Each student performed research on the economic outlook for one sector - with one student handling research on two sectors - and came back to the full group with a recommendation to either underweight or overweight that portion of the portfolio, or keep it the same.

The students developed a buy list, which included all the companies in the S&P 500's 10 sectors, and stocks were ranked, taking into account earnings growth, dividends, market analysts' ratings, price-earnings ratio and projected future earnings. Those with the highest rankings moved to the top of the list in each sector, though students had some discretion over their picks.

The TVA board created the investment program in 1998 - putting up $1.9 million - to diversify the management of its Nuclear Decommissioning Trust Fund and to give students in its service area some real-world experience in managing a stock portfolio. The agency later increased its initial investment of $100,000 in each portfolio by an additional $300,000. The program's funds total about $10 million now.

Alabama A&M University and the University of North Alabama also take part in the program.

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