MBA Investment Fund Portfolios
The Growth Portfolio is an aggressive diversified portfolio with the potential for higher than average returns. Portfolio managers follow a top-down investment philosophy for selecting stocks. At the core of the top-down approach is an economic forecast that is generated by the fund manager in the role of the MBA Fund Economist. From this economic forecast, the internal economist and the five risk managers target each individual sector that is a part of the Growth Portfolio’s benchmark index (S&P 500/Citigroup Growth Index) and form a recommendation, to be approved by all Portfolio Managers, on whether the specific sector is deserving of an overweight, underweight or market weight position within the Growth Portfolio. Portfolio Managers of all five sector groups are to make purchase and sale decisions with these target sector allocations in mind and with the goal of matching the target weights as determined by the MBA Fund Economist and the MBA Fund Risk Managers.
With regards to individual stocks, the Growth Portfolio will concentrate on mid to large cap companies that have been identified as growth companies undergoing positive changes and meet certain investment criteria. The primary research focus for prospective stocks in the Growth Portfolio will not be an important investment criteria as companies included in the Growth Portfolio are expected to reinvest earnings for further expansion instead of making cash distributions of shareholders.
The Value Portfolio is a diversified value-focused fund making investments in stocks that are perceived to be trading below their full potential. Portfolio managers may select undervalued stocks based on a bottom-up, intrinsic value and relative value basis. In the pitch process, the Portfolio Manager attempts to identify a catalyst. It is through the realization of the catalyst that the undervalued stock will, over time, reach its full potential value. Examples of a catalyst include, but are limited to, a reversal in negative sales and margin trends, an expectation of exceeding Wall Street consensus estimates, changes in management, reversal of key industry trends, product launch or mix shift, litigation settlement, decline in interest rates, or regulatory changes. In contrast to the Growth Portfolio, the Value Portfolio is sector neutral.
MBA Investment Fund Process
The MBA Investment Fund maintains a rigorous stock pitch process designed to give each manager in-depth experience in stock selection methodology. Each investment manager is required to do five formal stock pitches during their tenure. The pitching manager performs a detail analysis of the stock including:
- Company profile
- Target weighting
- Industry and competitive conditions
- Financials (historical, forecasted, and key ratios)
- Investment merits
- Investment risks
- Valuation (discounted cash flow analysis and comparables)
After the detailed analysis is complete, the stock enters the formal approval process.
- Pitch to the group of managers covering the sector and industry of the company (requires unanimous approval)
- Pitch to the group’s Investment Counselor (may override any investment recommendation of the student managers)
- Upon full approval, the stock is purchased into the appropriate portfolio
- Upon any rejection, the stock must be pitched to an MBA Investment Fund Officer for academic credit