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LeBow students manage real $1 million stock fund

October 21, 2013

Wall Street Bull Statue

Group projects can usually make or break a student’s performance in class. In the “Applied Portfolio Management” and “Advanced Portfolio Management” classes offered in the finance department, the stakes are a little higher: group projects in two finance courses can make or break a student’s career, and the group’s success or failure directly impacts the University.

The LeBow College of Business undergraduates accepted into the two sequential courses will work in teams to manage a $1 million mid-cap stock fund, known as the Dragon Fund, that is part of Drexel’s endowment. This year’s class of 25 students will analyze different industries and pitch stocks as they manage this equity portfolio.

“This is one of the best examples for experiential learning because the students are actually managing money and stock choices just as a professional money manager,” Catherine Ulozas, chief investment officer and vice president of the Investment Office, said.

As someone who works with the $600 million University endowment, Ulozas knows what’s expected and required to manage the accounts — which is why she treats the Dragon Fund students just as she would any other investment manager.

According to Ulozas, some universities have a similar portfolio-management program offered as a club or theoretical practice, but only Drexel combines the classroom with the real-life experience of investment management.

So far, the distinction has been rewarding for both Drexel and its students.

The fund performance has increased the confidence of the trustees who recently gave the students more funds to manage. This fund has gained more than $150,000 from student investments and often outperforms those overseen by professional managers. Additionally, the students can network with successful Drexel alumni through arranged class visits or the Dragon Fund LinkedIn group.

“It’s very difficult and competitive to enter this field as a job seeker. If you give money to someone, you typically don’t give it to 22- or 23-year-olds just out of college, even at the junior level,” said Daniel Dorn, an associate professor in LeBow who is overseeing this year’s Dragon Fund classes. “That experience is important, but you need experience to get it. We basically give students that experience to find jobs.”

Along with Edward Nelling, a professor of finance and a fellow in the Center for Corporate Governance, Dorn helped start the Dragon Fund in the 2007-08 school year. Back then, the students had just $250,000 to work with, though Drexel contributed an additional $100,000 in 2011 and then $500,000 this past May. The goal was not only to teach students the tricks of the trade, but also to show the students how those tools could be used to successfully enter and network in the industry.

Just getting into the class is similar to finding a real job: Students have to apply for a seat, and Dorn and other professors involved regularly receive two or three times the number of applicants they can take on for the course. Once the students are admitted to the class, they’re assigned a market sector, such as IT or financials, and asked to develop a forecast and analysis of how they think that sector will fare relative to the market. Then, the students identify promising undervalued stocks for medium or large corporations in their sector.

Once the students identify which stock they want to invest in, they have to pitch their idea to the class for its inclusion in the Dragon Fund.

“The students are quite critical,” Dorn said. “Roughly, only two out of three recommended stocks are accepted, but these stocks tend to outperform.”

The real-world experience acts as an additional co-op to give students another chance to figure out what they want to do after college, or to add experience so they can get the job they want out of college.

For Soham Bhonsle, a senior finance major who worked as an IT analyst for the Dragon Fund last year, the Dragon Fund was a way to gain experience as a buy-side analyst after he worked on the selling side for his last co-op. In the class, students work in teams of two to four analysts performing buy-side research, using various valuation metrics in order to make stock picks.

“Now, as I apply for positions in equity research, I can show that I have both a sell-side and buy-side perspective,” Bhonsle said. “It definitely helps you stand out.”

As a Dragon Fund graduate, Bhonsle is in good company. Many of the 200 or so students who have worked with the Dragon Fund have found work at big-name institutions like the Federal Reserve Board, Goldman Sachs and Citibank.

Frank S. Walter, a former Dragon Fund analyst who graduated from Drexel in 2012, worked as an investment analyst in the Endowment Office for his first year out of college. This summer he was hired at J.P. Morgan, and now he helps clients who work in the financial services industry to make investment decisions. He said his experience at Drexel, both as a student and an employee, has helped him at his current job and enhanced his future career prospects.

“I got to work in familiar settings on Drexel’s campus. It made the transition out of college much easier,” he said.

Six years ago, before the financial crisis, Drexel took a risk investing its money in the students. Now it seems as though the return on investment has paid off for both the students and their “client.”