The James Fund at Rensselaer Polytechnic Institute’s Lally School of Management is a small, recently established, course-driven student-managed investment fund (SMIF). The purpose of this paper is to provide insight to new and existing funds in improving individual fund operation and structure.
The James Fund seeks to outperform an 80/20 equity/fixed income benchmark by investing exclusively in exchange traded funds and to move primary emphasis away from idiosyncratic risk and individual equity valuation back toward asset allocation, the most significant driver of portfolio performance. Buy and sell decisions must receive a three-fifths majority in voting among students and adhere with the investment policy statement.
Groupthink, a common problem in student-managed funds, is observed in trade proposal and manager voting patterns.
Groupthink is partially addressed through the use of instructor feedback on individual student trade diaries. Student managers transition each semester; therefore, the portfolio must meet dormant period criteria limited to a specific list of broadly diversified ETFs, mitigating potential problems from knowledge transfer between management teams that are largely unexamined in the context of SMIFs.
The author thanks Chanaka Edirisinghe for making the author aware of this special issue of Managerial Finance. The author is grateful to Majeed Simaan and Courtenay Harms Shohfi for helpful comments. The authors thank the many students of the RPI Lally James Fund and the University of North Carolina at Chapel Hill’s (UNC) Applied Investment Management (AIM) program with whom the author has built lasting relationships and to Mustafa Gultekin for giving the author the initial opportunity to become an Instructor in UNC”s AIM program. The author also thank Dr Frank James for his donation that made the fund possible and the friends and alumni of the fund who have helped it to grow.
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