Mayer Fund Outperforms S&P 500 in 2002-2003

Corporate scandals, geopolitical instability, and a war in Iraq made 2002-2003 a difficult fiscal year in which to manage an equity fund. But despite the economic turmoil, the second-year MBA students who managed the Smith Schools Mayer Fund, now valued at $778,000, were able to beat their benchmarks for the year.

While managing a fund with all of this is difficult, it can be viewed as an opportunity, said portfolio manager Rose Cohen (right), during the Mayer Funds end-of-year presentation to its board of directors. It certainly presented us with the opportunity to purchase stocks at attractive prices.

By applying shrewd portfolio allocation strategies recognizing growth opportunities and divesting stocks with poor fundamentals the fund was able to limit its losses and position itself for positive returns in the future. The funds long-term performance goal is to outpace the appreciation of the S&P 500 index on a risk-adjusted basis. The S&P 500 was down 26.10 percent between March 31, 2002 and March 31, 2003, while the Mayer Fund declined 23.77 percent. The managers also pointed out that if the funds holdings had remained unchanged throughout the year, it would have declined more than 29 percent.

We were able to capture greater returns, without taking on additional risk as compared to our peers, noted portfolio manager Erik Daugherty to the board.

The fund purchased International Game Technology (IGT), which makes slot machines and other electronic gaming devices. The decision was made after an analysis showed the company is poised for significant growth as the economy recovers.

I found that they did have a lot of opportunity for growth, with a lot of states running lotteries and with more states legalizing gambling, said Tim Forrester (left), the funds consumer discretionary and staples analyst.

The Mayer Fund purchased 150 shares of IGT at $75.33. The stock has recently traded around $89. The fund also adjusted its holdings within various sectors based on economic and industry trends. In the financial services sector, for example, the fund reduced its exposure in the mortgage banking industry by selling MGIC Investment Corp. (MTG) and Washington Mutual (WM). And, noting the rising tuition rates at colleges and universities nationwide, the fund increased its exposure in the student loan market by purchasing Sallie Mae stocks.

Tuition is rising faster than the general inflation rate and the 18 to 24-year-old age group is growing, said Jay Gelfman (right), the funds financials analyst.

During their presentation to the board, the fund members also pointed to the stocks they recommended during an appearance on CNBC in January. Among them was Novartis (NVS), which has returned more than 13 percent since the CNBC appearance. Their other two picks, Symantec Corp. (SYMC) and CenturyTel (CTL), have each returned three percent since then. The funds biggest winners during the year were UnitedHealth Group (UNH), up nearly 20 percent; Dean Foods (DF), up more than 13 percent; and Entergy Corp. (ETR), up nearly 11 percent.

This years Mayer Fund team did an amazing job of managing the fund during a very tough year, said Meg VanDeWeghe, the funds faculty advisor. They should be quite proud of the fact that they outperformed the S&P 500 index as well as most managed funds. They did a better job than most professional fund managers could have done, and they learned a great deal while doing it.

The Mayer Fund was started in 1993 with $250,000 and grew to more than $1,000,000 in 2001. It is run by a select group of second-year MBA students who comprise a management team of two portfolio managers and ten equity analysts. Although the primary goal of the fund is to achieve capital appreciation, it also enables members to learn the processes by which investment decisions are made in a professional asset management setting.

In addition to Cohen, Daugherty, Forrester, and Gelfman, the outgoing Mayer Fund members included Todd Davachi, Jennifer Graham, Filip Liharik, Mike Perello, Tsvetan Petkov, Mark Thompson, and Fuad Velasco (above).

As they turned over management to a new group of Smith MBAs, they warned that the underlying fundamentals in the U.S. economy and corporate America remain weak, and that the recovery will be slow. Taking on the challenge for 2003-2004 are Mark Corman, Alex Frum, Marc Ammaturo, Daniel Bernstein, David Boardman, Owen Corrigan, James Kenny, Richard Nyren, Maryana Olman, Nancy Perkins, Oksana Raptsun, and Christopher Sauritch.