Updated By: Mitchell Robben
The Reiman Fund gives students in the Daniels College of Business the opportunity to manage a portion of the university’s endowment fund. This fall’s current class has eighteen students in charge of managing approximately $304,000. Meetings for the class are held each Monday and Wednesday from 2pm to 4pm in the Marsico Investment Center (otherwise known as the room with glass windows on the very far end of the first floor of Daniels). During those two hours, students give weekly portfolio reviews, present on stocks to buy or sell, provide updates on the stocks they are currently covering, and discuss what has recently occurred in the market. The Reiman Fund’s primary goal is to outperform its benchmark, the S&P Mid-Cap 400. Public mid-cap equities, described as companies with market caps between 2 and 10 billion dollars, are the primary research and investment focus of the fund. The format of the class, available resources and increased understanding of the investment process, recent events in the fund, the funds return, and much more will be elaborated upon throughout this text.
The Reiman Fund starts off full swing during first week of the quarter by assigning students tasks they will have to complete over the next ten weeks, as well as determining who will cover the fund’s variety of stocks and sectors. During this time, students present in groups on the sectors they are covering and their recommendation about how to invest in each sector. As the quarter progresses, each student must participate in two different stock pitches where either a new stock is recommended as a buy or a proposition is made to sell a current holding. Students must also present elevator pitches on stocks they are independently covering to update the class, as well portfolio monitoring presentations where different students each week describe what happened in the portfolio and the markets during the last week. The class schedule is shown below to give an idea of the class’s structure.
In order to select holdings, the Reiman Fund begins with identifying sectors that are quantitatively under or overvalued on a variety of multiples including price to earnings, enterprise value to EBITDA, price to book value, and other ratios. Once these factors have been analyzed, the class decides to either overweight, underweight, or match its holding allocation in sectors relative to the benchmark. Typically, the class decides to go overweight in two sectors and underweight in two sectors while taking a neutral position on the remaining. Once the fund’s sector allocation is determined, stocks are evaluated on five factors that are included in the investment thesis checklist below.
The fund first considers the presence of an economic moat when examining stocks because in theory, having an economic moat is indicative of a company’s ability to generate returns that are higher than average overtime and that will eventually be reflected in their stock price. A company’s economic moat is evaluated from both a quantitative and qualitative lens. Quantitatively, companies’ moats are examined based on historical return on equity, return on capital and margins while qualitatively companies are examined based on perceived advantages such as brand, scale, niche markets, and location. Undervaluation is another factor the class considers when evaluating companies. Companies are valued in many ways including a free cash flow model, valuation multiples, and comparable company valuation. If the price paid for a good company is too high it will not be a great investment, so valuation is a key part of the thesis. Growth opportunities not being acknowledged by the market is another aspect the class looks at when evaluating a stock. If it seems there is opportunity for a business to grow that is not currently factored into the company’s stock price, it may be at a great price to buy. Furthermore, the class considers whether a company is out of favor in the market for an unjustified reason or if they have not been examined in detail by many other funds. If many analysts do not follow a stock then it is more likely to become undervalued. Finally, the class examines the recent transactions of insiders within the company. This is the “Insider Buying” check on the list giving insight to how managers and executives within a company are trading the company’s stock. If there are a lot of recent purchases, it could be an indicator insiders of the company expect growth in the stock or see it as undervalued.
The Reiman Fund’s most recent security purchases include: Spouts Farmers Market (NASDAQ: SFM), SJW Group (NYSE: SJW) Owens-Illinois (NYSE: OI), and Cameco Corporation (NYSE: CCJ). All the purchases fall into the market cap range of 2 billion to 10 billion dollars with the exception of SJW Group who has a market capitalization size of 1.01 billion. Additionally, our fund decided to hedge a current holding (Gilead Sciences, Ticker NASDAQ: GILD) buy purchasing a “Long Put Option” that expires March 17th, 2017. We later sold the option for a small profit of approximately $210.07. During the winter quarter of 2017, the fund decided to overweight the Finance, Materials & Industrials and Consumer Discretionary sectors for the winter quarter. The previous purchases made this quarter fall into the following sectors: Consumer Discretionary, Utilities, Materials and Energy respective to each of the stocks purchased. A few of these stocks do fall into specific sectors that the fund has targeted to overweight this quarter.
The recent performance of the Reiman Fund over the past six months is shown below as well as our best and worst preforming stocks.