Monday, January 25, 2016

The Student-Managers of the AIM Funds Have Posted Solid Performance

Performance of the AIM Funds Since Inception of the Program

Marquette University Applied Investment Management (AIM) program was established in 2005. Since then the students have managed approximately $2 million of Marquette’s endowment fund.
·         In September 2005 the AIM Small Capitalization Equity Fund was established with the Russell 2000 Index serving as the benchmark.
·         In January 2006 the AIM Fixed Income Fund was created with the Barclays US Aggregate Bond Index selected as the benchmark.
·         In September 2008 the AIM International Equity Fund was established with the S&P ADR Index chosen as the benchmark. Since then a second benchmark (Russell Global ex US Index) has also be utilized to monitor the relative performance of the fund.

The management of the three funds --- which includes the weekly AIM equity pitches --- has always been one of the main highlights of the AIM program. The opportunity for students to actively manage domestic and international equity and fixed-income portfolios has been an important part of Marquette AIM program’s experiential learning since its inception.

Given that the program celebrated its 10th anniversary in 2015 it is fair to ask how the AIM funds have fared. The following table provides key performance metrics for each fund since their inception.

As the table reveals, like many active investment managers, the past decade has been challenging were compared to passive investing. Portfolio managers had to navigate through the Financial Crisis of 2007-2009, the European Debt Crisis of 2011, the collapse of oil prices in 2014-2015, and poor performance from the BRICs and other emerging economies – in addition to the imposition of major new regulatory controls (i.e. Dodd-Frank and Basel III).

The AIM Small Cap Fund has weathered the storm quite well. While the annual average returns are below the Russell 2000 Index, the fund has performed in the top half of all actively managed small cap funds during this period. Despite relatively high transactions costs given the size of the portfolio, the student-managers have generated an overall Sharpe Ratio of .26 – which is slightly below the Index’s .32 measure.

The AIM Fixed Income Fund has performed slightly ahead of its benchmark during the period beginning in January 2006 – with an average annual return of 5.0% versus 4.8% for the Barclay US Aggregate Bond Index. The higher relatively return was generated with slightly more risk – as measured by the standard deviation of monthly returns. The student-managers employ ETFs to implement the strategy and given the embedded costs within ETFs – and the commissions paid – the positive net excess returns is a strong outcome.

Finally, the AIM International Equity Fund has been the most challenging portfolio. The AIM students have to study and analyze non-US securities; a task that this challenging given the different regulatory and accounting conventions used in other countries.  Despite this, the student-managers of the International Fund since inception have matched the S&P ADR Index and slightly underperformed the Russell Global Ex US Index. Again given the relative high transactions costs, the students have posted returns in the top half of all international equity managers during the period. Despite a strong overweight in the emerging market sector – which has performed well below the developed markets – the AIM International Fund has held its own.

In summary, the student-managers of the AIM program portfolios have had a remarkable learning experience and have generated respectable returns. The current and future AIM students look forward to the opportunity to manage a portion of Marquette’s endowment in a professional, prudent manner.    

Performance of Marquette AIM Funds v. Benchmarks (Since Inception)
Time Period (9/30/2005 - 12/31/2015)
Annual Return (Geometric Average)
Standard Deviation
Sharpe Ratio
Marquette AIM Small Cap Equity
Russell 2000 TR USD
Time Period (1/28/2006 - 12/31/2015)
Annual Return (Geometric Average)
Standard Deviation
Sharpe Ratio
Marquette AIM Fixed Income
Barclays US Agg Bond TR USD
Time Period (9/28/2008 - 12/31/2015)
Annual Return (Geometric Average)
Standard Deviation
Sharpe Ratio
Marquette AIM Intl Equity
Russell Global Ex US TR USD

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