Sunday, August 13, 2017

After Nearly 12 Years of Managing the AIM Small Cap Funds - How's the Performance?

7.12% Net Annualized Returns for the Small Cap Fund Since September 2005

After nearly 12 years of managing the AIM Small Cap Fund, the students in Marquette's Applied Investment Management program have generated the exact return performance as the average US Small Cap Blended mutual fund (7.12% net annualized return). During this holding period, similar to over three-quarters of the active small cap fund managers, the passive benchmark (Russell 2000 Index) outperformed the fund with an average annual return of 8.07%. 

AIM Small Cap Fund vs. Russell 2000 Index and Average Small
Blend Mutual Fund (as of 7/31/2017) - Click to Enlarge Table

The AIM Fund generated a strong Sharpe Ratio of 0.41 (the statistic most frequently used to measure risk-adjusted returns) during the period versus 0.44 for the Russell 2000 Index. Interestingly, the student-managed fund displayed lower risk levels than the benchmark and the average mutual fund (lower Beta and Standard Deviation). As a result, the AIM Small Cap Fund generated slightly better risk-adjusted return measures than the average small cap mutual fund (Information Ratio, Capture Ratios, and Batting Average). 

The debate about active vs passive equity investing will be discussed during the first several weeks of the fall semester. Marquette is pleased with the overall performance of the actively managed AIM funds - especially following the Financial Crisis of 2008. The administration highly values the opportunities for experiential learning that have been gained by the students within the program. 

Whether future AIM classes will be able to bring the cumulative returns up to the level of the passive buy-and-hold benchmark remains to be determined; however, in the same manner as professionally managed investment firms, the AIM students will attempt to generate positive alpha versus the Russell 2000. The students are appreciative of this opportunity that Marquette has afforded them.

Friday, August 11, 2017

10th Annual Ins & Outs of Wall Street - SAVE THE DATE

Join us for the 10th Annual Ins & Outs of Wall Street
Saturday, October 7, 2017

Click here to check out the Marquette's Homecoming & Reunion events happening that weekend

Wednesday, August 9, 2017

What the bond markets are saying about North Korea - Not much according to Dr. Krause

Dr. Krause was interviewed by Sabri Ben-Achour, senior reporter for NPR's Marketplace about the bond market today

Tuesday, August 8, 2017

Flipped Classroom Grant Received by AIM Program

The AIM Program Recently Received a Marquette College of Business Administration Faculty Development Support Grant for a ‘Flipped Classroom’

On July 26, 2017, the dean of  Marquette’s COBA, Brian Till, announced faculty development support awards to various Marquette professors; including Dr. David Krause and the AIM program. The grant submission was for FINA 4320 (the second AIM course which is focused on investment research and valuation). 

Krause wrote that the reason for seeking the grant was to continue to provide relevant curriculum and assessment in an on-line format allowing more time for applied learning and outside speakers during class meeting time. The grant will be received and implemented in the fall 2017 semester.

Dr. Krause stated, “We are thankful for receiving the grant. While we have been employing many variations of the flipped classroom since AIM was created in 2005, it is useful to formalize the process and to receive funding to continue integrating technology into the curriculum. The purpose of this grant is to further the process of working with SS&C Technologies.”

SS&C TechnologiesSS&C Technologies (ticker: SSNC) is the parent company of SS&C Learning Solutions (formerly Zoologic) The firm offers a deep and rich curriculum of the critical subject areas in investments and the financial services industry. Krause added, “SS&C Learning Institute’s courses provide a strong conceptual foundation and work well with the AIM program – we look forward to working with them this semester and beyond.”

The AIM program has been employing active learning techniques the past decade. Experiential learning has been shown to improve the classroom experience, leading to higher student success rates and greater student engagement. 

Krause said, “Flipping a classroom sounds easy, but an effective flip requires careful preparation and the right on-line curriculum. While a flipped classroom puts greater responsibility for learning on the students, the benefit is that it provides them with more room for relevant, applied learning in the classroom. This leads to a shift in priorities, allowing AIM classroom time to move from merely covering material to working toward mastery of it. The ability to bring in outside speakers and to have more student presentations is valuable.”

Monday, August 7, 2017

Let's again debate active vs. passive investing and the impact on the economy

Aug 4, 2017

Mark Gilbert is a Bloomberg Gadfly columnist covering asset management. He previously was a Bloomberg View columnist, and prior to that the London bureau chief for Bloomberg News. He is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”

Do low-cost index-tracking funds really threaten to turn us all into communists? A year ago, Sanford C. Bernstein & Co. warned that “passive investing is worse than Marxism.” 

Today, the most-read story on Bloomberg is about Paul Singer warning that “passive investing is in danger of devouring capitalism.” 

The giant sucking sound in the fund management industry in recent years is the noise of money flowing to passive products. 

The rise of exchange-traded funds has been relentless, and shows no signs of slowing. 

If anything, the shift to passive strategies is accelerating, as this chart based on data compiled by Bloomberg Intelligence’s Eric Balchunas shows. read on......

Sunday, August 6, 2017

AIM Fixed Income Fund Performance and Key Statistics as of 7/31/2017

AIM Fixed Income Fund Positioned for One More Rate Rise in 2017

Key highlights of the Marquette AIM Fixed Income Fund:

  • Solid short and long-term performance relative to benchmark
  • Short duration strategy in anticipation of one more Fed rate increase
  • Tilt toward corporate credit
  • Low to moderate credit risk (few high yield holdings)
  • Exclusive use of ETFs (since 2005)

(Click on the tables to enlarge)

Thursday, August 3, 2017

The Performance of the Individual Stocks Added to AIM Funds by Students in the Class of 2018

Of the Stocks Added by the Class of 2018 - 8 are up and 5 are down!

Led by (STMP) which rose nearly 30% today on favorable earnings - the AIM Class of 2018 is off to a good start in their role as managers of the Small Cap and International Equity Funds.

Soon after the students return to campus at the end of August, they will again be pitching stocks on Friday afternoons. Every AIM stock pitched since the program's inception in 2005 can be found on the AIM website (AIM student write-ups). This fall all of the students' oral stock pitches and write-ups will be archived and available for viewing on the website. As always, via a web link, everyone is invited to view the AIM pitches real-time - stay tuned for more information at the beginning of the semester.

Stocks Added to the AIM Funds by the Class of 2018
                 (click on the table below for an expanded view)

Tuesday, August 1, 2017

Class of 2018 AIM Fund Performance as of 7/31/2017

Marquette AIM Class of 2018 Off to Solid Start

The AIM students in the Class of 2018 are off to a nice start since they began managing the three portfolios on April 1, 2017. The Small Cap Fund is nearly 300 bps above the benchmarks and the International Equity Fund is matching the S&P ADR Index (it is underperforming largely because of the weaker US Dollar). The AIM Fixed Income Fund is lagging the benchmark as rates have not risen at the level expected by the students.

AIM Funds 4/1/2017 -
Class of 2018 7/31/2017
AIM Small Cap Fund 6.12
Benchmark: Russell 2000 Index 3.22
Benchmark: S&P US Small Cap Index 3.25
AIM International Fund 7.62
Benchmark: Russell Global xUS Index 9.62
Benchmark: S&P ADR Index 7.57
AIM Fixed Income Fund 1.57
Benchmark: BBgBarc US Agg Bond Index 1.88
Benchmark: BBgBarc Aggregate Treasury Index 1.36

Timely Article about Emotional Intelligence and Strategies to Improve Your EQ

Why Your Boss Lacks Emotional Intelligence (EQ)

This is from the HuffPost 7/30/2017

Whether you’re a leader now or may become one in the future, you don’t have to succumb to this trend.

Over the past century, the heartless, no-nonsense CEO has become something of an icon—and a cliché—in American society. Hollywood would have us believe that the Machiavellian chief exec is still alive and well.
But that’s just TV, right? How about in the real world? Do businesses still allow these inhumane relics to survive?
To find out, we analyzed the emotional intelligence (EQ) profiles of the million-plus people in our database—workers from the front lines to the C-suite. We discovered that the answer is yes, organizations today do promote the emotionally inept... except when they don’t. Allow me to explain.
We found that EQ scores climb with titles from the bottom of the corporate ladder upward toward middle management. Middle managers stand out with the highest EQ scores in the workplace because companies tend to promote people into these positions who are level-headed and good with people. The assumption here is that a manager with a high EQ is someone for whom people will want to work.
But things change drastically as you move beyond middle management.
For the titles of director and above, scores descend faster than a snowboarder on a black diamond. CEOs, on average, have the lowest EQ scores in the workplace.
The trick is, for every title in the graph above, the top performers are those with the highest EQ scores. Even though CEOs have the lowest EQ scores in the workplace, the best-performing CEOs are those with the highest EQs. You might get promoted with a low EQ, but you won’t outshine your high-EQ competition in your new role.
The higher you go above middle management, the more companies focus on metrics to make hiring and promotion decisions. While these short-term, bottom-line indicators are important, it’s shortsighted to make someone a senior leader because of recent monetary achievements. Possibly worse than metrics, companies also promote leaders for their knowledge and tenure, rather than their skill in inspiring others to excel.
Companies sell themselves short by selecting leaders who aren’t well-rounded enough to perform at the highest levels for the long term.
Once leaders get promoted they enter an environment that tends to erode their emotional intelligence. They spend less time in meaningful interactions with their staff and lose sight of how their emotional states impact those around them. It’s so easy to get out of touch that leaders’ EQ levels sink further. It truly is lonely at the top.
Whether you’re a leader now or may become one in the future, you don’t have to succumb to this trend. Your emotional intelligence is completely under your control. Work on your EQ and it will boost your performance now. Your effort can also ensure that you don’t experience declines as you climb the corporate ladder. Even if your employer promotes you for the wrong reasons, you’ll still outperform your contemporaries.
To help you get started, here are some of my favorite EQ-boosting strategies for leaders. They apply to anyone, so give them a try, even if you’re not a leader (yet).
1. Acknowledge Other People’s Feelings
Assertive, action-oriented executives don’t exactly ignore other people’s feelings. What they tend to do instead is to marginalize them or “fix” them so that they don’t get in the way of action. While some have suggested that this is a predominantly male problem, it can more accurately be described as a “power problem.” People who fail to acknowledge other people’s feelings fail to realize that lingering emotions inhibit effective action. So the next time you notice someone on your team expressing a strong emotion, ask him or her about it. Then listen intently and play back what you have just heard in summary form. By validating their emotions, you’ll help them feel understood so that they can move forward without hindrance.
2. When You Care, Show It
This might be the easiest thing you can do—as long as you actually do it. Good leaders always notice when people on their teams are doing good work, but they don’t often show it. When you appreciate something that another person does, let him or her know about it. Even a quick email or pat on the back goes a long way in this regard. There are people who do great work around you every day. Don’t put off letting them know how you feel about it. Your praise will build fierce loyalty and inspire your people to work even harder.
3. Watch Your Emotions Like A Hawk
The techniques above are extremely effective, but both require an awareness of your own emotions in the moment. You may think you have a world-class poker face, but if you’re like the average executive, your weakest self-awareness skills are “understanding how your emotions impact others” and “recognizing the role you have played in creating difficult circumstances.” In other words, you would become a much more effective leader if you obtained a better understanding of what you feel, when you feel it. Practice this by taking notice of your emotions, thoughts, and behaviors just as a situation unfolds. The goal is to slow yourself down and take in all that is in front of you, so that you can understand how your emotions influence your behavior and alter your perception of reality.
4. Sleep
I’ve beaten this one to death over the years and can’t say enough about the importance of sleep to increasing your emotional intelligence and improving your relationships. When you sleep, your brain literally recharges, shuffling through the day’s memories and storing or discarding them (which causes dreams), so that you wake up alert and clear-headed. Your self-control, attention, and memory are all reduced when you don’t get enough—or the right kind—of sleep. Sleep deprivation also raises stress hormone levels on its own, even without a stressor present. The pressure that leaders are under often makes them feel as if they don’t have time to sleep, but not taking the time to get a decent night’s sleep is often the one thing keeping you from getting things under control.
5. Quash Negative Self-Talk
A big step in developing emotional intelligence involves stopping negative self-talk in its tracks. The more you ruminate on negative thoughts, the more power you give them. Most of our negative thoughts are just that—thoughts, not facts. When you find yourself believing the negative and pessimistic things your inner voice says, it’s time to stop and write them down. Literally stop what you’re doing and write down what you’re thinking. Once you’ve taken a moment to slow down the negative momentum of your thoughts, you will be more rational and clear-headed in evaluating their veracity.
You can bet that your statements aren’t true any time you use words like “never,” “worst,” “ever,” etc. If your statements still look like facts once they’re on paper, take them to a friend or colleague you trust and see if he or she agrees with you. Then the truth will surely come out. When it feels like something always or never happens, this is just your brain’s natural threat tendency inflating the perceived frequency or severity of an event. Identifying and labeling your thoughts as thoughts by separating them from the facts will help you escape the cycle of negativity and move toward a positive new outlook.
Bringing It All Together
Is your employer perpetuating this trend, or are they bucking it by developing high-EQ leadership? Do you know high-EQ leaders who outshine the rest? Share your experiences in the comments sectioN, and let’s have a conversation about this important topic.
Want to learn more from me? Check out Bradberry's book, Emotional Intelligence 2.0.

Friday, July 21, 2017

Marquette AIM Funds' Investment Performance as of 6/30/2017

AIM Program Funds’ Performance as of June 30, 2017

The students in Marquette's Applied Investment Management (AIM) program have been managing University endowment funds since 2005. The student-managers oversee two equity portfolios for Marquette's endowment, as well as a fixed income fund. The total funds under management are approaching $3 million.

The 1-, 3- and 5-year returns for the three funds as of June 30, 2017 are presented in the tables below - along with their benchmarks. While most active managers have struggled to match their benchmarks, the AIM students have generally performed in the top half of active managers. All returns are reported net of all fees and transactions costs.

The AIM Small Cap Equity Fund holds the common stock of various US firms with a market capitalization between $200 million and $3 billion).  This is a highly volatile sector of the equity market which provides important learning opportunities for the AIM students. The performance of the fund in the past year was outstanding (+25.90%), while the longer-term returns are on par with the small cap benchmarks.

The AIM International Equity Fund allows students to invest in the common stock of non-US domiciled firms. The students are limited to only investing in American Depositary Receipts (ADRs) and global stocks denominated in the US Dollar which makes the fund susceptible to currency swings. While the fund posted strong returns the past year (+19.37%), it has been a challenging market the past several years - which has provided the students with many valuable learning experiences.

The AIM Fixed Income Fund utilizes exchange traded funds (ETFs) and provides the students with a different set of challenges. Understanding and forecasting the movement of interest rates among the various categories of fixed income securities requires the students to stay current with US monetary policy and the macroeconomy. During the past year the AIM Fixed Income Fund outperformed the benchmarks and has generated competitive long-term results.

Total Net Investment Returns (%) as of 6/30/2017
1 Year
3 Year
5 Year
AIM Small Cap Equity Fund
Benchmark: Russell 2000 Index
Benchmark: Morningstar US Fund Small Index
AIM International Equity Fund
Benchmark: S&P ADR Index
Benchmark: Russell Global xUS Index
AIM Fixed Income Fund
Benchmark: Bloomberg Barclays US Agg Bond Index
Benchmark: Bloomberg Barclays US Treasury Index

Friday, June 2, 2017

AIM Class of 2018 Equity Fund Performance as of 5/31/2017

Return Performance Results for the AIM Equity Funds for the Class of 2018

The students in the AIM program manage two equity portfolios for Marquette University's endowment. The AIM Small Cap Equity Fund is benchmarked to the Russell 2000 Index (a small cap blend of 2000 publicly traded firms in the US with market capitalizations between about $500 million and $3 billion).  

The AIM International Equity Fund is benchmarked to the Russell Global xUS Index (this represents over 90% of the investable universe of non-US equities). The AIM students are limited to only investing in ADRs and global stocks denominated in US dollars - which results in a currency effect within the portfolio across time versus the benchmark.

For both portfolios the AIM students employ a bottom-up, fundamental approach to portfolio construction. The small cap portfolio needs to remain sector neutral, while the international portfolio has the dual task of attempting to remain sector neutral without taking huge region or country exposure.

AIM Small Cap Equity Fund

Since its inception in September 2005, the AIM Small Cap Fund has had a slight tilt toward growth stocks. As can be seen in the graph below, as of 5/31/2017 over 50% of the stocks were considered 'growth' according to Morningstar metrics; while only 7% were tagged as 'value' stocks. 

The students in the AIM program do not attempt to 'time the market' and instead focus on adding and holding high quality equities with an investment window of 3 to 5 years. While small cap growth and value stocks tend to perform similarly over the longer term, there are times when performance of the two deviate. It is our philosophy that by being bottom-up, fundamental analysis driven, the equity funds managed by the AIM students for the University's endowment will achieve long-term returns in excess of the Russell 2000.

The fund has exceeded the benchmark by 1.6% since April 1, 2017 (the beginning of the holding period for the Class of 2018). Strong relative performance of the health care sector has been responsible for nearly all of the excess return performance.

The tables below pertain to the AIM Small Cap Equity Fund (they can be enlarged by clicking on the graphic). Note: performance tables for the AIM International Fund are below these.

AIM International Equity Fund

The AIM students in the Class of 2018 have had a challenging start to their portfolio experience. While the absolute returns have been strong the past year, the performance for the first two months has been challenging (3.6% versus the benchmark of 6.0%). Issues related to NAFTA and energy policy have resulted in an underperformance in Energy and North American equities (especially Canadian and Mexican stocks). A close examination of the attribtuion tables will reveal that 2.0% of the underperformance is directly attributable to the overweight of North American holdings in the portfolio.

As the table below shows, the AIM International Fund has a slight growth tilt - it also tends to have a slight bias towards more mid- and small cap holdings than the benchmark. This portfolio has significantly more tracking error to the benchmark than the AIM Small Cap Equity Fund, as would be expected.