The AIM International Equity Fund is Outperforming the Russell Global ex-US Index by Nearly 600 bps YTD in 2018
While the AIM Small Cap Equity Fund has been getting a lot of attention because of outstanding returns, the International Equity Fund has been more than holding its own. YTD in 2018, the AIM International Equity Fund is up 2.17%; while the benchmark (Russell Global ex-US Index) has returned a -3.30% for the year through August 31, 2018. That is a positive variance of 5.30% - which is also impressive. Similar to the Small Cap Fund, the International Fund attempts to be sector neutral; however, making it even more challenging for the students - the portfolio attempts to be regional neutral as well. The following attribution analysis table shows the performance of the AIM International Fund by GICs sector. Note the strong relative returns of the Information Technology, Healthcare and Industrials sectors. (Click to enlarge the image).
Newest
AIM Class to Study the SEC’s Probe of Elon Musk’s “Funding Secured” Tesla Tweet
Elon Musk thinking about his next tweet
Dr.David Krause, AIM Program Director, has taught the AIM introductory course
since 2005 (which includes elements of security law and regulation) and is always
looking for ways to make the curriculum as relevant as possible.
This
week the AIM students in the Class of 2020 will be studying and discussing
whether or not Tesla’s Chief Executive Officer, Elon Musk, was truthful when he
tweeted in August that he had secured funding for what would be the
largest-ever corporate buyout.
Is this a violation of Regulation FD?
The students will be studying why officials at
the Securities and Exchange Commission (SEC) want to know whether Musk had a
factual basis for tweeting that the going-private transaction was all but
certain, with only a shareholder vote needed to complete it.
The SEC's
inquiries into potential violations of US securities law suggest that Musk and Tesla
could come under an enforcement investigation (and penalties) if regulators find
that Mr. Musk's tweeted statement was misleading or false.
Marquette AIM Director, David Krause
Krause said, “This is an excellent example of
applied learning. Why study a case that is a decade old, when you can examine
in near real-time what the SEC is considering based on Musk's tweet that he had
funding secured to take Tesla private?"
With access to the on-line version of the Wall Street
Journal, AIM students can follow this story and others – making class
discussions relevant and real. Dr. Krause continued, “We are working to change higher
education by combining the best of the brick-and-click world. Where appropriate,
we can use on-line curriculum to deliver content – allowing for more class time
devoted to discussion of relevant issues. We can combine lectures, class
discussion and experiential learning into almost every class meeting.”
By
reading and discussion timely articles that address today’s financial and business
news (i.e. the implications of Elon Musk tweeting about plans to take Tesla
private), the AIM curriculum remains pertinent.
Is Twitter is a good forum for CEOs to
communicate with shareholders? We’ll let you know what the students think about
this and other current topics throughout the semester.
The Director of the AIM program, Dr. David Krause said recently, “The buy-side of the asset management
industry is under considerable pressure to reduce their costs given the incredibly low fees
being charged by index funds. They also need to demonstrate their value and to
improve transparency. We want to educate the next generation of asset managers
who will be operating in an industry that must deal with the disruptions that
will result from the new innovations in financial technology.”
While the industry is expected to continue to grow strongly (experts
predict a sustained cumulative growth in assets exceeding 6% annually,
resulting in a global Assets Under Management of over $110 trillion by 2020,
and $145 trillion by 2025), asset management clients (institutional and retail) are
becoming increasingly demanding, diverse and knowledgeable – and their
expectations of investment outcomes is higher. Krause said "They will not tolerate poor
customer service and today's investors expect to interact immediately with their investment advisors via digital mechanisms
(including social media). The demands that will be placed on the buy- and sell-side of the investment industry are huge."
"The combination of strong growth, greater client expectations
and massive cost pressures is changing the industry right before our eyes," he said. "And because
the AIM program has always been on the leading edge of change within the academic
investment industry, we are changing too."
Dr. Krause’s course on FinTech Topics which will be taught in the Spring 2019 semester, will focus on these issues. "This should provide an enormous opportunity for those students who understand the future changes that are taking
place and who can adapt. They still have time to become FinTech savvy."
There will soon be a growing demand for graduates entering the
industry who are stronger in their understand of the technology which will reduce
costs in the industry - while also understand the process of improving the
quality of services delivered. Coding and programming are also likely to be required skills of the financial analyst - see another recent AIM blog on "Here Come the Quants".
Krause's course will focus on a range of new technologies and topics (including algorithmic and dark pool trading) that
are emerging in order to meet this challenge. The application technologies highlighted include:
- - Robotics / Machine-Learning
- - Big Data Analytics
- - Blockchain (Distributed Ledger Technology)
Krause added, "The course is in the development
stage presently, but I'm working with a major FinTech software company on course content, so we will be ready with a brand new curriculum by the beginning of the spring 2019 semester."
How students and professors are adapting to “quants,” coders and the tidal wave of computer-driven and AI-enabled investing.
By Chris Jenkins
IfMax Mattappillil needed any further proof of the invasion of the world of high finance by “quants” — investment strategists who develop computer code to conduct complex quantitative analysis and support automated trading — he got it when he worked on Wall Street last summer.
Illustration by Sam Ward for Marquette Biz
During his internship at Societe Generale in Manhattan, Mattappillil noticed something that would have been shocking a decade earlier: Most of the traders he met had computer programming experience and used it in managing their trades. “It’s almost like it’s becoming a requirement,” says Mattappillil, Arts ’18, who majored in applied mathematical economics, a joint program of the College of Business Administration and the Klingler College of Arts and Sciences. “At least on my desk, every trader could program.”
Not that Mattappillil was caught by surprise by this phenomenon. Months earlier, in the spring of 2017, he co-founded Marquette’s Algorithmic Trading Club to bring together students from various majors to experiment with financial applications for computer modeling and artificial intelligence, making him something of a quant himself.
Club members now meet regularly during the school year to compare notes, write code and better understand the nexus of artificial intelligence and algorithmic trading — where traditional fundamental analysis of businesses takes a backseat and humans are mostly removed from buying and selling decisions as computer models developed by quants determine when to execute transactions. At their meetings, students in the club speak almost reverently about Renaissance Technologies, a hedge fund that has set records relying on quantitative analysis developed largely by mathematicians, physicists and other scientists with nonfinancial backgrounds.
Max Mattappillil, co-founder of Marquette’s Algorithmic Trading Club and Dr. David Krause
As students take the initiative to learn new technologies through the club, faculty leaders in the College of Business Administration have moved past the wondering stage in determining how these rapid changes in the nonfinancial industry will affect the college’s curriculum. “Universities need to get on this quickly because the rate of change is faster than I’ve ever seen it before,” says Dr. David Krause, director of the college’s elite Applied Investment Management or AIM program, where undergraduates get hands-on financial analysis experience, in part by managing their own portfolios from a trading floor inside David A. Straz, Jr., Hall.
“Quants will not take over areas of finance where decisions are based on more than just data that can be run through a model. However, quants will continue to grow at the expense of those who have been involved in the industry pushing paper.”
Toward that end, faculty members from accounting, finance and the AIM program are collaborating to develop a series of stackable modules focused on artificial intelligence, machine learning and blockchain. Drs. Joseph Wall, Grad ’06, assistant professor of accounting, and Terence Ow, associate professor of management, are completing the first modules this summer and seeking funding from an industry partner to support development of secondary modules and expansion to additional topics.
Dr. Joesph Wall and Dr. Terence Ow
“Each module will develop a special skill set for students, and each will have a deliverable associated with mastery of the material presented,” Wall says. “The first stackable module in each of the current series is designed to be taken with very little baseline knowledge, such that most members of the Marquette community — even those outside of business — could participate.”
While Krause doesn’t see every area of the financial industry surrendering to quants — a human financial analyst is still needed to analyze a company’s future growth strategy, or example — he says any job that deals with past events or is rules-based and can be executed more accurately through an algorithm is up for grabs. “Trading desks are going to go nearly all-quant because they operate 24/7 and can execute trades in nanoseconds when new information becomes available,” Krause says. “Quants will not take over areas of finance where decisions are based on more than just data that can be run through a model. However, quants will continue to grow at the expense of those who have been involved in the industry pushing paper.”
For its part, much of the time, the Algorithmic Trading Club at Marquette seems a better example of harmonious interdisciplinary collaboration than a one-sided rise of the quants. After all, it brings together students from the College of Business Administration, the Opus College of Engineering, the Klingler College of Arts and Sciences and possibly others. “These days you need expertise in a lot of very complicated fields — finance, math and computer science,” says Ryan Schumm, Arts ’18, a data analytics and physics major who served as lead modeler for the club. “The finance part, a lot of that went right over my head, but we have a lot of smart people here who could help me out with that. I could help them out with math and computing, machine learning stuff. It’s been a great learning environment.”
“… if it feels like you’re doing too much manual work, you are. Write a little algorithm to do it for you.”
Look deeper, though, and you’ll see some student members of the Algorithmic Trading Club parting ways over how extensively their field is being transformed. “The classic discretionary strategies really are dying. We know Renaissance Technologies, the top-performing hedge fund in history; they’re just a team of Ph.Ds, mathematicians and physicists. The industry is dominated by machines and math,” says Schumm, representing the bullish-on-algorithms perspective.
Harboring a more balanced view is Mattappillil, who gained hands-on experience not only through internships but also as one of a very few nonfinance majors enrolled in the highly selective AIM program. Returning to New York City this summer for a full-time position at Societe Generale, Mattappillil believes his familiarity with quantitative and fundamental analysis will help him in his career.
“I think fundamental analysis will always have a role,” Mattappillil says. “That being said, everything is going to end up being more quantitative. I can imagine that a trader in a few years will primarily be a computer scientist. ... The number one thing my boss told me last summer is that if it feels like you’re doing too much manual work, you are. Write a little algorithm to do it for you.”
And despite the advance of coders and computers at big-time hedge funds, Mattappillil doesn’t expect to see rank- and- file financial advisers pushed out the door anytime soon. “Maybe generations in the future it can change, but people still want to see a human managing their money,” he says. “It can be uncomfortable if you throw $200,000 into a computer to manage it for you. Even if that’s more accurate, just knowing that someone is handling it can be comforting.”
August 2018 Total Returns in the Marquette AIM Small Cap Equity Fund Remain Impressive
Last year's visit to the NYSE must have motivated the AIM students to generate excess return performance
The student-managed small cap equity fund generated total returns in August 2018 of 8.58% --- besting the benchmark (Russell 2000 Index) return by nearly double. The year-to-date returns of the AIM Small Cap Fund are 22.74% which is 850 bps above the benchmark (see table below).
Annualized returns for the 1-, 2-, 3-, 5- and 10-year periods are all above the benchmark. A full attribution analysis will be posted next week identifying the areas of the portfolio that produced the largest relative returns.
Graphs and tables below provide preliminary information about the makeup of the AIM Small Cap Equity Fund.
Click on image below to access all AIM equity write-ups since 2005
All AIM Program write-ups since 2005
Marquette AIM Program Blog
The AIM Program at Marquette University began in 2005. Since then over 400 undergraduate students have participated in the program. Our alumni can be found in leading asset managers and investment banks throughout the country - and the world. As the first undergraduate program partner with the CFA Institute, we take pride in our students' successful placements and high CFA exam pass rates. In 2014 we added our second track: Private Equity & Investment Banking. We now offer students an opportunity to participate in the Finance in New York Program. Please feel free to contact us at:aim@marquette.edu
While the AIM Small Cap Equity Fund has been getting a lot of attention because of outstanding returns, the International Equity Fund has been more than holding its own. 
Similar to the Small Cap Fund, the International Fund attempts to be sector neutral; however, making it even more challenging for the students - the portfolio attempts to be regional neutral as well.
