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.

Tuesday, May 30, 2017

Fintech is upon us - we know because the CFA Institute is expanding its weight in the curriculum!

Fintech gets real for CFA exam (from Pensions & Investments)


The CFA Institute is giving financial technology expanded weight in its curriculum and Chartered Financial Analyst examinations.

Elements of fintech are already peppered throughout the curriculum, but starting in 2019, the institute expects to have readings that speak to it explicitly, said Lisa Plaxco, Charlottesville, Va.-based head of the CFA program at CFA Institute.

Areas of the curriculum in which elements of financial technology are already addressed are trading, private wealth and quantitative methods. “We expect to beef those up,” Ms. Plaxco said.

cfm.v27.n3For instance, a new private wealth reading that looks at how financial advice is being delivered, such as through robo-advisers, is planned for 2019.

Fintech also is expected to be addressed in a new section on professionalism that looks at current trends, among other things.

“Fintech is such a big area and is used to talk about a lot of different things,” Ms. Plaxco said. However, the four areas that the CFA has been hearing as the most relevant within fintech are financial analysis (big data analysis, artificial intelligence, machine learning, and algorithmic trading); portfolio management (robo-advisers and the equivalent on institutional platforms); capital formation (peer-to-peer lending, crowd funding and shadow banking); and market infrastructure (cryptocurrencies, blockchain technology for settlements, high-frequency trading and regulatory-related technology).

A Thought-Provoking Article on ESG Investing by Christopher Merker - An Instructor in the AIM Program

The following is Chris Merker's first blog posting at the CFA Institute's Enterprising Investor site:

The Stampede into ESG

As I prepared for a recent presentation, I pulled some data from a report my firm had published six months earlier on developments in environmental, social, and governance (ESG) investing, socially responsible investing (SRI), and impact investing.
What I found surprised me.

UN PRI Signatories and Their Assets under Management (AUM)

The above graph shows two data series: The blue line represents the asset managers that have signed on to the United Nations-supported Principles of Responsible Investing (UN PRI), and the green bars display the total assets under management (AUM) held by those firms. In 2006, roughly six firms with a combined $200 billion in AUM were signatories. Ten years later, 60 firms with a total of $14 trillion in global AUM were on board.
The chart below, taken from the same report, shows what portion of that $14 trillion is from the United States. Note the significant jump in 2014.

US Investment Funds Incorporating ESG Factors

The move from $1 trillion in 2012 to over $4 trillion just two years later surprised me — a 300% change as the number of funds grew from around 650 to roughly 800. The most recent data from 2016, which is not shown in the chart, indicates nearly $9 trillion in total assets.
The question that struck me when I saw all this: Did all of the asset managers that are now factoring ESG into their investment process shift all $4 trillion in assets the day they signed up with the PRI?
The answer, of course, is no. Nothing changed. Not really, anyway. While the move into ESG investing demonstrates greater consciousness on the part of investment managers, the factors themselves are “soft” in their application. As Christopher Scott Peck, Hal Brill, and Michael Kramer observed in The Resilient Investor:
“ . . . we recognize that the softer ESG ‘considerations’ approach, while a step in the right direction, is less socially and environmentally impactful than SRI’s traditionally more active approach of designing portfolios and mutual funds to screen out the worst actors and seek out companies charting beneficial new directions.”
The stampede of asset managers into ESG over the last four years is reminiscent of another time and another industry.
In the 1980s, the emergence of organic farming created an opportunity for food producers to differentiate themselves and their products. Overnight, many farmers started claiming their crops and livestock were “organic.” Not until nearly two decades later, when regulators caught up and standards were put into place, did the term “organic” start to carry real meaning for the consumer. After all, what does it mean if chickens are “free range”? How much “range” does a chicken need to be “free range”?
Like organic farming 30 years ago, ESG investing today has gray areas.
The problem for ESG asset owners and investors is how to first define their specific ESG objectives and then audit or enforce those objectives under their given mandate. Eliminating tobacco stocks from a portfolio is straightforward enough. Controlling the carbon footprint of a portfolio is a different matter altogether. Holding asset managers accountable to a given set of goals and standards is key.
Wherever you stand philosophically, as a practical matter, the ESG movement is here to stay. Those who believe in the double or triple bottom line don’t think there is a conflict between “doing well” and “doing good.” Rather, both objectives — acting socially responsible and supporting investor goals — are not mutually exclusive, but mutually reinforcing.
A large body of academic research conducted over the last 30 years backs this up. In “ESG and Financial Performance: Aggregated Evidence from more than 2000 Empirical Studies,” Gunnar Friede, Timo Busch, and Alexander Bassen conduct a meta-analysis of ESG studies since 1979 and conclude that 90% show statistical evidence of a relationship between ESG factors and positive financial results.
We are a long way from understanding what distinguishes one ESG manager from another and how we as a society measure the effect of a given ESG portfolio. It’s like trying to differentiate among organic farmers in 1987.
But investors, regulators and standards will catch up.

Chris Merker
Christopher K. Merker, Ph.D., CFA, is a director with Robert W. Baird & Co. Prior to joining Baird, he ran a successful venture capital incubator in New York's Silicon Alley. A graduate of the University of Iowa, Merker is an MBA honors graduate from Thunderbird, School of Global Management, and has a Ph.D. in Investment Governance and Fiduciary Effectiveness from Marquette University. He is a past president of the CFA Society Milwaukee and a current board member. An adjunct professor of finance at Marquette University and a significant associate in the Applied Investment Management (AIM) program. He is also executive director of Fund Governance Analytics, LLC, a provider of governance research and diagnostic tools for asset owners and institutional investors.

Thursday, May 25, 2017

Pius XI AP Macroeconomics Student YouTube Video - Check It Out!

AP Macromore – Rates Down!

Roger Radke is a Social Studies teacher at Pius XI High School located in Milwaukee, Wisconsin. Roger and the entire Pius administration are great partners with the AIM program at Marquette University. He is the chair of the Social Sciences department and he teaches a variety of courses, including AP Macroeconomics.

Mr. Radke allows his students do any additional ‘creative projects’ for extra credit following the AP exams, which occurred two weeks prior to the end of their school year. The three main actors in the video are the following Pius XI students: Daniel Gutierrez, Ben Hermann and Aaron Moll.

The following YouTube video was based off of an original Macklemore song, but the lyrics were rewritten based on Macroeconomics topics. Here is the finished product, called “AP Macromore – Rates Down.”   

Tuesday, May 23, 2017

Great News - Marquette's CQA Team Placed 2nd Globally!

Marquette’s Applied Investment Management (AIM) Team Placed Second in the 2017 Chicago Quantitative Alliance Worldwide Student Portfolio Contest

The Chicago Quantitative Alliance (CQA) is a professional investment organization comprised of leading quantitative investment practitioners.  The CQA membership includes investment managers, academics, plan sponsors, consultants, and other investment professionals.  The primary goal of the CQA is to facilitate the interchange of ideas between quantitative professionals. 

Cqa logoAnnually the Chicago Quantitative Alliance holds a portfolio management contest for university students, where the students must manage a portfolio with strict requirements.  This past year, the contest ran from the end of October until the start of April. 
In only their second year of competing, Marquette’s AIM team placed second!

The CQA’s primary goal is to “promote the interests of the quantitative investment community.”  The graduate and undergraduate students involved in the competition were tasked with creating portfolios and they were provided access to faculty and CQA mentors, who guided them along the way.  When creating the portfolios, the students had to follow certain rules:
  •          The portfolio had to have a beta of +/- 0.5
  •          The portfolio had to be long/short portfolios that were market neutral.
  •          The ‘universe’ of potential stocks that they could choose from, was limited to 1,000 liquid large and midcap stocks.
  •         The portfolio had to have less than 5% of its holdings in cash.

Marquette Team 2 members included:  James Hannack, Connor Konicke, Jack Gorski, Jordan Luczaj, and William Reckamp.  Marquette Team 1 members include: Brian Shank, Joseph Amoroso, Tim Milani, and Chengbin (Henry) Lu.

Student groups were judged not only on their returns, but also on their risk-adjusted returns (Alpha and Sharpe Ratio) and a video presentation that they had to make for the competition. The winner was the University of Arizona. 

The table below shows the rankings of the three investment criteria. Note that while Marquette’s Team 2 was ranked 2nd overall, Marquette’s Team 1 had the 3rd highest Alpha (nearly 8%).

As compared to the AIM program which is focused on individual fundamental stock analysis, the CQA is more “hedge-fund like”.  Stock selection is based on factors that are possessed by certain stocks, such are leverage, profitability, value or growth.  In addition to buying stocks that are ranked highly by these factors, a “market neutral” strategy is mandated by CQA.  This means for each stock purchased, another must be “shorted”.  This years Marquette’s teams focused on low volatility correlated with high performance stocks, and were “tweaked” by each team.  Both teams performed extremely well relative compared to a very talented universe.   

The next table shows the overall rankings of all student teams participating in the 2017 CQA Challenge.

Dr. David Krause, AIM program director said, “The past two years have been rewarding for the CQA teams. This is a unique opportunity to manage a market neutral portfolio, interact with quantitative practitioners and compete against other schools. I know all of our team members have gained much and this year’s teams should be especially proud of their results in the Challenge. Thanks to Mr. Bill Walker for serving as the team's mentor - I know this was a rewarding activity for everyone involved. We encourage all of our AIM students to be active in extracurricular activities - the CQA Challenge is an important opportunity for our students to compare this skills against other programs.”

Again, congratulations to both teams. Marquette Team 2 members included  James Hannack, Connor Konicke, Jack Gorski, Jordan Luczaj, and William Reckamp. Marquette Team 1 members included Brian Shank, Joseph Amoroso, Tim Milani, and Chengbin (Henry) Lu. 

To learn more about this contest and read what past participants have thought of the contest, please visit

Sunday, May 21, 2017

Marquette student video on the AIM program

Melissa Gorman created a short YouTube video on Marquette's AIM program

This semester a Marquette student, Melissa Gorman, a Biomedical Sciences major, who also works in the Office of Undergraduate Admissions as a Tour Guide completed a video assignment. 
 AIM video by Melissa Gorman

The Marquette Office of Marketing and Communications took the footage and released the AIM video. Here it is:
  AIM video by Melissa Gorman

We would like to thank Melissa for putting this video together Here is a link to her LinkedIn, if you would like to contact her:

Saturday, May 20, 2017

No Triple Crown Winner This Year – Classic Empire is the Pick for the Preakness!

 142nd Preakness Predictions

The 142nd running of the Preakness will be held on Saturday with a much smaller field than the Kentucky Derby. Although I correctly picked Always Dreaming (#4) to win the Derby two weeks ago, his amazingly low 4-to-5 line is way too rich for me. While I believe Always Dreaming will run near the front and finish in the money, I believe that Classic Empire (#5) will win the second leg of the Triple Crown.  Most experts feel that these two horses have the only chance to win the Preakness; however, I also like a long-shot, Conquest Mo Money (#10) at 15-1 odds.
Related image
Classic Empire

Best Pick: #5 (3:1) Classic Empire.  Classic Empire has a solid trainer in Mark Casse and a great jockey with Julien Leparoux in the irons. Classic Empire was fourth in the Derby and was coming on strong – despite being bumped numerous times throughout the race. Winner of the Arkansas Derby earlier this year and winner of last year’s Breeder’s Cup Juvenile, Classic Empire is a strong closer who will lie back and run down Always Dreaming in the home stretch.  If you believe in smart horses, Casse says this is one of the highest intelligence horses he has ever trained! I like Classic Empire to win the Preakness.

Image result for always dreaming
Always Dreaming, winner of the Kentucky Derby
In the Money: #4 (4:5) Always Dreaming.  Although Always Dreaming is not the next American Pharoah, he is a horse on a hot streak. He has won his last four races (including the Kentucky Derby) by over 23 lengths. The Derby had too many horses and jockey John Velazquez kept Always Dreaming out front on a wet track, so I believe that the 4:5 odds are too rich for me. I just don’t believe he’s going to be headed to the Belmont looking to win the Triple Crown – he's a good horse, but I think Classic Empire will catch him before the wire because Conquest Mo Money will be pushing the pace.

Image result for conquest mo money
Conquest Mo Money
Long-shot: #10 (15:1) Conquest Mo Money. This is my long-shot in the Preakness Stakes field. Conquest Mo Money is the son of one of my favorites, Uncle Mo. CMM is a hard charger out of the gate and has run strong this year - winning three races and placing in two others. He looked like the winner until he was beaten down the stretch in the Arkansas Derby by Classic Empire (I believe the same thing will happen in the Preakness). With a relatively unknown jockey, Jose Carreno, and Conquest Mo Money's owners having to pay a $150,000 supplement to race in the Preakness (since he was not nominated to the Triple Crown series earlier in the year), he is clearly a long shot. Nevertheless, he is a very fast horse, who will run near the front the entire race, and while I think he will hold on to third today - don't be surprised if this long-shot captures headlines.

Good luck!