Franklin & Marshall College Franklin & Marshall College

Investment Policy

Introduction

The Student-Managed Investment Policy (SMIP) provides a select group of upper level business and other students with the opportunity to actively manage a portion of the College endowment. The course continues the study and evaluation of the theory and practice of portfolio management initiated in other business courses. It affords students with an opportunity to utilize those theories and practices in the management of an actual portfolio.

The principal objective of the Franklin & Marshall College Student-Managed Investment Portfolio (SMIP) program is to enhance educational opportunities for students by providing experience in financial research and portfolio management activities through managing an actual investment portfolio.

Objectives
  • Overall Objective
    • The investment objective of the portfolio is to outperform the S&P 500 stock index, net of fees. It is expected that the class can benchmark their performance vs. the S&P 500 every year.

  • Long-term Objective
    • The long-term goal of the SMIP is to manage a balanced equity portfolio. The portfolio is to have an appropriate level of diversification.

  • Investment-Learning Objectives
    • To provide investment research and management experience for student analysts.

    • To successfully manage the SMIP portfolio in a competent, professional, and ethical manner, and to achieve or exceed expected levels of investment performance as measured by established return and risk management objectives described later in this policy statement.

    • To develop and implement risk management techniques and safeguards through establishment of securities selection criteria.

    • To maximize the understanding and utilization of information and technology in developing comprehensive securities valuations.

    • To formulate research and reach a consensus on an economic forecast as a foundation for portfolio management activities.

    • To create and manage a portfolio that is diversified across industries to reduce risk and volatility.


Investment Guidelines and Portfolio Structure
Asset Allocation

On March 24, 2006, the SMIP adopted the following asset allocation guidelines: Equities 90% (plus or minus 10%). 2. Cash 10% (plus or minus 10%). The portfolio invests a combination of 90 percent equity securities and 10 percent cash; the purpose of a cash reserve is to cover unforeseen market events such as crashes. Under normal circumstances, the portfolio's equity securities are diversified: large-cap, mid-cap, and small-cal. The portfolio aims to be diversified.

The portfolio guideliens are based on directions from the Board of Trustees and advice from the Business Office. It is the view of these two bodies that the portfolio is to be invested only in long equities. Student investment managers may not sell securities short, buy securities on a margin, borrow money or pledge assets, or buy or sell uncovered options, derivative securities, commodities, currencies, or high-yield bonds, except as specifically approved by the College's chief financial officer and in accordance with the College's Investment Policies.

Benchmarks

The SMIP shall be monitored for returns relative to:

  • Performance objectives

  • Consistency of investment decisions with the investment objectives,

  • Overall portfolio risk.

Overall SMIP results shall be evaluated against:

  • Covering spending requirements in real terms

  • The mean return of a universe of other endowment funds with similar objectives and policies

  • A benchmark portfolio of the S&P 500. These comparisons will be made on a risk-adjusted basis through utilization of appropriate risk-adjusted performance ratios such as the Sharpe Ratio, the Treynor Index, the Jensen Performance Index, beta and standard deviation.

Socially Responsible and Sustainable Investments

The SMIP recognizes the importance of making investments in organizations that are socially responsible and that encourage environmental sustainability. The SMIP portfolio will use the following criteria to evaluate existing and potential investments to assure that the related organizations are considered to meet the standards of social responsibility and environmental sustainability:


  • Environmental Sustainability – SMIP will invest in organizations that make conscious efforts to improve the natural environments and communities in which they operate.
  • Employment Policies and Human Rights – SMIP will invest in organizations that have policies that encourage workforce diversity, provide appropriate compensation and benefits programs for employees, encourage workplace safety and where child labor and other inappropriate and illegal employment practices are avoided.
  • Dangerous Substances and Activities – SMIP will invest in organizations that promote healthy workplace environments for workers and their communities and whose products and services promote healthy and safe lifestyles for the general public.  It will avoid investments where the predominant sources of revenue are from gambling, alcohol consumption and the use of tobacco.
  • Defense and Weapons Manufacturing – SMIP will invest in organizations that promote national defense and public safety including weapons and related systems.  It will avoid investments in handgun manufacturers and other organizations that produce and distribute handguns and other weapons that can be used for illegal activities and which promote violence in domestic communities.
  • Local Companies - SMIP will invest at least 5% of its portfolio in companies that are headquartered within the state of Pennsylvania. This will allow for greater interaction of students and companies and will bring about the opportunity for guest lectures and visits to company facilities.

Class Assignments
The Yearly Draw

This fund is only one of many under the administration of Franklin & Marshall College. As such it is subject to the same rules, regulations and constraints as all of the other funds. Once yearly the school will make a "draw" on the fund for an amount determined by trustees. That amount will be used to fund scholarships and other initiatives conducted by the college. Students will be informed by the Business as to the amount and timing of the draw as the course progresses. It is the responsibility of the students to ensure that at the time of the draw the fund has enough cash reserves to cover the withdrawal. Failure to do so will result in arbitrary liquidation of a portion of the portfolio equal to the amount of needed cash and will be done at the discretion of the business office.

Performance Reports

Class leaders are required to compute portfolio performance reports that will be distributed to the following persons or to whoever will succeed them at their position:

  1. Elizabeth Dunlap: Investment Officer & Assistant Treasurer

  2. Alan Glazer: Department Chair Business, Organizations and Society

  3. Kelly Saylor: Director of Donor Relations

Semester Report

Each semester, the SMIP class will prepare a report of investing activities for distribution to all interested parties.

Transactions

Student investment managers must notify Elizabeth M. Dunlap, the assistant Treasurer of the college, and obtain approval before stock picks are carried out.

Security Analysis Reports are Required

Student investment managers are required to present security analysis reports (purchase sale and recommendations) to the SMIP class. Security purchase recommendations must be based on an analysis that demonstrates conformance with overall portfolio risk and return objectives based on fundamental security analysis procedures.

Security sale recommendations must be based on a fundamental analysis that suggests that the continued holding of the security presents unacceptable risks, anticipated returns have been achieved, a continued position in the security is no longer in conformance with overall portfolio risk and return objectives, or that liquidation of the position presents a unique profit-taking opportunity.

All SMIP investment decisions must be approved by a majority of class members.

These reports will be filed in the SMIP office at the conclusion of every stock pick day.

Contributions

The fund will be primarily funded through alumni contributions and the growth of its asset base.

S.M.I.P
Monthly Reports