The A.B. Freeman School’s Darwin Fenner Student Managed Fund is an invite only-honors seminar that meets twice a week over the duration of the Spring Semester. There is a large-cap, mid-cap and small cap fund with over $3.75 million dollars in assets under management between the three funds. All three funds have consistently beaten the market since their creation. The portfolios generally carry less risk than the market, based on their Sharpe ratios and their CAPM betas. So how do the funds continue to outperform?
To answer that question, I turned to Sheri Tice, Chair of Finance and Director of the Darwin Fenner Student Managed Fund. Given the stellar performance of the Darwin Fenner Fund (DFF), one might think that Professor Tice comes from a background of asset or wealth management with a leading mutual fund or asset manager. On the contrary, when you talk to Professor Tice, you learn that her prior experiences were quite different than what you would expect. She graduated undergrad with the intention of going to medical school, which explains her Bachelor of Science degree in nursing; however, after gaining a couple of years of experience in the nursing field, she decided that medicine was no longer her passion. Professor Tice opted to pursue an MBA to further her understanding of business. She quickly realized that she had a mind for the critical analysis involved in business, especially in Finance and Strategic Management. Encouraged by her professors to pursue a career in academia, Professor Tice completed her PhD in Finance at Michigan State University after gaining a few years of professional experience as a consultant. Given the results of the Darwin Fenner Fund over the past twelve years, I am sure Tulane is glad that Professor Tice opted to pursue a career in Finance over her medical ambitions. In this week’s Earnings Call, I talk with Professor Tice about her experience with the DFF.
Q: Describe the state of the Darwin Fenner Fund when you took it over in 2002.
A: At that point, the fund had been operating for just over two years. This was during the internet stock bubble, so the fund was hit particularly hard. The class had lost nearly half of the funds that it had begun with. At this point, the Chief Investment Officer wanted the fund shut down.
Q: What was your initial reaction when you were asked to take over the Darwin Fenner Fund?
A: My initial reaction was that I didn’t want to take it. At that point I had no tenure and I had no experience in portfolio management. I had to shape the class around Tulane’s key learning goals and my areas of strength. I had great exposure to econometrics and empirical research at Michigan State, so I decided to make the Darwin Fenner Seminar a research based course. In addition, I decided to make it an invite only honors seminar. Before I took over, the course was part of an investments and asset pricing course. We wanted the students that wanted to learn to manage a portfolio. The last step was establishing rules for the fund. For instance, we only allow 30% equity turnover per year in the portfolio.
Q: How do you choose the empirical papers that the student fund managers read in the course?
A: First and foremost, I want to choose papers that are easier to understand. Finance research papers can tend to be very wordy or too technical. I also wanted to cover a wide variety of topics so that we know what works and what doesn’t work for long term abnormal returns. Long term returns are our goal, so we tend to focus on papers that have statistically significant long term equity strategies. Since we have a 30% turnover limit, meaning that we can’t sell more than 30% of the portfolio in any one year, we like to focus on investment strategies that are not trade-intensive.
Q: What can students do with the skills they learn in Darwin Fenner?
A: Darwin Fenner compliments the entire Master of Finance curriculum and many employers and alumni believe that getting buy-side experience alongside the Freeman Reports course’s sell-side experience makes MFINs the “complete package”. If you really want a picture of what you can do with the Darwin Fenner skill set, look at some of the Alumni on LinkedIn. Some people are working in alternative investments, wealth management, investment banking, and all other sorts of jobs in the finance sector. Many of them tell me that Darwin Fenner helped lay the foundation for what they are doing today.