Real money, real experience for $1M student investors

Most people don’t know a thing about the Dreyfus/Standish Global Fixed Income Fund—what it is, why it’s important. Senior Nicholas Zanoni, on the other hand, knows just about everything about it.

Zanoni caught the financial bug in 2008, as the markets teetered on the edge of collapse. Even then, as a teenager, “I felt like something wasn’t right here,” Zanoni says. He wanted to learn more about all the economy’s moving parts, to see if there was something he could do to help.

His dream job is one you don’t hear every day: bank examiner.

“You gotta learn the game first before you get into it,” Zanoni said.

That’s exactly what he’s doing at Illinois State, thanks in part to a unique course that empowers College of Business students to invest $1 million from the University’s endowment themselves. And for Zanoni and other students, the opportunity pays off double, because the management fees they earn for looking over the $1 million fund go to pay scholarships for business students.

The FIL 346 course, Fixed-Income Analysis and Portfolio Management, was first offered two years ago. Since its inception, the big class project every semester is oversight of that $1 million slice of the endowment, called the Educational Fixed Income Fund (EFIF), a collection of mutual funds and other interest rate-driven investments.

Gary Koppenhaver, department chair and professor.

The idea was spearheaded by Illinois State University Foundation board members and Finance, Insurance, and Law Department Chair Gary Koppenhaver. Their goal was a win-win-win: Students get hands-on experience with real money; the department offers a unique class that also boosts the financial planning minor; and the Foundation expands its mission of enhancing student learning.

There’s a perception in the business world that while college students learn a lot about stocks and equities, the fixed-income world—interest rates, bonds, etc.—is overlooked, said Derek Vogler ’93, M.B.A. ’95, Foundation board member and vice president of investments at Country Financial in Bloomington.

And if new graduates are job-hunting in Bloomington-Normal—home to large insurers like State Farm and Country—fixed-income expertise is a major advantage, Vogler said.

“It opens eyes to people,” Vogler said of the course. “Something like this really helps broaden your knowledge and gets you thinking about different areas of investment that you might have an interest in.”

Students in driver’s seat

Zanoni, a senior finance major with an economics minor, took the EFIF course last fall. He and the 21 other students each picked one fund (not already owned by the EFIF) to put under a microscope, with the end goal of making a convincing argument of whether to buy into that fund or not.

Zanoni dived into that Dreyfus/Standish Global Fixed Income Fund, a “very safe” bond fund, as he puts it. He weighed the pros and cons of it from all sides—the direction of the economy, whether interest rates will rise anytime soon, and how the fund would impact the overall portfolio if purchased.

“It was really up to us to decide what we wanted to do,” Zanoni said.

Vladimir Kotomin, assistant professor of finance.

The class then votes on each student’s presentation. (They didn’t back Zanoni’s recommendation to buy.) Their recommendations then go to the EFIF governing team, which consists of the Department of Finance, Insurance, and Law faculty members, to make sure the proposed changes fit into the EFIF’s investment policies and other guidelines. They’ve made some tweaks, but to date they’ve always implemented the students’ recommendations, said Assistant Professor of Finance Vladimir Kotomin, who’s taught the EFIF course since its creation.

The governing team gets feedback on the allocation from an advisory board comprised of fixed-income professionals, including Vogler and Mark Burns from Country; Donald Duncan from D3 Financial Counselors; Jeffrey Secord from CliftonLarsonAllen; Robert Stephan from State Farm; and Gregory White from Tall Tree Investment Management. Burns also speaks to the class every semester and attends the student presentations of investment recommendations at the end of each semester.

A faculty member then performs the actual trades at the end of each semester using a platform provided for free by Country.

“We take the students’ recommendations very seriously,” Kotomin said.

So far, the EFIF students (averaging 18 per semester) have done pretty well. The fund fell short of the performance of the benchmark, the Barclays Capital U.S. Aggregate Bond Index, in a shortened 2011. But it beat the benchmark in 2012, when the return on the portfolio after fees was about 4.7 percent, better than the 4.2 percent benchmark return.

The course will be different each semester because of the constant shifts in the markets, offering a unique experience that makes Illinois State stand out in the business community, said Robert W. Rush ’68, M.S. ’79, the Foundation treasurer and retired executive vice president at Country Trust Bank.

“You can do that theoretically in the classroom environment, but when you’re talking about real dollars and real fiduciary responsibility, it’s a different scenario,” Rush said.

Paying dividends

Beyond the real-world experience, the EFIF also created a new student scholarship paid for with the management fees earned for overseeing the $1 million fund.

Zanoni, who will graduate in May, was the recipient of the once-a-semester $700 scholarship for an EFIF student. That’s one of the reasons Zanoni was asked to speak in front of the Foundation board last month about the fund he analyzed and what he learned doing it.

Presentations like that are key to being successful in the financial world, said Rush.

“Rarely do you get an opportunity to sit in front of a large group of professionals and talk about something that’s probably a little out of your element, but they’ve done a very good job,” Vogler said.

Zanoni thinks the real-world, fixed-income experience he got at ISU will help set him apart.

“That (presentation) really just boosted my confidence,” Zanoni said. “It meant a lot.”

Ryan Denham can be reached at rmdenha@IllinoisState.edu.