Update from Associate Professor Sanjay Kudrimoti

On September 1, 2021, at the start of the 2021-22 academic year, Dow Jones Industrial Average (DJIA) closed at 35,312.53 (S&P 500 was 4,524.09). DJIA set an all-time high record on January 4, 2022, at 36,799.65 (on January 5, 2022, its intraday high was 36,952.65) (S&P 500 4,818.62). As of June 30, 2022DJIA is 30,781.00 (June 17, 2022 DJIA closed at 29,806 its most recent low) (S&P 500 3,789.50). Based on the numbers above DJIA is down 12.83 percent (S&P 500 is down 16.24 percent) over the span of the academic year and the indices are down 16.70 percent and 21.36 percent respectively from their corresponding highs. A bear market is defined as an index like the DJIA or S&P 500 falling 20 percent or more from a recent high for a sustained period. Since 1928, the S&P 500 has experienced 26 bear markets. Discounting for the bear market that occurred at the start of the pandemic (February 19, 2020 – March 23, 2020) when the markets had dropped 33 percent from their respective highs, the previous bear market was observed in early 2009. Between January 6, 2009 and March 9, 2009 the market lost 27.62 percent of its value. The students of the class of 2021-22 were most likely in elementary school (with their ages being between 8–10 years). So, for all practical purposes, this group of students was experiencing market breakdowns for the first time.

It was commendable that students with their readings and research had a good handle on the markets and were extremely cautious with their recommendations when it came to buying new stocks. Student Managed Investment Fund (SMIF) grew, thanks to the generous donations from the school’s supporters. As of June 30, 2022, the portfolio value stood at $389,469.12 of which 76.9 percent of the value was in cash. 23.1 percent of the portfolio ($89,915.52) was invested in 27 securities (25 stocks, one equity ETF and one bond ETF). The investment amounts ranged from $550 (Activision Blizzard Stock) to $7,177 (Intuit, Inc). The investments spanned multiple industries belonging to a wide spectrum of sectors. The range of sectors included – Communication Services, Consumer Discretionary, Consumer Cyclical, Manufacturing, Healthcare, Industrial, Financials, and Information Technology. As always, the goal of SMIF is capital preservation along with capital appreciation, so while the students primarily focused on asset allocation strategy thus creating a welldiversified portfolio, because of the current extraneous circumstances they also were focused on market timing. The beta values for the existing portfolio ranged between a minimum of 0.24 to a maximum value of 1.86 and the portfolio beta is 1.02. Calculations made as of June 30, 2022, indicated that the SMIF portfolio had a -7.93 percent return on its invested amounts while the fund is cash rich with 77 percent of its total holdings in cash. Given the bear market conditions, SMIF is in a relatively healthy position. Going forward, students will also be advised to scrutinize the portfolio and think as a sell-side analyst and to recommend if any stocks should be sold to capture the profit or to rebalance the portfolio. Students of the Finance Seminar class (Finance 469) researched extensively on Mutual Funds and ETFs and have made a joint recommendation for one Mutual Fund and one ETF. A small portion of the SMIF will be used to execute trades on their recommendations in the near term.

Sanjay Kudrimoti

Associate Professor, Accounting and Finance Advisor to Student Managed Investment Fund