Policy Statement

(adopted September 2000)

I. Overall Mission

 The overall mission of the Student Managed Investment Fund (hereafter, SMIF) is to provide real-world portfolio management and security analysis experience to graduate students of the Krannert Graduate School of Management at Purdue University.  SMIF will provide additional teaching and research opportunities for Krannert faculty. Further, SMIF will offer external visibility that will enhance Krannertís recruitment, placement, and fundraising efforts.

 II. Investment Objectives

The primary investment objective of SMIF is to preserve the capital that was contributed to establish SMIF, as well as additional capital that is contributed to the endeavor over time.  The secondary investment objective of SMIF is to match or better hte achieved results of professional managers as measure by teh average risk-adjusted returns of those professionals that have investment objectives similar to that of SMIF.

 III. Investment Decision-Making and Policies

Investment decisions will be made according to quantitative analysis performed by the quantitative teams.  These methods shall be based on published and working paper academic research into empirical asset pricing models. These teams will be organized around differing investment methods such as the January effect or value/growth valuation methods.  These methods will be thoroughly researched by the team members and presented to the entire SMIF organization.  The organization will decide whether to adopt or reject the proposed analysis method.  After gaining approval, the quantitative team will further research the strategy to determine the best criteria to be used in screening stocks.  These criteria will be used in developing algorithms that will be used to determine the best values for filtering the current stocks.  The algorithms will use data from past years to determine the best trading strategy.  Once the filtering screen is determined, the quantitative team members will run the screen on current data to determine the list of stocks approved for the given trading strategy.  Once the list has been determined, the team will be responsible for determining the share amounts.  All activities will be reported to the rest of the SMIF organization to keep everyone informed and educated about the decisions.

IV. Eligible Securities and Strategies 

SMIF can only purchase securities that are available on the U.S. organized exchanges and/or NASDAQ.

  1. Bonds

Bond investments will be in debt instruments that are rated at least investment grade by Moodyís or Standard & Poorís. If any fixed income position drops below investment grade, it must be removed from the portfolio. Bonds plus cash (i.e., fixed income investments) shall not exceed 20% of the entire market value of the portfolio. Concentration of bond investments also shall not exceed 10% in any single company or organization.

  1. Common stocks

Common stock holdings will be made based on the quantitative analysis.  Stocks must be listed on NYSE or NASDAQ to be included in the portfolio. Common stock holdings in any single company shall not exceed 10% of the SMIF portfolio market value.

  1. Index funds

SMIF will, on occasion, utilize an agreed-upon equity index fund.  When determined to be necessary or prudent, the fund may be 100% in the index fund.

  1. Derivative products

The use of derivative products, such as options, futures, and foreign exchange instruments are not permitted.

  1. Foreign Securities

Foreign securities on non-U.S. exchanges are not permitted; however, foreign securities available for purchase on U.S. exchanges, for example ADRís, are permitted for the SMIF portfolio.

  1. Margin and Short Selling

Uses of margin purchases and/or short selling are not permitted for SMIF.

V.  Disbursement of Funds  VI.  Documentation, Review, and Reporting

At the end of each fiscal year, up to 25% of the positive returns achieved by SMIF during that year will be available for graduate student programs within the Krannert School. To preserve the principle in the portfolio, disbursements shall be made only when positive returns are achieved above the initial and subsequent contributions to SMIF, on an inflation-adjusted basis.

The uses of disbursement of SMIF funds for student-related purposes will be determined by the Krannert School Deansí Office and the Purdue Research Foundation, and shall be in conformity with any stipulations made by donors to the SMIF fund.

VI.  Documentation, Review, and Reporting

For each trading strategy that is approved for the SMIF portfolio, the quantitative team that made and promoted that strategy is required to document their reasons for the recommendation, and to maintain a written record of their work in the appropriate files in the SMIF office (Krannert Center 215).

The SMIF quantitative team leaders and the executive committee will meet at least monthly during the regular academic school year to review the SMIF portfolio and make necessary revisions. During the summer months, the SMIF portfolio management team through a skeleton crew will monitor the portfolio and communicate regularly to the active SMIF members.

The SMIF portfolio management team will conduct a complete audit at the end of each calendar year. An accounting of current holdings, portfolio changes during the past year, and disbursements for graduate student programs will be prepared early in the new year. Copies of the annual SMIF Report will be made available to PRF, the Krannert School Deansí Office, the Krannert student body, and all other logical constituencies.

On an ongoing basis, the activities of SMIF will be communicated on an informal basis to the entire Krannert community, as well as to interested outsiders, via the home page.