Wednesday, September 26, 2001

EIF value drops, still ahead of other market indexes
By Jordan Blum
Staff Reporter

Although their portfolio has received a hit since Sept. 11, Educational Investment Fund students say they have stayed ahead of the other market indexes so far. But, they admit a huge cloud of uncertainty hovers over the fund and even its beneficiary, the university endowment, considering the potential for a drawn-out war and future terrorist attacks.

Stanley Block, faculty advisor for the EIF, said the student-managed fund is worth approximately $1.5 million each semester, with 6 percent evenly split between the university endowment and the department of opthamology at the Baylor College of Medicine.

Block said close to $15,000 less may be donated to each recipient this year because of the economic downturn, which he said is not a dramatic difference in comparison to the net asset value of the fund. Block said the EIF is the largest annual donor to the university general fund. Last year close to $120,000 was distributed between the two recipients, he said.

Todd Holsapple, a master’s of accountancy graduate student and the EIF portfolio manager, said he thinks the stock market will recover in the second or third quarter of next year, but admits a war could lead toward an economic recession.

“If we do get into a prolonged war there’s going to be a lot more investors holding onto their cash, which will drive down the market,” Holsapple said. “Since the economy was struggling before, we would most likely incur a recession in the economy.”

Larry Lockwood, faculty advisor for the EIF, agreed that the Sept. 11 attacks could have an unpredictable effect on the economy.

“Investors were already anticipating an economic slowdown, so Sept. 11 is a wild card and will induce a lot of volatility,” Lockwood said. “Our aversion to risk will increase in a war and people will stay away from the stock market.”

Lockwood said although the asset value of the student-managed portfolio has dropped, the portfolio has steadily beaten the market during this semester.

“While major market indexes are down 20 to 25 percent and the NASDAQ is down more than 40 percent, our fund is down just a little more than 10 percent,” Lockwood said.

Parag Patel, a senior finance and e-business major and member of the EIF, said the best indicator to measure the fund is the S&P 500 index, which has been down approximately 24 percent since Sept. 11, because it does not invest in many high-risk technology stocks.

Patel said the EIF fund, like the S&P 500 index, has a conservative approach and is not overly exposed in the stock market because only 55 percent of the portfolio is invested in the equity market. The rest is distributed among bonds and cash accounts.

Patel said the conservative investment strategy they took from the beginning of the semester helped the fund avoid disaster over the past two weeks.

“We didn’t have any airline stocks and only minimal exposure into the insurance industry,” Patel said. “Then, during the closed period (after Sept. 11) we got together and decided this wasn’t a time to sell since we didn’t have any of the stocks that dropped the most.”

Holsapple said the past two weeks have provided him with valuable investing experience for the future.

“Everyone my age has experienced a time when the stock has increased greatly each year,” Holsapple said. “Before I would just tell people to buy tech stocks, but now I’m definitely more conservative, and now I’ve learned to hedge investments through the bond market and with commodities.”

Patel likened the fund’s position in an uncertain market to driving through rough terrain.

“The ride ahead is bumpy, but our hands are on the wheel,” he said.

Jordan Blum
j.d.blum@student.tcu.edu