As investors, business leaders, and consumers endured a recent roller coaster on Wall Street in which some markets lost more than 10% of their value, a group of Â鶹ӰԺ students received a real-world financial lesson. Members of the Golden Flash Asset Management Group (GFAM) began trading in 2018 and manage more than $1.4 million in university assets.
Â鶹ӰԺ State Today asked the group's members how they reacted to the news that the United States was adding tariffs and what lessons they learned while navigating uncharted financial waters.
As student managers of over $1 million in university assets, how has your team approached the recent market volatility, and what's been your biggest learning experience during these fluctuations?
Andrew Roach (CIO - Balanced) - In GFAM, there are many different ways we manage volatility and market risk, and as many of us know, right now is a very uncertain, risky time in the market. The main reason is uncertainty around tariffs and how this will affect business operations in the future. As a CIO, I have approached this volatile time by trying to find companies that have strong business models that will likely be unaffected by tariffs or benefit from tariffs, although this is difficult. The biggest thing I have learned from this time is that stocks do not always go up. Since students started investing, stocks have typically gone up and by a significant amount in the past few years, but I learned these stocks can quickly turn, and positioning ourselves for the downside of stocks while everything is going up is a good proactive measure.
Anthony Lambert (CIO - Equity) - In response to recent market volatility, I adjusted our investment approach. We are shifting our focus away from short-term market themes and instead identifying opportunities with long-term outperformance potential. There are numerous uncertainties that could hinder market performance in the short term—such as the development of tariff policies, their impact on GDP growth, and how the Federal Reserve may respond. I asked members of our team to research how current economic conditions could affect our investment strategies going forward and to explore how we might respond. Ultimately, my goal is to manage our investments with discipline and patience.
Can you walk us through a specific investment decision your group made in response to market movements that taught you something valuable about real-world portfolio management?
Luke Roach (Chief Economist) - There have been many instances where we made decisions based on movements in the market and it added incredible value to our college experience. One example is when we tilted our allocations at the beginning of the semester. Our fund has a top-down investment approach looking at the U.S. macro economy as a whole, then going into our specific asset classes (stocks, bonds, cash). After that we analyze individual sectors and overweight or underweight based on where we think the economy is headed. In this example, we were looking at specific asset classes at the beginning of the semester, and we decided to overweight equities as we have seen positive growth the past two years and macroeconomic indicators were giving us a reason to go heavy on stocks (98%). Looking back, we may have taken a different route to our allocation if we had known the trade tensions globally that we are facing today. No one could have predicted how the markets reacted, so now we are setting ourselves up for success in the current environment. As a fund, we learned that unexpected market turbulence can disrupt markets more than we initially anticipated and we understand that issues such as trade wars can be implemented quickly and affect the stock market shortly after.
Lily Palisin (President) - Each semester is led by a look into our asset allocation and sector allocation of the 11 sectors of the S&P 500 where we overweight the sectors we think will outperform the market and underweight the sectors we believe will lag against the market, this sentiment driven by our macroeconomic view. For example, we overweighted the financials and communication services sectors with the expectations of interest rate stabilization, strong performance in the investment banking and financial services industries, as well as the momentum in the telecommunication sector and our outlook for the future of AI. Year to date (April 15), both of these sectors are outperforming the benchmark, the S&P 500, as we expected. One thing we did not expect was the considerable amount of volatility and uncertainty which has provided such an incredible learning experience. Without a crystal ball, we rely on learning and adapting—each new semester of members building upon the last, using that knowledge to make the most informed guesses about the market, which of course, loves to remind investors that it cannot be predicted.
How does managing university funds during market uncertainty differ from classroom theory, and what practical skills have you developed that wouldn't be possible in a simulation?
Luke Pickering (CIO – Fixed Income) - You get to see how things actually play out in the real world. The world of finance is much more nuanced than reading a textbook. You could make all the right decisions in theory and still end up losing money due to the unpredictability of the markets. The biggest skill I’ve developed is being able to put the times when I was wrong behind me and not let them affect my future decisions. This is very important when it comes to decision-making because if you are too scared of failure, then your decision-making will be flawed.
Jenna Gaebelein (Vice President of Operations) - By managing real money, we feel the pressure of the market much more than one would in a simulation. We have to make decisions we know will impact the university. Everyone in GFAM has a job and they are vital to the functioning of the class. We learn how to research and what to look for to find what GFAM needs.
With multiple funds under management, have you noticed differences in how various investment strategies performed during these market swings?
JD Serwatka (Chief Risk Officer) - We've definitely noticed differences, specifically when the volatility index (VIX) rises. Growth-oriented strategies usually take a larger hit during spikes in volatility as they're more sensitive to market sentiment and rate expectations. Since we are more value-focused, most companies we hold are more resilient as they were invested in because of their strong fundamentals. By having exposure to multiple funds, we've seen how different approaches can hurt or help a portfolio and it teaches us the importance of diversification and risk management during downturns.
Connor Butler (CIO – Ex-US) - Initially, our international portfolio took a big hit once the tariffs went into effect, dropping nearly 8%. However, our international holdings have rebounded better than we anticipated. Year-to-date, our single largest holding in GFX and benchmark, the iShares Core MSCI International Stock ETF, has returned 3.5%, compared to the S&P 500, which has an approximate -8% return. This suggests that our international diversification efforts have greatly benefited us despite the tariff uncertainty.
What communication strategies has your team used when discussing risk management and potential losses of university assets during volatile periods?
JD Serwatka (Chief Risk Officer) - As the Chief Risk Officer (CRO), I communicate with others in the fund through weekly risk reports. These reports help the fund understand where our portfolio risk is in comparison to the market. When there are periods of elevated volatility, like when the VIX spikes, the fund is up-to-date on key macro indicators, shifts in betas in comparison to the market, and drastic changes in the Sharpe Ratios for our portfolios. By having these weekly reports, we are able to discuss concerning items and open up discussion to the group. This helps the fund stay proactive rather than reactive, especially since we are dealing with university funds.
Jenna Gaebelein (Vice President of Operations) - Our Chief Risk Officer, JD, does a great job communicating each week in his risk report. We discuss the report each week in class and notice the shifts of the market and the uncertainty. Our Chief Investment Officers also discuss the risk in our investments and the impact they will have on the portfolios during the rebalances. Anytime GFAM is making a decision there is a thorough discussion on the possible impact of a trade.
Has the recent market environment caused your group to reassess any core investment philosophies or adjust your long-term approach to fund management?
Luke Roach (Chief Economist) - Yes, there have been multiple market environments that have affected how we invest but our overall fund philosophy has not changed. Our overall fund strategy to buy great companies that the fund believes are undervalued with a great management team has stayed the same. What has changed the most is our selection of these stocks and which industry they operate in. As of right now, the trade wars are giving us an interesting dynamic in the marketplace where there is a lot of uncertainty. Markets don't like uncertainty, causing us to be more careful when selecting more cyclical industries such as consumer discretionary or retail stocks. In addition, any one stock that is over exposed to a certain country that we believe has a strong dependency on another country, such as a retailer who imports most of their products from China, will cause us to be more hesitant on adding them to the one-off our funds. Overall, our security selection has slimmed down as many companies are now being pressured by trade tensions, but overall, our long-term investing approach has stayed the same.
Lily Palisin (President) - While the recent market environment provides consideration for our team in the small adjustments we make week to week, our core investment objective, to balance principal protection with long-term growth, remains the same. When making decisions, we take a long-term perspective. While week-to-week changes are relevant, our fund is designed to weather short-term fluctuations.
The Golden Flash Asset Management Group has about 50 members and meets regularly. To learn more about the group, visit: /business/golden-flash-asset-management-group.
To learn more about the Ambassador Crawford College of Business and Entrepreneurship, visit: /business.