The Student Managed Investment Fund That Has Outperformed The Market Since 1998

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In 1998, Tennessee Valley Authority (TVA), the federally owned corporation that provides electricity to the Tennessee Valley, gave several Universities in its region cash to invest as part of their retirement trust. Twenty years later, the program known as the TVA Investment Challenge, presents a partnership with 25 Universities that manages roughly $13 million of the $650 million trust. One of the largest and most successful student-run investment funds in the country, it has outperformed the S&P 500 by 0.55% since the program’s inception.

Recent Performance

2017 marked a great year for the TVA Investment Challenge Program — a year where many struggled to beat the market. The 25 Universities collectively returned 23.88%, with 19 of them beating the S&P 500’s return of 19.42%. The top-performing school, Western Carolina University, returned 29.54% while many institutions posted similar gains. Within the top performing Universities, some common holdings included: Amazon (NASDAQ:AMZN), Visa (NYSE:V), Apple (NASDAQ:AAPL), and Boeing (NYSE:BA).

Although a good chunk of the fund consists of blue-chip domestic equities, many students search for value plays as well. The University of Mississippi, whose fund is currently outperforming the S&P 500 by 3.68% year-to-date, has benefited from the likes of various value plays such as BofI Holding, Inc. (NASDAQ:BOFI), the internet banking company up 36% in 2018. Ian Soileau, a Junior Banking and Finance major from Memphis, TN, participates in UM’s fund as an analyst for the financial sector. Soileau among other students, pitched BofI back in the fall, seeing it as an innovator in the banking industry. “They have the highest efficiency ratios, ROE, interest margins, and revenue growth in the industry. They were consistently beating earnings and outperforming their peers without the price moving. The price of the stock was being held back by legal allegations that were likely overly priced into the stock,” said Soileau.

An Effective Program

The Universities in the program recently met in Nashville, TN during the first week of April for a conference put on by TVA. The conference included speakers from PIMCO as Wellington Management, and well as presentations from the top performing institutions in the program. Group structures within the fund and across schools range from MBA classes to extracurricular clubs. Although faculty advisors oversee each group, investment decisions come solely from the students. Since the program’s inception, over 9,000 students have participated in the Investment Challenge Program.

“Our student investors exceeded expectations by beating the S&P 500 average and outperforming last year’s [2017] strong financial market,” said TVA Vice President, Tammy Wilson. Since the program’s inception in 1998, the outperformance of 0.55% compounded, translates to a cumulative outperformance of 32%.

According to MarketWatch, roughly 1 in 20 active managers beat domestic index funds. Over the past year, however, active managers have been performing much better, with around half beating their index in 2017, and 70% outperforming in the first month of 2018. Considering these figures, it is remarkable that over 75% of student funds beat their index in 2017, and have continued to outperform the market for twenty years.

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