Club Focus: University of Michigan MII

 campus at that time: First, MII encouraged students from all concentrations to join as opposed to focusing solely on finance/economics students, and second, MII members are encouraged to seek both long and short investment opportunities across any and all asset classes.

 

2. How has your portfolio performed throughout the credit crisis? Has the club changed its approached to portfolio management?

The MII portfolio has performed far better than any of us could have hoped. During the past fiscal year, the MII portfolio returned 19.7%, with a standard deviation of daily returns of approximately 1.5% (vs. 3% for the S&P 500).

MII’s investment mandate is unlike that of any other collegiate organization I know of: we invest both long and short across all asset classes, including equities, fixed income, currencies, commodities and derivatives…nothing is off limits. During last year’s challenging markets, MII shifted from a primarily beta-focused equity portfolio to an alpha-focused, market neutral portfolio. In this regard, we replaced long positions in various common stocks with merger and capital structure arbitrage investments, as well as a number of derivative strategies focused on generating incremental returns.

With the worst of market downturn behind us, we are, however, beginning to take calculated risks in the form of directional calls on equities and commodities.

3. Evan, can you tell me about yourself? How did you become President of MII?

I was appointed to the MII Executive Board as a freshman, and have moved up the ranks to where I am now. I’m an active trader, with interests in portfolio strategy and high-yield/distressed investing. I really enjoy looking for obscure investment opportunities, whether they are in small-cap equities or stressed corporate credit. After graduation, I’ll be joining RBS Greenwich Capital as a Sales & Trading Analyst.

4. What advice do you have for our Bulls & Bears readers who want to manage a portfolio successfully?

I have two pieces of advice. The first is to manage risk. The importance of managing risk was described most eloquently by John Paulson of Paulson & Co, who said, “Watch the downside and the upside will take care of itself.” Think of it this way: If you have $100 and lose 50%, you have to double your portfolio just to get back to break-even. We’ve seen this math play out in the large number of fund managers who are still below their high-water marks, despite gains of more than 50% this year.

The second piece of advice is don’t chase markets. It’s very, very easy to get caught up in the hype of a rising market or a hot stock. There will always be opportunities in the market, so why chase some when others are coming your way?

5. Where do you see the best opportunities in the markets right now?

With the kind of rally we’ve seen across almost every asset class imaginable, the opportunities available earlier this year are few and far between. On the long side, I’ve been buying Canadian financials, bulk shippers, agrichemical/fertilizer companies and business-development companies (BDCs). While I do believe the worst of the economic challenges are behind us, I believe unemployment will be far more detrimental to US growth than most would like to admit. As such, I’m looking to invest in opportunities where future capital appreciation is possible, but current returns will be driven primarily by dividend payments.

On the short side, I’m far more active. I’ve built positions in the bond-rating agencies, commercial/retail REITs, US Treasury Bonds (long-dated), UK Gilts (long-dated), the Japanese Yen, and the Nikkei 225. One of the biggest opportunities I see on the short side right now is the availability of cheap downside protection in the form of “put” options. With equity volatility at the lowest levels since the start of the recession, risk-averse investors can protect their portfolios and/or lock-in gains by buying put options at very reasonable premiums.

Overall, I am about 80% long and about 40% short (40% net exposure).

6. Where can students go to get more information about your organization or to reach out to you?

Bulls & Bears readers are welcome to contact me via e-mail at eplisner@umich.edu. Additionally, I encourage readers to visit the Michigan Interactive Investments website at www.miiclub.org to learn more about our history, our investments and our membership.