Fixed Income Fund

The student-managed Fixed Income Fund provides a hands-on learning experience in which students seek to achieve risk-adjusted returns that equal or exceed the returns on the Fund’s benchmark index. Students involved in the program work in conjunction with Professor Kevin Maloney to maintain a well-diversified portfolio consisting of investment grade fixed income investments, initially valued at $500,000.

LONG-TERM OBJECTIVE AND BENCHMARK

The Fund seeks returns, considering both income and price appreciation, in excess of its Benchmark, the Bloomberg Barclays Intermediate Government Credit Index, while maintaining a volatility less than 120% of that of its Benchmark. The Benchmark consists of U.S. Government notes and bonds, plus investment grade corporate bonds issued by U.S. corporations, with maturities between 1 and 10 years. Its characteristics and risks can and will be monitored through the Bloomberg terminals available for use by the students in the program. The Benchmark was chosen due to its relatively modest volatility, its wide diversification, and its common usage as a benchmark for both active and passive intermediate term fixed income portfolios. It is expected that the tracking error of the portfolio versus this benchmark, defined as the annualized standard deviation of excess returns, will be kept below 1%.

Other fixed income indices may be used from time to time to evaluate performance of portions of the Fund, such as individual fixed income sectors, and used in performance attribution analysis.

    TYPES OF SECURITIES

    Eligible investments will initially be limited to fixed income ETFs, plus individual U.S. Treasury and Agency notes and bonds. A list of eligible ETFs is attached in the appendix of this document. The ETFs on the eligible investment list must limit their underlying holdings to U.S. dollar denominated fixed income securities. ETFs containing corporate bonds or loans rated below investment grade by either Moody’s or Standard and Poors are eligible, but the total portfolio exposure to non-investment grade bond and loans will be limited to no more than 10% of the portfolio.

    OTHER CONSIDERATIONS

    Students will gain experience in the following:

    • Using Options for Risk Management
    • Diversification
    • Interest Rate Risk
    • Liquidity Considerations
    • Trading and Execution
    • Monitoring and Reporting