Though investors have generally fared poorly in the current recession, the university’s student investors in fixed-income securities have produced very favorable returns for the Virginia Tech Foundation.

Finance professor George Morgan says “it may surprise a lot of people that the bond market has done extremely well — with an annualized return of more than 12 percent since the start of the financial crisis in the summer of 2008.” Virginia Tech’s students have done even better, says Morgan. “We are particularly proud of how the BASIS portfolio performed in the difficult months of September and October, outperforming the market index as a result of being less risky than the market.”

The student members of BASIS

Morgan is a faculty advisor to BASIS (Bonds And Securities Investing by Students), along with finance professor Raman Kumar. The student-managed investment group was first funded in 2006, with full discretion by the foundation to buy and sell qualified fixed-income securities to achieve the best balance between risk and return. This spring, the group has 23 undergraduates who are organized in “sectors” to analyze different parts of the global economy. Though the group’s largest dollar holdings are in U.S. Treasury securities, more students are involved in the more complex areas of industrials, utilities, and financials.

“Our students do extensive analysis of the credit quality of the companies in those sectors and of the individual bonds that could be included in the portfolio,” Morgan says. “One of the main issues they tackle is characterizing the risks and managing them in a way that allows the foundation to avoid unnecessary volatility while gaining a suitable return.”

The students, he says, are delighted that they were able to return to the foundation more than $900,000 in 2008 to help support Tech’s budget and other initiatives. The group’s portfolio at the start of 2009 had a market value exceeding $4.2 million dollars.

Ben Marshall, a junior from Centreville, Va., and a co-CEO of BASIS, says “the group’s dual mandate — to provide a competitive return to the Virginia Tech Foundation and to help educate Virginia Tech’s students — has proven a challenging task.” But the group has succeeded on both fronts, he says, “thanks to its outstanding members, their hard work, and help from Dr. Morgan and Dr. Kumar.” Furthermore, Marshall notes, “our members have continued the group’s legacy of strong placement in internship and full-time positions.”