About the UAIC Investment Pool
The UAIC Specified Investment Pool ("UAIC Pool") is a student-run fund that provides the opportunity for members to gain hands-on experience in investment management.
The principal objective of the UAIC Pool is long term capital growth, so that future members will have a meaningful amount with which to get "real world, real money" experience with stocks and bonds.
The UAIC Pool is managed by the Investment Committee, a group of highly able Commerce students, predominantly majoring in Finance.
All members are able to contribute ideas towards investment decisions irrespective of their position in the club.
General Investment Policy
Investment Committee Charter
The UAIC Investment Committee seeks investments that offer the prospect for long-term capital growth. In general, these may include Investments that, by reference to the purchase price, are trading at a discount to discerned underlying asset value or businesses with growth prospects deemed to be underestimated by the market.
In achieving this end, the UAIC Investment Committee will:
- Purchase securities at prices less than their intrinsic value as determined by careful analysis. Investments will be chosen on the basis of value, not popularity.
- Place little emphasis on forecasting the future course of the securities markets and instead focus on particular company and industry attributes. The committee should not substitute the particular; individual securities that are researched and understood, for the general, nor will the committee attempt to ‘time the market’.
- Tend towards high probability, infrequent investment commitments in contrast to less probable but more actionable investment opportunities.
- Tend to purchase securities when general sentiment is pessimistic and prices in relation to value are low, and to refrain from buying securities in periods of optimism and high prices in relation to value.
- Tend to sell securities when higher prices no longer reflect the value ascribed to particular Investments.
- Temporarily hold a larger portion of assets in short-term fixed income securities during periods where committee requirements for Investment are not met.
- Neither participate in clearly speculative profit opportunities nor assume clearly speculative risks.
- The principal objective of the UAIC Pool is long term capital growth, so that future Investment Clubs will have a meaningful amount with which to get "real world, real money" experience with stocks and bonds.
- In order to achieve this objective, it will be critical to pay careful attention to risk (risk being defined as the chance of permanent capital loss) in the investment of 80% or more of the UAIC Pool.
- Since the Pool was established to promote the education of UAIC members, the Investment Committee will have the flexibility to invest up to 20% of the Pool in higher risk/higher reward, opportunistic and/or shorter term situations than are suitable for the bulk of the Pool, as above.
- In order to achieve the objectives of the UAIC Pool, it is anticipated that investments will be researched and chosen on a fundamental basis, and that most investments will be held for the medium term (one to three years) and long term (three years and longer) to minimize transaction costs.
- The UAIC Pool will only invest in New Zealand, Australian and international stocks, and investment-grade New Zealand fixed-income securities.
- The state of the economies/currencies where overseas stocks are held will be addressed as part of the investment research and decision-making process, but foreign currency exposure will not be hedged.
- The Pool is not to be leveraged, will not engage in short-selling, or deal in call options, put options, futures contracts, and other derivatives.
Other Terms of the Fund's Formation
- All investment income (dividends, interest and realized capital gains) will be reinvested in the UAIC Pool and/or be used to meet the administrative expenses of the Investment Club.
UAIC Investment Process
The investment process begins from the standpoint that two basic criteria should underlie any investment:
- An investment commitment should not be entered into if the terms of the commitment do not incorporate a wide margin of safety. Bringing the risk of permanent diminution of Invested capital to a minimum is the primary concern.
- The Investment will achieve a satisfactory return on capital and in so doing grow the purchasing power of the funds invested.
Once a company has been identified as a potential investment opportunity, it is investigated by the analyst who will call on the resources available to the UAIC. These may include material from the company itself and its competitors, reports from stockbroking analysts and industry material. In reality, this information is available to all serious participants but it is the interpretative methodology and skill that really counts. The work concludes with a detailed report being written. This is then subjected to the scrutiny of the investment committee who meet to vigorously investigate the merits of the case. The purpose of these meetings is to expose areas of concern and potential flaws rather than to achieve a consensus.
The final decision lies with the committee. An investment will be selected for inclusion in the pool of funds if a majority of the committee members reach concurrence. In the event of a tie, the Chairman has the casting vote.
The investment review will highlight very specifically the achievements that are expected from the company being proposed. These vary considerably depending on the style of company involved, but among other things, would include sales and earnings targets. Failure to meet these targets would raise concern, and notwithstanding the price action, could result in the shares being sold.
As a consequence of the investment process, the portfolio will be built-up from a series of individual stock selections rather than pre-determined asset allocations. Care is taken to understand the inter-relationship of stocks within the portfolio. The number of securities held in the portfolio will tend to be relatively small.
When undervalued securities cannot be found, UAIC may leave funds in cash or allocate a higher proportion of funds to fixed income investments. Therefore, after a period when the markets have performed strongly the UAIC portfolio may hold significant cash positions.