Pandemic, new president affect decisions of D’Artagnan Capital Fund
by joseph cotton, campus news editor
The D’Artagnan Capital Fund (DCF) has felt the impact of COVID-19 through the fluctuation of the stock market and the detachment of investors.
The DCF is an undergraduate student-run opportunity fund that focuses on large-capital investments through a bottom-up valuation approach. Currently, the 16 fund members manage approximately $5 million of Xavier’s endowment.
The fund started with a $500,000 investment from Xavier in 2007. Shortly after, the fund received an additional $500,000. Over the years, the fund has grown to its current value of $5 million.
While the day to day operations of the DCF have been relatively unaffected by COVID-19, the way the group thinks about the economy has dramatically shifted.
“Especially in the past year, where the markets have been violated, we’ve had to reevaluate our screening process and adjust our models to reflect where we think the world is moving,” Chief Investment Officer Zach Wagner said.
Wagner explained that the communication services sector is one area which has seen major changes over the past year. This is due to the fact that most people are forced to engage with others at a distance during the pandemic.
“Communication services had a pretty big change, specifically streaming services. We’ve seen multiple companies come out with their own,” Wagner said. “It was a big change to that industry, and we were able to take advantage of that pretty quickly.”
Wagner also brought up how platforms such as Zoom and Google Hangouts have seen significant growth over the past year.
The DCF also planned to account for the election of a new president, and they were prepared for either candidate to emerge victorious.
“Because it was an election year, we had to take into account two paths to where we thought the economy would be going,” Wagner said. “Specifically, we look at tax rates or changes in government spending and retirement pools.”
Wagner went on to explain how analysts have to react to current events to anticipate market trends.
“We look at two different scenarios. We’ll think, ‘If this happens, this is how this model will look and if this happens, this is how this other thing will look,’” Wagner said.
According to Wagner, when speculating about how a new presidential administration could impact the fund, everyone on the team commented how they foresaw current policies impacting the economy.
The DCF approaches its investments from what Wagner describes as a value-based investment model, where a team of analysts work on estimating a company’s value and comparing it to the market price of their stock.
“Value investing is when we look at (a firm’s) income statement from the past six years, all their financial reports and the key financial and give the stock our own evaluation,” Wagner said. “If (the market price) is lower, we say it’s undervalued and we invest, and if it’s higher we stay away.”
All managers and chief officers of the fund are first required to be analysts before they adopt their roles. This experience gives them the knowledge they need to be a leader of the fund.
“I was an analyst in the information technologies sector (last semester),” Chief Executive Officer Connor McKiernan said. “As an analyst, you value five stocks in a semester and present those stocks to the fund collectively.”
As the CEO of the fund, McKiernan is responsible for overseeing the operations and being part of the investment decisions of the fund. He is also responsible for the annual report and the annual presentation to the Finance Association, alumni of the DCF and the Xavier Board of Executive Advisors.
McKiernan talked about how his experience with the DCF has helped him grow as both in finance and as a person.
“As the CEO, I think my leadership skills will be the biggest thing I take away from this semester. As the leader, you have to take ownership of what goes on,” McKiernan said.
The group’s advisor is finance professor David Hyland. Although he takes a hands-off approach, letting the students make the financial decisions, the members of the fund rely on his experience and insight when making decisions.
“Hyland oversees everything we do. He doesn’t make any of the investment decisions. He lets us run the show for the most part, but he makes sure we do the right thing,” Wagner said. “He’s been here for a while. He knows how it should operate.”
“Someone will give a brief report on what’s changed in the economy, usually a forward-looking statement from the president or the Federal Reserve Bank,” Wagner said when describing a typical class. “From there, we hear a 15-minute presentation by either a manager or a sector analyst. We’ll talk about it and make a decision on whether we invest in that or not.”
Although you do not have to be a finance major to be involved with the fund, students who work with the fund are required to take three foundational courses: Introductory Financial Accounting, Business Finance and Firm Valuation Finance.