Reflections on the World of Investments, Finance, and Wealth Management.

Introducing the 2015 Henry Fund Research Team

Congratulations to the newest members of the Henry Fund research team! The following 12 analysts will take over management of the $3.9 million Henry Fund portfolio with the start of the spring 2015 semester.

  • Krishnakumar Bakthisaran (Health Care)
  • Alec Davis (Industrials)
  • Bernardo Daza (Financials)
  • Kapil Dhingra (Consumer Staples)
  • Christina Erbe (Telecom & Technology)
  • Stuart Hemesath (Financials)
  • Ashutosh Kumar Jha (Technology)
  • Michael Kelleher (Utilities & Materials)
  • Jon Kerr (Technology)
  • Amit Shah (Energy)
  • Liana Tamakloe (Consumer Discretionary)
  • Royce Walton (Health Care)

This group represents the 22nd team to manage the fund since the program’s inception in the spring of 1994.

Henry Fund Economic Outlook – October 2014

The following release was prepared by Michael Emgarten and Catherine Carlson on behalf of the 2014 Henry Fund research team. The team updates its economic outlook several times throughout each semester. This analysis forms the basis for class discussions, company selection, and investment research.

Henry Fund Research

On Sept. 26th, real GDP growth in the U.S. was revised upwards to 4.6% for Q2 2014, from an initial estimate of 4.2%. The economy is regaining traction as consumer confidence strengthens and business sector spending accelerates.  We forecast real GDP growth of 2.7% in Q3 as the economy decelerates from a strong second quarter.

The Consumer Price Index (CPI) for urban consumers decreased 0.2 percent in August, making it the first decline since April 2013.  Food and shelter indexes rose 2.7%, but were offset by declines in energy, particularly gasoline prices. Over the prior 12 months, U.S. inflation, measured by the change in the CPI, has grown at 1.7%. We expect inflation will remain around 1.75% over the next six months, increasing to 2.0% for our two-year forecast.

The US unemployment rate was measured at 5.9% in September, a decline from the previously reported rate of 6.1% and a post-recession low.  However, we have not seen an increase in job wages, and we believe that the drop in unemployment is partially driven by a decline in the labor force participation rate. It was reported last month that an additional 97,000 people dropped out of the labor force.  While historical consensus defines a healthy unemployment rate around 5.0%, we believe that this level is too low under current economic conditions. Going forward, we expect the U.S. unemployment rate will increase slightly to 6.0% over the next six months, with a two-year outlook staying around 5.90%.

With a flight to quality in the market over the last couple of weeks, the 1-year and 10-year T-Bill yields have fallen even lower to 0.11% and 2.18%, respectively.  Despite the Fed’s continuation of exceptionally low interest rates, we see rates drifting upwards over the near term, with 10-year yields rising to 3.50% within two years.  The Fed has remained very cautious about raising rates so far, despite generally positive economic indicators, and we feel that rates will begin to rise within the next 6 months.

WTI Oil prices are down nearly 20% from their summer high to just over $85 a barrel, due primarily to a glut in supply.  We are not entirely surprised by declining oil prices because of the growth in North American shale production, but we are concerned about the momentum of the price declines. In addition, Saudi Arabia’s recent actions seem to indicate that it is not interested in reducing output in order to stabilize prices. Given the continued turmoil in Iraq and sanctions on major producers in Russia, we would not have expected prices to fall as much as they have and we wonder if recent downward revisions to global GDP growth is effecting global demand estimates.  Despite the recent developments, we forecast WTI prices to return to $90 within the next 6 months and return to $100 per barrel within the next 2 years.  A significant percentage of the Henry Fund’s holdings are concentrated in the North American shale industry or services supporting continued growth in shale production and continued price declines would have a material impact on the team’s strategy going forward.

The Consumer Confidence Index fell from 92.4 to 86 in September, a move that coincided with a decline in home and automotive sales and much greater volatility in the U.S. equities markets. The VIX recently topped 25 for the first time since 2012, and the S&P 500 experienced some of the largest single day declines in the past 3 years. We have been concerned that increases in corporate profits have been driven more by artificially low interest rates and unsustainable levels of corporate tax breaks than by actual increases in operational profitability. Although we believe that a modest correction in the market may have been overdue and that we may continue to see increased volatility in the market for the next couple of months, we still maintain our forecast that the S&P 500 will grow at a modest pace to 2050 over the next 2 years.

Finance Boot Camp Presentation Materials

The links below provide access to presentation slides (PDF format) of the inaugural Finance Boot Camp speakers on October 1, 2014.

The Inaugural Finance Boot Camp

The Department of Finance and the CFA Society of Iowa invites all graduate and undergraduate students to attend the inaugural Finance Boot Camp series.

Finance Boot Camp:

Investment Research and Management of Fixed Income Portfolios

Wednesday, October 1, 2014

12:30 – 5:30 p.m. Academic Sessions (S401 and W401 PBB)

5:30 – 6:30 p.m. Networking Reception (W401 PBB)

Register by Sept. 26: 

The Finance Boot Camp is a multi-session, interactive event which brings finance and investment professionals to campus with the goal of extending traditional classroom education. The theme for this semester’s Boot Camp is investment research and portfolio management within the context of fixed income securities. Each speaker will focus on a specific topic related to his or her role in the investment management process, with a strong emphasis on practical applications and real-world examples. Students are encouraged to actively participate and engage during each sessions’ question and answer period.

Speakers and Panel Discussion Participants:

  • Ross Junge, CFA, Associate Wealth Management Advisor, McGill Junge Financial
  • Calvin W. Norris, CFA, Director of Liquid Markets, AEGON USA Investment Management, LLC
  • Jonathan Perez, CFA, Senior Fixed Income Analyst, Principal Global Investors
  • Bert Zimmerman, CFA, Senior Fixed Income Analyst, Principal Global Investors
  • Bradley Dyslin, CFA, Global Head of Credit, Managing Director, Aflac, Inc.
  • Christine McElvania, CFA, Investment Advisor, Quad Cities Investment Group, LLC
  • Scott Bennett, CFA, Portfolio Manager, Principal Global Investors
  • Todd Nelson, CPA, CFA, Vice President, Debt Capital Markets, Goldman Sachs

Planned Session Topics:

  • Analysis of the current market environment: the bull case and the bear case
  • Accounting Forensics: financial statement analysis and the investment research process
  • Company and Industry Research Case Study: Target Corp.
  • Portfolio Management: managing the risk, return, and cash flows of a fixed income portfolio
  • Finance and investment career panel discussion

The event will feature four academic sessions of 50 minutes each. Participants are strongly encouraged to attend all sessions.

  • 12:30-1:20  Session #1
  • 1:30-2:20  Session #2
  • 2:30-3:20  Session #3
  • 3:30-4:20  Session #4
  • 4:30-5:20 Investment and Finance Career Panel Discussion
  • 5:30-6:30  Reception with speakers and professionals (W401, food will be served)

We hope that you will join us for this great opportunity. Please register online prior to Sept. 26. Dress is business casual. Questions may be addressed to

Henry Fund Economic Outlook – August 2014

The following release was prepared by Adam Conzemius and Guang (Chris) Jin on behalf of the 2014 Henry Fund research team. The team updates its economic outlook several times throughout each semester. This analysis forms the basis for class discussions, company selection, and investment research.

Henry Fund Research

US Real GDP increased by 4.2% in Q2 2014 (based on the second estimate released August 28th), which comes on the heels of a 2.1% decrease in Q1 2014. Bad weather conditions in Q1 played a part in the Q2 growth as businesses replaced inventories, businesses increased spending on buildings and equipment, and consumer spending increased, most notably in durable goods – a healthy mixture of growth drivers. With these developments in mind we continue to forecast a 2.8% GDP growth for the next six months based on less slowdown in Q3 than consensus expects, and a 0.1% decline in the 24 month outlook to 2.9% growth.

The CPI hit 2.0% for the twelve months ending in July coming down 0.1% from the month prior with medical, services (less energy), and shelter being the key inflationary drivers of this metric. The Federal Reserve formally targets 2.0% inflation for the US and we expect to see it increase interest rates in mid-2015. We note that declining energy prices have helped to offset costs in other areas such as shelter and services. Our six month CPI forecast increased 0.1% to 1.8%, a decline from the current level, on the expectation that wages will not grow and that labor force participation rate will increase. Our 24 month forecast declined again by 0.1% to 2.1%, down 0.4% from the beginning of the year, as we expected higher oil prices to drive inflation higher and did not anticipate Europe’s economic performance driving interest rates lower.

With July’s unemployment rate at 6.2%, down from 7.3% one year ago, we forecast an unemployment rate of 6.3% in six months. The very low labor force participation rate of 62.9%, compared to our long-term average of 67.0% is a headwind in lowering the unemployment rate in the short-term as we expect an improving economy to add more jobs over the next year more than offset by an increase in the labor force participation rate. Our two year outlook shows expectations of a new normal for healthy unemployment being 6.0%.

At first glance a conundrum appears in that inflation is rising, but interest rates are declining. From the start of the year, one year US Treasury rates have remained fairly steady at 0.1% and the ten year Treasury rates have declined from 3.0% to 2.4%. Global turmoil in Iraq and Ukraine have nudged investors into higher quality positions. With German ten year bonds yielding around 0.9% and Japanese bonds yielding 0.5%, US treasuries look fairly attractive at 2.4%. We think that one year Treasury yields will remain at 0.2% for the next six months and climb to 0.6% in two years. As for ten year bonds, we see rates going back up to 2.7% in the next six months and climbing higher to 3.4% over 24 months as economic conditions improve. We do not see the Federal Funds rate exceeding 0.25% for six months as the Federal Reserve formally targets a rate between 0 and 0.25%. Over the next 24 months, we expect the Fed Funds rate to increase to 0.5% as the Federal Reserve will eventually raise interest rates.

Despite the turmoil in Iraq, the WTI oil price has been decreasing since it hit a high of $106 in July. Since then, global oil supply did not dip as the market had feared for two reasons: Southern Iraq is still under the control of the Iraq government and exporting oil; US oil production has also increased. As the Energy Information Administration (EIA) forecasted recently, U.S. crude oil production will be reaching the highest level in 42 years at 9.2 million bbl/d in 2015, compared to about 8.4 million bbl/d in 2014. Looking forward, we still expect the WTI oil price to gradually increase to $98.95 per barrel in six months and $103.82 per barrel in 24 months as ISIS is still causing much uncertainty in Iraqi oil production.

According to the Conference Board, the consumer confidence index increased from 90.3 in July to 92.4 in August, which is the highest level in the past seven years. The growth in August was boosted by consumers’ perceptions of current economic developments, which are largely influenced by the higher than expected Q2 GDP growth rate and declining unemployment rate. Based on our positive forecasts of US GDP and unemployment situation, we expect consumer confidence to gradually increase through the next two years.

The tepid business climate in Europe paints a stark contrast to that of the US. We expect the US/EUR to decline slightly to 1.31 in the next six months and stay relatively constant in the next 24 months. The business confidence and labor market conditions in Japan, together with the Bank of Japan’s monetary easing program, are expected to strengthen Japanese economic forecast, which will support Japanese Yen against its peer currencies. The conflict between Ukraine and Russia also increases the demand for Japanese Yen which is widely considered a very safe asset in Asia. Considering these factors, we are bullish on Yen against US dollars in a short term as our six-month forecast of Yen/US is 103.39.

The S&P 500 index return of 7.8% in Q2 has significantly beaten our expectation. Though we think the chance is minimal that the S&P 500 index will turn toward a downward trend in the next 24 months, the upside potential of the return could not be as attractive as it was in 2013. The Henry Fund, based primarily on rising interest rates, anticipates money being diverted into the bond market. We forecast the S&P 500 index level to be around 2003 in a six-month period and 2080 in a 24-month period, representing a return of 0.7% and 4.4% respectively.

Remembering a Great One

There is a famous scene at the beginning of the movie Dead Poet’s Society where teacher John Keating, played by Robin Williams, introduces himself to his class. He asks the students, O Captain! My Captain! Who knows where that comes from? Anybody? Not a clue? It’s from a poem by Walt Whitman about Mr. Abraham Lincoln. Now in this class you can either call me Mr. Keating, or if you’re slightly more daring, ‘O Captain, My Captain’.” 

For many years, I paraphrased that quote on my first day introductions to the Krause Fund analyst team. Generally, the joke elicited a chuckle from the class, at least among those students who were familiar with the famous 1989 film. But, over the course of nearly a decade of making that reference, only a couple of students would ever refer to me as “O Captain, My Captain.” One of those was Cory Schuster (BBA ’03).

Cory J. Schuster, Nov. 3, 1980 - Mar. 29, 2007

Nov. 3, 1980 – Mar. 29, 2007

Cory was a member of the fall 2002 Krause Fund research team covering our consumer cyclical holdings. He was one of those amazing students who always had a smile on his face and who truly enjoyed every moment of life, even amid the time constraints of a major project deadline. He had a personality that just made you want to call him a friend.

Upon graduating from Tippie in the spring of 2003, Cory accepted an offer from Northern Trust in Chicago where he entered the training program of the Middle Market Client Group and eventually would serve as second vice president. Cory loved his role at Northern Trust.

Just a few weeks into his job after graduation, Cory sent me an email to let me know how much he enjoyed his role at the firm and how much of an impact the Krause Fund class was having on his career. As a result of the course, he noted that compared to many of his peers in the training program, he was ahead of the learning curve. The email bubbles with with Cory’s excitement and enthusiasm.

“Oh Captain, My Captain:

I wanted to email you another update on formal analyst Cory Schuster…. I’m currently working for The Northern Trust as a credit analyst. I’ve been here three weeks and I love the job. Getting to dig into the financials of different middle market companies has given me more business knowledge than I ever thought I could retain.

The real reason for my email is that I wanted to thank you for your class. I’m sure that people who go into equity research or corporate finance find your class useful, but i just wanted you to know that from a credit/leverage perspective it was by far the best class I took at Iowa…. “

Cory died on March 29, 2007, from injuries sustained in an ATV accident while riding with a client in Texas. One year later, a group of friends and family gathered in the courtyard of the Pappajohn Business Building for a memorial service and to honor Cory’s life with the dedication of a memorial bench in the SW corner of the lawn. There is a memorial plaque on the bench that perfectly captures Cory’s personality – “Love what you do.”

I have thought a lot this week about Cory and the legacy that he left in such a short life. Earlier this week, I returned from a walk around campus and eventually found myself sitting on Cory’s bench remembering what an amazing individual that he was and the joy that he brought to life. The bench sits in a peaceful location of the courtyard despite the bustle of activity on the nearby street. I wondered how many people walk by or sit and ask who was Cory Schuster? Well, he was one of the great ones.

First Day of School

Years ago, after watching my neighbors take photos of their kids on the first day of school, I joked with my wife that I should have my photo taken on the first day of my school year as well. So began my own personal back-to-school tradition. Looking back at the photos, it is hard not to feel sentimental and nostalgic for the time that has passed and how quickly my kids have grown.

August 2001

August 2001

August 2005

August 2010

August 2010

August 2014

A New School Year – version 17.0

Truth be told, I actually like the first day of the fall semester. I enjoy the sense of optimism and excitement that the start of a new academic year brings, and Iowa City is a much more vibrant community when the students are back on campus.

This week begins my 17th year of teaching at the University of Iowa. I’m not exactly sure how the years could have passed that quickly. This semester I will be leading a section of the undergraduate Wealth Management (FIN:4340/6F:119) course, along with my continued role advising the Krause Fund (Applied Equity Valuation) and Henry Fund (Applied Securities Management) programs.

The Henry Fund students returned Monday to begin their second semester managing our award-winning, $3.8 million portfolio. It was wonderful to see the team again and learn about their summer internship experiences working at firms such as Autodesk, the State of Wisconsin Investment Board, Ford Motor Co., Renewable Energy Group, Verizon, Peabody Energy Corp., Kimberly-Clark, and Parker-Hannifin Corp. The team seemed recharged for the new semester.

On Monday afternoon I met the newest 48 members of the Krause Fund research team. I am always amazed at how eager these students are to begin which is widely known as one of the most time-consuming courses offered at Tippie. I feel fortunate to have the opportunity to work with such motivated individuals with a genuine desire to learn how to analyze and value companies.

A couple of years ago, I calculated the number of students who have enrolled in my courses since I began teaching. It gave me a little better perspective for why it can be difficult to remember everyone’s name as I grow older. Including this semester, I have been fortunate to work with 2,406 students (1,854 undergraduate, 552 MBA) enrolled in 82 courses since my teaching career began. That is a lot of first days, so hopefully I made a good first impression.

CFA Scholarship Opportunities

The CFA Institute, administrator of the Chartered Financial Analyst (CFA) designation, offers a scholarship program to subsidize the enrollment fees for students to sit for all levels of the CFA examination.  As a CFA Program Partner with 3 charterholders on faculty, the Department of Finance at the University of Iowa is eligible to award up to fifteen (15) scholarships to full-time graduate or undergraduate students.

The Department of Finance is now accepting applications from graduate or undergraduate students who plan to sit for either the December 2014 or June 2015 CFA examinations.  Students selected for these scholarships will be eligible to enroll the December 2014 or June 2015 CFA exam at a reduced rate ($350-$440).  (Normal enrollment fees range from $1,060-$1,610 depending upon the sign-up period.)  Scholarship recipients who have already registered for the exam will receive a refund of the fee differential from the CFA Institute once the scholarship forms are processed.

Application Deadlines:

  • December 2014 Exam: Wednesday, August 27, 2014, 12:00 p.m.
  • June 2015 Exam: Monday, December 8, 2014, 4:00 p.m.

Application Requirements:  To apply for the scholarship, students must submit the following information to the Department of Finance, S252 PBB, by the deadlines noted above:

  • One-page cover letter discussing your career goals and the role of the CFA designation.
  • Resume with email address and current contact information.
  • A copy of your grades (does not need to be an official transcript).
  • A completed CFA Scholarship Form:
  • If you are currently registered for the exam, please include proof of CFA exam registration, such as a copy of your confirmation letter or email from the CFA Institute with your candidate registration number.  (Pre-registration for the exam is not a requirement to apply for one of the scholarships.)
  • All students selected to receive one of the 15 University of Iowa sponsored scholarships will be required to sign a waiver authorizing the release of examination scores to the UI CFA program faculty committee, so that we may monitor student performance across areas of the CFA curriculum.
  • Students who plan to sit for the June 2015 exam are strongly encouraged to simultaneously apply for one of the CFA Institute’s Access Scholarships. These need-based scholarships lower the enrollment fee to only $250. The application deadline for 2015 is Sept. 18, 2014. (

Student Eligibility Requirements:

  • Applicants must be current full-time undergraduate or graduate students at the UI.
  • Applicants must have a valid passport (CFA exam registration requirements).
  • All applicants must fulfill CFA candidate requirements.  CFA Institute guidelines require all applicants to hold a bachelor’s degree or equivalent by no later than December 31, 2015.  Thus, undergraduate candidates may only enroll in the Level I exam during their final year of studies.  For more information on the CFA examination or candidate requirements, visit the CFA Institute website (
  • Applicants must choose whether to apply either for the December 2014 or June 2015 exam scholarship, but not both.
  • Students enrolled in the MBA-PM program may apply for the scholarships as long as their current employer does not provide any type of reimbursement or compensation either before or after the exam.

Scholarship Selection Details:  In prior years, the selection process was extremely competitive for the limited number of scholarships.  Scholarships will be assigned in proportion to the total number of undergraduate and graduate student applicants.  Selection criteria may include the following:

  • Academic performance as a student at the University of Iowa
  • Academic performance in courses that are part of the CFA curriculum.
  • Work, internship, and professional experiences.
  • While these scholarships are available for all levels of the CFA exam, the selection committee will give priority to new Level I examination candidates for the December 2014 or June 2015 exams, followed by level II candidates, level III candidates, and finally those repeating levels I, II, or III.
  • Priority may be given to students currently enrolled or applying for the MBA 6F:221 Applied Securities Management (Henry Fund) course or the undergraduate 6F:112 Applied Equity Valuation (Krause Fund) course.
  • Priority may also be given to students who have already enrolled to sit the CFA examination.
  • Scholarship recipients for the December 2014 exam will be contacted by Thursday, August 29.  Scholarship recipients for the June 2015 will be notified by mid-December.
  • Please note that alternative scholarships, including for exam levels II and III, are also offered through local CFA societies (, such as the CFA Society of Iowa.  Many of society scholarships go unclaimed due to a small number of applicants.
  • Depending on the number of applications, we anticipate that approximately five (5) scholarships will be available for the December 2014 exam, and the remaining ten (10) scholarships will be reserved for the June 2015 exam.


A Honduran Adventure on Roatan

My wife and I just returned from a week stay on the island of Roatan, Honduras. It was a very relaxing week of sun and snorkeling as we celebrated our 20th wedding anniversary this month.

Roatan is a relatively undeveloped island, compared to most of the Caribbean. Although the cruise ships started visiting the island within the last decade, SCUBA divers have known of its awesome barrier reef for years. The reef is located between 50′ and 500′ offshore, making it an easy swim across shallow waters inside the reef to great snorkeling amid bright and vibrant coral. Of the six Caribbean islands that I have visited, Roatan probably has the healthiest coral formations.

Blue Bahia Resort, Roatan, Honduras.

Blue Bahia Resort, Roatan, Honduras.

We rented an apartment at the Blue Bahia Resort in Sandy Bay, along a much less developed section of the beach and well away from the cruise ship ports and tourist resorts of West Bay or West End. The awesome staff at Blue Bahia made us feel welcome from the minute we pulled into the drive. The resort featured a dive shop, and we had the opportunity to try a discover SCUBA dive. My wife really loved it and ended up going again. I decided that remaining on the surface of the water was more my calling.

A Typical Sunset from Sandy Bay, Roatan,  Honduras. May 27, 2014.

A Typical Sunset from Sandy Bay, Roatan, Honduras. May 27, 2014.

We rented a car during our stay and explored different parts of the island during the day, then returned to our quiet beach for brilliant sunsets in the evening. Roatan is part of a still emerging Honduran economy, and many areas of the island still have very basic infrastructure. Tourism and the service industries around it are the lifeblood of the island’s economy. It was unnerving at times to see the range of economic circumstances that many of the island’s residents face, but overall, it seemed that island residents are very happy, placing a strong emphasis on family. We had a wonderful visit to Roatan and hope to return again someday.

Death Valley

Todd Houge

Todd Houge is the Curt and Carol Lane Faculty Fellow in the Tippie College of Business. He teaches applied equity valuation, applied portfolio management, and wealth management courses to undergraduate and MBA students. Todd also supervises the department’s award-winning Henry Fund and Krause Fund programs, which provide a real-world, money-management opportunity for UI students.

Todd received a Ph.D. in Finance and an MBA from the University of Iowa. He also earned his Bachelor of Arts degree from Wartburg College and holds the Chartered Financial Analyst (CFA) designation from the CFA Institute.