Five students represented Claremont McKenna College, the Financial Economics Institute, and the Student Investment Fund in the CFA Institute’s 2012-2013 Global Investment Research Challenge. The team was ranked No. 1 in Southern California, and placed competitively at the Americas competition.
About the CFA Research Challenge
The CFA Institute is a global organization that seeks to lead the investment profession by promoting the highest standards of ethics, education, and professional excellence. The Chartered Financial Analyst designation is widely considered to be the most respected and recognized investment credential in the world.
Hosted each year by the CFA Institute, the Research Challenge teaches participants best practices in equity research through hands-on company analysis. The competition challenges teams of three to five undergraduate and graduate students to prepare a written equity research report and presentation about a local subject company. Students are guided by industry mentors and academic advisors, and are evaluated by panels of high-profile experts from top financial institutions. Top performing teams advance through local, regional, and global competitions. Last year, more than 3,000 students from 55 countries competed.
The Research Challenge bridges the gap between the CFA Institute and students. Throughout the competition, participants are exposed to the CFA certification process and are given the opportunity to network with current CFA charter holders. The organization hopes to convert student participants into future members.
Claremont McKenna Joins the Research Challenge
A team of five students represented Claremont McKenna College in the 2012-2013 Research Challenge. The team was led by myself (Andrew Bergman ’14) and included Felipe Fagundes '14, Phil Liao '14, Andrew Runde '14, and Larry Zhong '14. Individual members of the team are actively involved in the Financial Economics Institute, Robert Day School, and Student Investment Fund. This summer, participants will be working across Investment Management, Equity Research, Management Consulting, and Technology.
I personally decided to participate in the competition to gain experience in corporate valuation. We had the opportunity to construct a very extensive model on the subject company.
Advising our team throughout the Challenge was Eric Hughson, the Don and Lorraine Freeberg Professor of Finance and Economics. As the faculty advisor to the Student Investment Fund and as associate director of the Financial Economics Institute, Hughson offered a theoretical perspective to the team’s analysis. Robert Thomas ’99 of the George Kaiser Family Foundation also advised the team on an ad-hoc basis, providing insight into generally accepted industry practices.
Extensive Research about Edwards Lifesciences
The team was tasked with evaluating Edwards Lifesciences (EW), which is a mid-cap manufacturer of medical devices. Edwards is a market leader in heart valve replacement (60 percent of FY2011 sales), critical care (30 percent), and other related (10 percent) technologies.
In November 2012, selected members of the team received a presentation from management at Edward’s headquarters in Irvine, California. The team also had the opportunity to privately ask questions of management.
Between November 2012 and February 2013, our team researched Edwards as well as the medical devices industry, including review of numerous reports about clinical trials, medical device approvals, practitioner surveys, and the current regulatory environment. Using this information, the team constructed pro-forma financial statements through 2016, a fully integrated discounted cash flow model, and conducted public trading and precedent transaction multiples analyses.
Students Represent CMC on a Global Scale
On February 1, 2013, the team submitted a written report that recommended selling shares of EW with a 12-month price target of $85.50. The team’s thesis was driven largely by pessimism surrounding (a) uptake of Edward’s transcatheter aortic valve replacement product as it reaches maturity in US and European markets; (b) execution of products currently in the company’s development pipeline; and (c) a tightening regulatory environment.
In late February, the team presented their analysis to a panel of judges at the Orange County/Inland Empire Local Competition. CMC placed first place among a group of five undergraduate and graduate institutions, each which valued Edwards Lifesciences. The competing teams were UC Irvine, Cal Poly Pomona, Cal State Long Beach, and Cal State Fullerton.
The team from CMC advanced to the Regional Competition, which was hosted in Toronto on March 20th and 21. The team placed competitively against 46 other teams from North and South America. University of Nevada, Las Vegas, went on to win the Regional Competition with its analysis of Kona Grill, a Vegas-headquartered restaurant chain. Winners from each of Regional Competition gathered one last time in London during early April, where the team representing Wrocław University of Economics was crowned global champions.
Valuable Learning Experience
The Research Challenge provided students with a unique opportunity conduct professional-standard investment research, learn about the medical devices industry, and network with finance luminaries. Phil Liao ’14 recaps his experience: "It allowed me to apply and expand upon material that I had learned in the classroom.”
Success within the CFA Research Challenge is reflective of both institutional and student achievement.
“Having the CMC Student Investment Fund represent the Claremont McKenna College at the CFA Challenge is an honor in itself,” says SIF Chief Executive Officer David Hirsch ’13. “The fact that our team placed first in our local district and represented California in the Regional Final, in just our second year, is a testament to the unparalleled learning experience provided by CMC, FEI, and the Fund.”
The Student Investment Fund and Financial Economics Institute plan to assemble a team to compete in the 2013-2014 CFA Research Challenge.