5 Questions with Faculty: David Smith

David Smith is a professor of finance and an associate dean in the School of Business, the director for the Center for Institutional Investment Management (CIIM) and faculty advisor for the University at Albany School of Business Investment Group (UASBIG).

Can you tell us about your current research?

My research examines a type of marketable security called smart-beta exchange-traded funds, or ETFs. The purpose of smart-beta ETFs is to help investors earn an above-average return by selling certain types of ETFs and then replacing them by buying others as financial market conditions change.

My latest research shows, however, that investors who trade smart-beta ETFs fail to earn returns that beat a simple buy-and-hold strategy. This is significant because past research indicates that when investors in common stocks, hedge funds and mutual funds time their purchases and sales poorly, the actual returns they receive are far below the returns that they would get from merely buying and holding. In other words, investors are persistently buying at high prices and selling at low prices. The phenomenon that investors are witnessing with smart-beta ETFs is thus the latest “nail in the coffin” for the concept of active portfolio management.

What is the latest that the campus community should know about UASBIG, the student-managed investment fund that you advise, and are there any recent successes that you would like to share?

Each year, around 80 student applicants from across campus interview for about 15 available slots in UASBIG. Student-analysts in the group analyze stocks using financial statement data and then pitch their best ideas weekly to an alumni advisory board. The advisory board, which comprises mostly professional institutional investors, subjects each student to a rigorous cross-examination process. If the board approves a student’s stock pitch, we add the stock to a real-money portfolio sponsored by the University at Albany Foundation.

The portfolio value is approximately $250,000 currently. Since the portfolio’s inception in 2008, UASBIG has typically outperformed the S&P 1500, a stock market index of U.S. stocks made by Standard & Poor’s.

One thing I have been particularly proud of is that in the most recent recruiting cycles, the entirely student-managed group has worked hard to attract more outstanding women analysts. Several of these female students have served on the executive board, and one was co-president.

I am grateful to my faculty co-advisors at the school, Hany Shawky and Mary Wladkowski, and also to Rick McGinn, Jr. and Chris Losavio with the foundation, who have provided wonderful support for this educational initiative.

You established CIIM, a center that supports research related to institutional investment management, in 2002. What would you say you are most proud of in its 17 years at UAlbany, and where do you see the Center going in the years ahead?

In 2001, I co-authored a proposal that resulted in the school’s department of finance receiving a $1.6 million endowment from SUNY to support initiatives pertaining to institutional investing. That endowment has provided a payout each year that we use for three main purposes: to provide research support for data acquisition and enable faculty and students to attend scholarly conferences or stock-analysis competitions; support networking, and professional development and financial training opportunities for students; and fund UASBIG’s hardware, software and data needs for stock analysis.

Since CIIM’s establishment, the school has been fortunate to be able to hire faculty who have expertise in institutional investing. It has been great to see the department’s scholarly output in institutional investing increase dramatically, as well as the growth in internal collaborations on mutual funds, hedge funds, private equity and venture capital. UASBIG has also offered this wonderful platform for our faculty, staff and students to work closely with our alumni advisory board.

How do you keep on top of business-related current events and issues?

There is no substitute for the business press. I read the Wall Street Journal and Bloomberg Businessweek regularly, and try to stay abreast of industry white papers. I also find it useful to attend both industry and academic conferences. For over 20 years, I have been deeply involved in the Chartered Financial Analyst and Certified Management Accountant certification programs, and have served as chair of various international boards and committees. Working so closely with practitioners and academics globally has helped me keep abreast of innovations in the industry. Finally, our alumni frequently alert the faculty to emerging industry trends that we bring to the classroom. Recent examples include a new federal regulatory exam as well as the importance of our graduates having Python programming skills.

What’s one thing that campus probably doesn’t know about you?

I love music. As a consumer, I particularly enjoy live music, from classical to folk to rock, and for that reason, I find the Capital Region to be one of the best places to reside. If I really like an artist, I tend to become a groupie and travel to shows. I do not sing well, but a particular thrill for me was performing Handel’s Messiah and Brahms’ Requiem with my daughter as part of a community chorus.

Smith has received the President’s and SUNY Chancellor’s Awards for Teaching Excellence, and the Torch Night Award for the University’s “Professor of the Year.” He has published more than 25 articles in journals including the Journal of Financial & Qualitative Analysis, Financial Management, Journal of Portfolio Management and Journal of Financial Research. Smith holds a Chartered Financial Analyst (CFA), Certified Financial Manager (CFM) and Certified Management Accountant (CMA) designations.