MIT Wins Peeptrade's Global Investment Challenge

A team of students from MIT out-traded teams from eight other elite universities from across the globe to win the first annual Peeptrade University Challenge.

The premise of the challenge was simple: gather teams of students from some of the top business schools in the world, give them each $10,000 to create and manage a portfolio for two months, and see who has the most success.

The teams - from the University of North Carolina, the London Business School, Georgetown University, INSEAD, Dartmouth College, Princeton University, the University of Chicago, and the University of Southern California - were graded by a panel of judges on three factors: investment policy statement and compliance, strategy execution, and risk compliance.

The seven-member team from MIT, consisting of both first-year MBA students and Masters of Finance, won using a core-satellite approach in an effort to keep their tracking error between 4-10 percent. Most of the team’s portfolio was allocated to the iShares S&P 500 Index (ETF) IVV, while the rest was allocated to individual stocks they thought would generate alpha.

Initially, those stocks were General Motors Company GM, BlackRock, Inc. NYSE:BLK), Manitowoc Foodservice Inc MFS, Sempra Energy SRE, and McKesson Corporation MCK. By the end of the two-month contest they’d dropped McKesson and Sempra and added Dover Corp DOV, Bright Horizons Family Solutions Inc BFAM and GCP Applied Technologies Inc GCP.

Hunter Krug Dray, a first-year MBA student with the team from MIT, characterized the their win as a result of persistant awareness of the vulnerabilities of their position. “What separated our team was a real focus on tracking error and being able to demonstrate, based on historical backtests, that holding those positions would have resulted in a tracking error that was between the [4-7 percent] corridor.”

Juan Mendoza, the founder and CEO of Peeptrade, said the level of commitment the teams gave to the challenge was unexpected. “Not only me, but the judges were very surprised as well with the quality of how they managed money. We weren’t expecting that amount of analysis.”

According to Mendoza, the competitors operated like finance professionals, “they were managing this money according to certain risk limits like any other asset manager or fund manager; they put in so much effort.”

In addition to standard market analysis, Dray said the unexpected results of the election forced the team to took a hard look at their portfolio. Ultimately though, their long time-horizon limited their number of changes.

“I think you can look at GCP and its reaction to the unexpected election results in the wake of $1 trillion of spending in infrastructure in a Donald Trump administration,” he said. “We definitely re-evaluated our thesis in the wake of the results but we only made a few moves around the margins, and that’s a reflection of the long time horizon we were using.”

Based on the success of the competition, Mendoza said Peeptrade is considering hosting two more challenges next year in Europe and Latin America.

Dray, for his part, was encouraged that he was able to use what he learned in the classroom to manage a portfolio of outside money. “We very much enjoyed the job. We liked the intellectual challenge. We liked to test theses and see what's punishable by the markets. It was a great way to take the things we're learning in academia right now and apply them to the real world.”