The Long Road: World's Brightest Students Focus On Index Investing

May 09, 2008

Contest among top colleges awards students with best new ideas for creating investable indexes.

 

If you think investors are the only ones catching the exchange-traded funds craze, look again.

At least one indexing firm is trying to snare two birds with one stone. Clear Indexes is sponsoring an annual contest to try to attract some of the world's brightest young minds to the ETF universe.

Its second-annual contest among 200-plus college students at seven different campuses just ended. The winning team of Sean Vrbica and Vlad Berbece came from York University in Toronto. They submitted an idea to create an ETF that focuses on sports franchises that sell shares in public markets around the globe.

That isn't a novel concept. An index already exists that tracks international soccer teams as well as a fund that covers NASCAR companies.

"We negated the soccer index and the NASCAR mutual fund since they're not all-encompassing across all of sports," said Andrew Corn, chief executive of Clear Indexes, which publishes benchmarks used for a trio of exchange-traded funds.

Those are: The Claymore/Clear Global Timber Index (AMEX: CUT), the Claymore/Clear Spin-Off Index (AMEX: CSD) and the Claymore/Clear Global Exchanges Brokers Index (AMEX: EXB).

Breaking New Ground

Corn points out that the York University students came up with a unique approach to indexing sports teams. Besides setting new ground as a truly international benchmark that includes U.S. stocks, it also takes an all-cap equities approach. "There's nothing out like it on the market today that we've been able to find," Corn said.

Students taking part this year in the contest came from: Johns Hopkins University, Cornell University, Harvard College, the Wharton School at the University of Pennsylvania, Penn State University, Middlebury College and York University.

To take part, Clear Indexes required a school administrator, a professor and a college investment club to be involved in the process. "This is a way for students to take what they've learned in the classroom and apply it to the real world," Corn said.

Part of the reason for starting the contest, he added, was that students don't get a lot of opportunity in many cases to do "really meaty" work during summer internships. His firm also has been a big supporter of interns at major business schools since it started in 2005.

Strict Criteria

"We set up very rigorous rules about how to create indexes for this contest," Corn said. "Our criteria involve three major parts: the investment thesis, construction of an index, and an in-depth analysis of why anyone would want to invest in this index."

Clear Indexes has even devoted a separate part of its Web site to the contest.

Corn won't reveal the concepts developed by other teams. He says that in previous years, certain unnamed issuers took the information and struck deals with other indexing firms to turn them into ETFs. "I don't keep track anymore of how many have turned into investable products," Corn said. "But after I saw two hit the market, I got the message."

So he's mum on what other ideas are floating out there by this latest class of whiz kids in the ETF world. But Corn makes no bones about the fact such contests provide his firm with a wealth of new talent as well as encouraging young minds to focus on ETFs.

"We'll have eight interns this summer, and almost all were involved with a submission to the contest," he said.

Teams will be formed to solve some very specific problems with implementing what Clear Indexes views as the best ideas. The interns will be overseen by senior members of the firm, who'll give them a very real deadline to figure things out.

 

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