Luke Weiner

Author: Luke Weiner | Major: Industrial Engineering

My name is Luke Weiner, I am from the College of Engineering, and I am currently majoring in Industrial Engineering. My research mentor is Dr. Gregory S. Parnell from the Department of Industrial Engineering. I have been doing research during the Fall semester of 2021 and Spring semester of 2022, and my research for Spring of 2022 was funded with the Honors College Research Grant. After I finish the Spring semester of 2022, I will be graduating and beginning a job at J.B. Hunt Transport Services in their Engineering and Technology Development Program.

For my research, which I performed during the Fall of 2021 and Spring of 2022, I chose to try to create a theoretical investment portfolio and a set of theoretical portfolios consisting of actively managed mutual funds with the purpose of outperforming index funds. I did so be forecasting fund prices using linear regression techniques and creating an optimization model to maximize portfolio returns subject to risk constraints. The goal of my research has been to provide quality information to individual investors and to gain investment knowledge myself so that I can make wise investments in the future. For many common investors I found exploring mutual funds to be the most practical use of my research because they are one of the most common investment products for common investors.

My motivation for this research has been the activity and relationships between index funds and actively managed mutual funds and how they can benefit individual investors. The global investment industry offers a wide variety of investment products especially for individual investors. One such product, index funds, which are younger than actively managed mutual funds, have typically outperformed managed funds. Despite this phenomenon, investors have displayed a tendency to continue investing in actively managed funds. Although only a small percentage of actively managed funds outperform index funds, the costs of actively managed funds are significantly higher. Also, managed fund performances are most often determined by their fund category such as growth or real estate. I wanted to answer the following question for individual investors: can we forecast the future performances of actively managed funds taken from multiple categories and build an optimized portfolio to outperform index funds.

I found my mentor, Dr. Parnell, though a class taught by Dr. Kelly Sullivan from the Department of Industrial Engineering. Through this course, Dr. Sullivan introduced us to the research of all of the professors performing research in the department. We were also able to ask questions and schedule one-on-one meetings with professors whose research interested us. I met Dr. Parnell after he spoke about his research, specifically one project involving an investment management company. During the summer of 2021, Dr. Parnell and I eventually landed on exploring a topic both of us were interested in, which was personal investment management.

Through this research I have learned how nearly impossible it is to accurately forecast mutual funds or stocks in general. Although this became a challenge, I learned that investors must deal with this risk when they make investment decisions. Although they may only have predictions or imperfect forecasts, they must make the best decision that balances their desired level of risk and return. Another challenge that I faced was within my optimization model, which only selected one fund to include in the portfolio because it would in theory maximize returns. However, given the impracticality of choosing just one fund, I constrained the maximum investment per fund incrementally to create a series of investment options ranging in risk and return. These challenges taught me that in my attempt to create recommendations, the best thing I may do is to provide options to individual investors. Because all investors are different, each require different recommendations.