PISCATAWAY, New Jersey Nov 26 When Nasdaq OMX Global Indexes director David Krein was a business school student in the late 1990s, the term "exchange-traded fund" was little known to most of Wall Street, let alone a university classroom.
Now, Krein, who heads index research at Nasdaq, is teaching what he and his industry colleagues are calling a first-of-its-kind MBA course focused exclusively on indexing and ETFs - securities that often track an index or a basket of shares and can be traded in real time like stocks.
The course is a testament to the growing importance of the $2.2 trillion global market in ETFs, which has soared roughly 140-fold since 1998, when it was only $16 billion in size.
"Universities are starting to see a need to train their students to function in a world where ETFs are a key part of the investment process," said Scott Kubie, chief investment strategist at Omaha-based CLS Investments, LLC, which designs ETF portfolios.
Kubie, who himself used to teach portfolio management and securities analysis courses at the undergraduate and MBA level, said most core university investment courses are focused on securities analysis of individual stocks or other derivatives. These courses may dedicate only a lecture or two to ETFs rather than an entire semester.
"I haven't heard of anything like it," said Kubie, referring to Krein's course, which is in its first semester at Rutgers Business School in Piscataway, New Jersey.
Krein pitched the idea of the course to Rutgers last year after realizing the growing weight of indexing and ETFs in the investing world in his own day job. He hopes to eventually replicate the course at other schools through a grant he won to build out the curriculum.
"Whether you're a wealth manager, a back office operations person, a technologist, a trader or a portfolio manager, your need to understand and use indexes and ETFs is greater than it has ever been," Krein said.
ETFs IN THE CLASSROOM
On a recent Monday night, a group of roughly 20 graduate students gathered in a small lecture room at Rutgers' Livingston campus.
The class, which meets once a week for three hours, is composed mostly of MBA students, as well as those pursuing a master's degree in quantitative finance. The students range in age from recent college graduates in their 20s to experienced professionals with multiple decades of work experience.
"Compared to all other MBA courses, this course connects us more with what's happening in the market," said Hong Tang, an MBA student who works in software development for electronic trading. "This course is more practical to me."
Krein co-teaches the class with John Prestbo, a former colleague at Dow Jones Indexes.
The first six weeks of the course were dedicated to "foundation" topics such as index construction and ETF basics. The second half of the course goes into specialized areas such as fixed income and commodities indexes, alternative indexes and the business of indexing and ETFs.
"I view it as an evolution of the futures and options courses that have been taught at many universities for more than two decades," said John Longo, a professor of finance at Rutgers, who met Krein last year when he guest lectured at his class. "This is kind of a new incarnation in some respects."
On most weeks, Krein will invite one of his colleagues from the industry - an attorney, an ETF liquidity expert, a fund provider or issuer, or a regulatory specialist, to provide real-world perspective and feedback to students.
"ETFs can provide a decent case study on a number of topics that MBAs get involved with," said Joel Dickson, a senior investment strategist at Vanguard, referring to popular business school areas such as marketing, business development strategy, and sales and investments. Dickson cautioned that ETFs are only one part of a broad range of investment vehicles.
PREPARING FOR THE FUTURE
Krein, who joined Nasdaq earlier this year, was previously senior director of product development and analytics with Dow Jones Indexes - in New Jersey, not far from Rutgers, which is how he first made the university connection. He started his finance career in trading and structuring, first with large investment banks and later a boutique firm.
He said his professional experiences helped pave the way for developing the course curriculum, which includes student projects around queries, like, for example, devise an all-ETF portfolio for a $100,000 client and a $100 million client, looking at the divergence between the two.
"Education really is an important part of indexing and ETFs because as successful as they've been, it really is still early in their life cycle," Krein said. "I really do see this class as an opportunity to lay the foundation for the right thinking, or good thinking in the marketplace for these products."
Still for Krein, who works and lives in lower Manhattan and has to drive roughly 40 miles to and from Rutgers every Monday, teaching is a second calling.
"I still have my day job," Krein said. But, he noted, "there's so much room for indexes and ETFs to grow, not just in the United States, but globally, that to be the first to really bring this to an MBA program is a real interesting marker."