The Peeptrade University Challenge kicks off Monday, where graduate students from nine top business schools will manage competing portfolios of $10,000 for 2 months.

As the contest gets underway, Benzinga caught up with one of the members of the MIT and Princeton teams to find out how they’ll be managing their portfolio.

Hunter Krug Dray, a first-year MBA at the Sloan School of Business, said the MIT team will take a core-satellite approach to their portfolio. He said the bulk of the portfolio will be allocated to a tracking index, and they’ll use the satellite positions to try and generate alpha.

“The main focus is based on the constraints of the challenge. We talked about tracking error. I think that will be quantitatively the biggest hurdle for us basically, coming up with a couple of names based on the constraints of the prompt.”

Dray said they’ll determine their sector weightings based on a fundamental analysis of standard indicators over a long time horizon, including multiples. They’ll also use technical indicators to determine their timing.

The seven-person team is made up of all first-year MBA students. Dray, who worked in wealth management for four years prior to MIT, said they didn’t approach the challenge with a single mindset, and that it’ll be a blend of diversification and conviction.

“I don’t think there’s any one mentality that’s predominant right now. So it’s going to be kind of a mashup of approaches. We basically came together and decided we’d do stock pitches [for their satellite stocks].”

Dray, who wants to work somewhere in financial services, said he joined the challenge because it checked all the boxes for him.

“I think we want the experience to be one-stop shopping. Design, maintenance, and execution will all be there, and making sure everyone has the information so they can follow along. Having everybody understand where things are headed and how decisions are getting made."

The Princeton Portfolio

Aurele Galle is a Master of Finance at Princeton. He said his team will also be investing in ETFs that track the S&P 500, partly because they want to minimize the execution costs of the strategy.

The second part of the portfolio will be built on a quant model. This was in part because four of the six team members have previously worked for quant hedge funds, but also, Galle said, because the Princeton Graduate program is very quant focused.

“We were thinking about active management, and how it could actually produce negative alpha. That’s why we chose a quantitative model,” said Galle.

The model they developed will focus closely on risk parity and risk volatility of the different sectors with regard to a basic portfolio optimization strategy. The idea of portfolio optimization came from what they’ve observed in real life.

“I guess we wanted to use some portfolio optimization with some constraints because that’s mostly what people are using these days. We don’t want to be stock pickers like the hedge funds you saw 20 years ago. Even those guys now are trying to implement quant strategies. So we thought that was the best way. The risk parity idea, Bridgewater [Associates] was the first to do that, and they are the biggest hedge fund in the world.”

The team has five Masters of Finance and one Ph.D. in economics, which Galle said added to their diversification of ideas.

“We talked to him about it a few months ago and he thought it’d be a great way to try and implement his ideas to see how they could work in the real world.”

“I think what we really like here is there are some constraints, and they make sense because the clients will have some constraints. What we really like is the independence. We get to build something from basically nothing. We could have come together on our own and run backtests. But Peeptrade allows us to see how it’ll work in the real world."

You can follow the Princeton team’s portfolio here, and the MIT team’s trades here and check out the rest of the teams on the challenge leaderboard.