Today I feel like talking about the portfolio approach by Yale's endowment's chief investment officer for 35 years - David Swensen. At this point, I expect some of the readers to ask "Who is that guy?"
He was the guy responsible for turning Yale's $1 billion endowments in 1985 and transform it into $30.31 billion in 2019 (NUS's endowment is $5.9 billion as of 2019). This would mean a 16% average annual return on Yale's money. Mind you, Swensen has done it ever since he took over the endowment fund. So yes, I am interested in this guy's investment method and his portfolio allocation.
The information that I found online is different from the one in Money: Master the Game, with some of them exactly like the one in Money: Master the game. So do take it with a pinch of salt. Of course, this portfolio is not the one used by Yale for its endowment fund. 60% of the fund is invested in private equity (hedge funds) and we do not know the exact allocation, but I will still show you guys the asset allocation targets that Yale released on their website.
Some context about the Swensen Portfolio, it is one that he recommends to the average investors (meaning you and I), who do not have the time to constantly monitor the market.
Yale Endowment Asset Allocation:
David Swensen Portfolio Allocation (The one in Money: Master the Game and Unconventional Wisdom):
Total US Stock Market - 30%
International Stock - 15%
Emerging Market Stock - 5%
Long-Term Treasury Bonds - 15%
All-Term Treasury Bonds - 15%
Real Estate (US) -20%
Comments:
As you can see, the one recommended by Swensen is almost the same as the one that Yale is targetting (With 30% in safer instruments and the remaining 70% in growth instruments). Duh, they are influenced by the same person. But yes, let us take a look at the historical results of the portfolio that he recommends to the average investor.
Backtest of Swensen Portfolio:
Different timeframe return of the portfolio - It has a high average return, with a relatively low standard deviation (As compared to the S&P 500) even though it has quite a high equity exposure. Hence, it may be suitable for investors who want something between the All-Weather and the S&P 500.
Max drawdown of the portfolio - It is high due to its high equity exposure
Rolling Averages - As you can see, the longer the rolling average, the more consistent the returns towards positive.
Rolling Average (30 years) visualized. Yup. It's all positive.
Conclusion:
Indeed, we can see that long-term investment does allow for a more consistent return, and it shows in this portfolio. Swensen has also commented in this portfolio, saying that equities (or stocks) are responsible for a huge portion of the growth in a portfolio, hence, in a long-term portfolio, it should have the ability to stomach the variations of returns that is possible by equities.
I hope that you have enjoyed today's topic. I hope that NTU can hire me as their portfolio manager as well. heh.
With that,
I end today's topic.
Stay vested, Stay frugal my friends,
Dionysius
Sources:
http://www.lazyportfolioetf.com/allocation/david-swensen-yale-endowment/
https://www.marketwatch.com/lazyportfolio/portfolio/yale-u-portfolio
https://www.wallstreetphysician.com/invest-like-yalie-model-portfolio-david-swensen-investment-manager-yale-endowment/
https://valuestockgeek.com/2019/01/23/the-david-swensen-asset-allocation/
https://www.bloomberg.com/news/features/2019-09-11/david-swensen-made-yale-fabulously-rich-and-changed-endowments
https://www.institutionalinvestor.com/article/b1gj523tmfl2tt/David-Swensen-Is-Great-for-Yale-Is-He-Horrible-for-Investing
https://news.yale.edu/2019/09/27/investment-return-57-brings-yale-endowment-value-303-billion
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