Posts Tagged ‘yale endowment portfolio’
I wrote this article in early December 2008. Amazingly, it is one of the least read in my blog. Had
someone read it and followed it, he would have earned 10% return so far in 2009.
– Michael Zhuang 3/10/2009
At the moment of writing this, SPY, the exchange traded fund (ETF) for the S&P 500 index, is trading at $85.95 and the near at-the-money call option (with strike 86 and only eight days until expiration) is trading at $3.45! (A call option is the right to buy the underlying stock at the strike price. At-the-money means the option strike price is equal to the price of the underlying stock.)
The at-the-money call premium is a full 4% of the underlying index price! Historically, that number has been in the 1% to 2% range.
What does 4% premium imply?
Share this:
David Swensen’s 2008 public equity investments in Yale Endowment portfolio
Posted on: October 15, 2008
- In: Uncategorized
- Leave a Comment
Yale Endowment, as an institution investor, has to disclose to SEC its public equity holdings every quarter. This allows us to get a glimpse of David Swensen’s direct stock investments. Since Yale Endowment does not have to disclose its private equity investments and its allocations to money managers, this is not the complete picture of its asset allocation.
The author is president of MZ Capital, a RIA serving DC/MD/VA. Get his monthly newsletter in your mailbox or get to the directory of his past articles.
Table: David Swensen’s stock portfolio
| Ticker | % weight of portfolio | Name |
| OEF | 1.24% | iShares S&P 100 Index |
| INFN | 0.12% | Infinera Corp |
| EFA | 13.82% | iShares MSCI EAFE Index |
| EEM | 37.42% | iShares MSCI Emerging Market Index |
| AKR | 7.12% | Acadia Realty Trust |
| XTXI | 1.39% | Crosstex Energy Inc. |
| WWW | 0.07% | Wolverine World Wide |
| CELG | 0.05% | Celgene Corp |
| DEI | 29.47% | Douglous Emmett Inc. |
| CXO | 8.39% | Concho Resources Inc |
| SPY | 0.9% | SPDR S&P 500 Index |
Share this:
All-weather portfolio: how Harvard and Yale Endowments invest for bad times
Posted on: September 21, 2008
This post was written at the depth of the financial crisis. If you stuck to the Swensen Model through out the crisis, you would be ahead now. See our model portfolio.
– Michael Zhuang
Wall Street Journal headline: “Harvard Endowment Returned 8.6%”
In light of the events of the last few weeks when financial companies collapsed in rapid succession, an all-weather portfolio is what all of us need. Yale and Harvard University endowments have portfolios that do well in both good and bad times. You’d expect these smart people to know what they are doing. They do!
In any one fiscal year (ending in June) since 2000, The Yale Endowment has never had a loss. Don’t you wish you had a portfolio that could do so well? Sadly, your record is likely to be worse than that of S&P 500. Harvard’s endowment portfolio had only two years with small losses. The worst was in 2001. That was when it suffered a loss of 2.7%. Here are the details:
Table 1: Comparison of returns for Yale, Harvard, and the S&P 500
| Year | Economic Cycle | Yale | Harvard | S&P 500 |
| 2000 | Tech bubble | 41% | 32% | 7% |
| 2001 | Tech bubble bust | 9.2% | -2.7% | -14.83% |
| 2002 | Tech bubble bust | 0.7% | -0.5% | -17.99% |
| 2003 | 8.8% | 12.5% | 0.25% | |
| 2004 | 19.4% | 21.1% | 19.11% | |
| 2005 | RE bubble | 22.3% | 19.2% | 6.32% |
| 2006 | RE bubble | 22.9% | 16.7% | 8.63% |
| 2007 | RE bubble bust | 28% | 23% | 21% |
| 2008 | RE bubble bust | 4% | 8.6% | -14.8% |
| Average Return | 17.8% | 14.4% | 1.6% | |
| Volatility | 12.4% | 11.3% | 14.6% | |
How did Yale and Harvard achieve such return stability through two major cycles of boom and bust?
The answer lies in their unconventional asset allocation. The typical US investor allocates 60% to domestic equity, primarily in large-cap growth stocks, and 40% to fixed income assets. In contrast, the endowments allocate to six non-cash asset classes that have low correlation with each other. In particular, domestic equity and fixed income make up only a small percentage of the overall portfolio: see Table 2 below. This broad diversification across weakly correlated asset classes is the primary reason why the endowment portfolios did well in both boom and bust times. (I will discuss secondary reasons in the future.)
Table 2: Asset allocations of Yale and Harvard endowments
| Asset Classes | Domestic Equity | Absolute Return | Foreign Equity | Private Equity | Real Assets | Fixed Income | Cash |
| Yale | 11% | 23.3% | 14.1% | 18.7% | 27.1% | 4% | 1.9% |
| Harvard | 12% | 18% | 22.% | 11% | 26% | 16% | -5% |
Both endowments allocate over 25% to real assets, such as real estate and basic materials. This allocation seeks to protect against the double threat of a weak dollar and inflation.
Chart: Evolution of Yale Endowment asset allocation
As the chart above shows, Yale Endowment significantly increased its exposure to real assets in the last three years. Average investors like you and me would be well-served to heed the unspoken message of these intelligently-managed endowments. And now for your take-home lesson:
1. Broadly diversify
2. Hedge against inflation and the weak dollar.
Get The Investment Fiduciary monthly newsletter in your mailbox.
The Investment Scientist 