David Swensen Insight

David Swensen revises asset allocation for individual investors

Posted by: Michael Zhuang on: March 25, 2009

In his book Unconventional Success: A Fundamental Approach to Personal Investment, Swensen recommends the following allocations, for individual investors who want a “well-diversified, equity-oriented portfolio”:

30% Domestic stock funds

20% Real estate investment trusts

15% U.S. Treasury bonds

15% U.S. Treasury inflation-protected securities

15% Foreign developed-market stock funds

5% Emerging-market stock funds

In an interview with Yale magazine, Swensen said, economic conditions might call for a modest revision. He now recommends that investors have 15 percent of their assets in real estate investment trusts, and raise their investment in emerging-market stock funds to 10 percent.

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The following illustrates an implementation of the Swensen allocation with a strong small and value tilt. Despite having only 70% in equity, it has outperformed the benchmark S&P 500.

icarra chart

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David Swensen on fund of funds

Posted by: Michael Zhuang on: January 17, 2010

Quoted from David Swensen’s interview with WJS …

Fund of funds are a cancer on the institutional-investor world. They facilitate the flow of ignorant capital. If an investor can’t make an intelligent decision about picking managers, how can he make an intelligent decision about picking a fund-of-funds manager who will be selecting hedge funds? There’s also more fees on top of existing fees. And the best managers don’t want fund-of-fund money because it is unreliable. You need to be in the top 10% of hedge funds to succeed. In a fund of funds, you will likely be excluded from the best managers. [Mr.] Madoff also relied enormously on these intermediaries. He wouldn’t have had nearly as much resources were it not for fund of funds.

What do you think? Is it too strong a statement? Or is it right on target? Please share your thought.

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Watch David Swensen’s lecture here.

Harvard Endowment adds to Russia, Mexico and India exposure

Posted by: Michael Zhuang on: November 20, 2009

Harvard University Endowment significantly increased its holding of Market Vector Russia, iShare Mexico and iPath India in third quarter of 2009.

Table: Top 10 holdings in Harvard University Endowment’s public portfolio

Rank Names 9/30/09 (x1000sh) 6/30/09 (x1000sh) Change
1 iShares E. Mkt 10298 9712 +586
2 iShares Brazil 3355 3294 +61
3 iShares China 4962 4178 784
4 iShares S. Korea 4127 4349 -222
5 iPath India 1882 1388 +494
6 iShares S. Africa 1624 1595 +29
7 iShares Taiwan 7297 6836 +461
8 Mkt vector Russia 2596 882 +1714
9 iShares Mexico 1639 570 +1069
10 Vanguard E. Mkt 1568 1758 -190

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Quotes of David Swensen from his Financial Times interview

Posted by: Michael Zhuang on: November 4, 2009

On his anticipation of the crisis

We were absolutely aware of potential issues. And that was months before Bear Stearns. That said, we weren’t prepared for the magnitude of the crisis, or its duration.

Read the rest of this entry »

Pimco mimicking Yale

Pimco mimicking Yale

Here is the second paragraph of the Bloomberg report:

“The richest colleges beat market indexes in the decade through June 2008 by loading up on hard-to-sell assets such as private equity and real estate, while cutting stocks and bonds, a style pioneered by Yale University’s David Swensen. Pimco is refining the model to appeal to investors who want more flexibility to sell assets quickly to raise cash.”

Students of David Swensen understand that the Master avoids liquid assets because “market players routinely overpay for liquidity.” Serious investors benefit by avoiding overpriced liquid securities. Instead, they locate bargains in less liquid markets. This wisdom is borne out by his track record over the last two decades.

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David Swensen quote of the month

Posted by: Michael Zhuang on: August 21, 2009

Investment success requires sticking with positions made uncomfortable by the variance with popular opinion. Casual commitments invite casual reversal, exposing portfolio managers to the damaging whipsaw of buying high and selling low. Only with confidence created by a strong decision-marking process can investors sell mania-induced excess and buy despair-driven value.

David Swensen quote of the month

Posted by: Michael Zhuang on: August 10, 2009

A rich understanding of human psychology, a reasonable appreciation of financial theory, a deep awareness of history, and a broad exposure to current events all contribute to development of well-informed portfolio strategies.

David Swensen on WealthTrack (unaired portion)

Posted by: Michael Zhuang on: August 5, 2009

This week in WealthTrack’s series on Great Investors, Consuelo Mack features the never-before-aired portions of her wide-ranging interview with Yale’s renowned endowment chief, David Swensen. Among the topics covered are Swensen’s assessment of the new investment reality and where he is investing his and his family’s money. See the portion aired in May here.

Why David Swensen calls funds of hedge funds “cancer”?

Posted by: Michael Zhuang on: June 7, 2009

“They are the cancer of the institutional investment world.” – David Swensen, Yale endowment CIO

Would you consider forming a partnership with someone you don’t know, in which you would contribute the money and that someone would conduct a business that you don’t understand, and do the accounting as well?

Most business owners would respond with a resounding “No!” The reason is obvious: such an arrangement is the surest way to lose money.

Yet, many of these same business owners would jump at the opportunity when presented with an “exclusive” offer to invest in a hedge fund that promises to make money in good times and bad through a magic “black box” formula.

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David Swensen on WealthTrack: substantial risk of inflation

Posted by: Michael Zhuang on: May 24, 2009

In an interview on WealthTrack, David Swensen said:

TIPS (Treasurey inflation-protected securities)  should be in everyone’s portfolio … We got this massive fiscal and monetary stimulus, it is hard to see how that does not translate in to substantial inflation … down the road.

Much of the 22 minute interview is about Swensen’s (well-known) investment philosophy, his outlook about inflation appears in the last two minutes.

Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm applying David Swensen's insights for clients. He is also a regular contributor to Morningstar Advisor. To use his wealth management services, schedule a discovery meeting (phone call) with him.



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