Description of Yale U's Unconventional Portfolio

David Swensen is manager of Yale University's endowment fund. He has addressed how investors should set up and manage their investments in his book, Unconventional Success: A Fundamental Approach to Personal Investment.

The Swensen portfolio consists of six core asset class allocations:

US equity: 30%

Foreign developed equity: 15%

Emerging market equity: 5%

US REITS: 20%

US Treasury bonds: 15%

US TIPS: 15%

Statistics of Yale U's Unconventional Portfolio (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (68.2%) in the period of the last 5 years, the total return, or performance of 39.7% of Yale U's Unconventional Portfolio is smaller, thus worse.
  • During the last 3 years, the total return is 24.5%, which is lower, thus worse than the value of 47.7% from the benchmark.

CAGR:

'Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period. CAGR is not an accounting term, but it is often used to describe some element of the business, for example revenue, units delivered, registered users, etc. CAGR dampens the effect of volatility of periodic returns that can render arithmetic means irrelevant. It is particularly useful to compare growth rates from various data sets of common domain such as revenue growth of companies in the same industry.'

Using this definition on our asset we see for example:
  • Looking at the annual performance (CAGR) of 6.9% in the last 5 years of Yale U's Unconventional Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (11%)
  • Compared with SPY (13.9%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 7.6% is lower, thus worse.

Volatility:

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Which means for our asset as example:
  • Looking at the volatility of 8.2% in the last 5 years of Yale U's Unconventional Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (13.2%)
  • Compared with SPY (12.4%) in the period of the last 3 years, the 30 days standard deviation of 7.7% is smaller, thus better.

DownVol:

'Downside risk is the financial risk associated with losses. That is, it is the risk of the actual return being below the expected return, or the uncertainty about the magnitude of that difference. Risk measures typically quantify the downside risk, whereas the standard deviation (an example of a deviation risk measure) measures both the upside and downside risk. Specifically, downside risk in our definition is the semi-deviation, that is the standard deviation of all negative returns.'

Which means for our asset as example:
  • The downside deviation over 5 years of Yale U's Unconventional Portfolio is 9.1%, which is smaller, thus better compared to the benchmark SPY (14.6%) in the same period.
  • Looking at downside deviation in of 8.8% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (14%).

Sharpe:

'The Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) is a way to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk, named after William F. Sharpe.'

Using this definition on our asset we see for example:
  • The risk / return profile (Sharpe) over 5 years of Yale U's Unconventional Portfolio is 0.54, which is lower, thus worse compared to the benchmark SPY (0.64) in the same period.
  • During the last 3 years, the ratio of return and volatility (Sharpe) is 0.66, which is lower, thus worse than the value of 0.92 from the benchmark.

Sortino:

'The Sortino ratio improves upon the Sharpe ratio by isolating downside volatility from total volatility by dividing excess return by the downside deviation. The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset's standard deviation of negative asset returns, called downside deviation. The Sortino ratio takes the asset's return and subtracts the risk-free rate, and then divides that amount by the asset's downside deviation. The ratio was named after Frank A. Sortino.'

Using this definition on our asset we see for example:
  • Looking at the ratio of annual return and downside deviation of 0.49 in the last 5 years of Yale U's Unconventional Portfolio, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (0.58)
  • During the last 3 years, the excess return divided by the downside deviation is 0.58, which is lower, thus worse than the value of 0.81 from the benchmark.

Ulcer:

'The ulcer index is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987, and published by him and Byron McCann in their 1989 book The Investors Guide to Fidelity Funds. It's designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period. Other volatility measures like standard deviation treat up and down movement equally, but a trader doesn't mind upward movement, it's the downside that causes stress and stomach ulcers that the index's name suggests.'

Using this definition on our asset we see for example:
  • The Downside risk index over 5 years of Yale U's Unconventional Portfolio is 3.51 , which is smaller, thus worse compared to the benchmark SPY (3.95 ) in the same period.
  • Compared with SPY (4 ) in the period of the last 3 years, the Ulcer Ratio of 3.07 is lower, thus worse.

MaxDD:

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Which means for our asset as example:
  • Compared with the benchmark SPY (-19.3 days) in the period of the last 5 years, the maximum reduction from previous high of -11.9 days of Yale U's Unconventional Portfolio is greater, thus better.
  • Compared with SPY (-19.3 days) in the period of the last 3 years, the maximum DrawDown of -11.9 days is larger, thus better.

MaxDuration:

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. The Max Drawdown Duration is the worst (the maximum/longest) amount of time an investment has seen between peaks (equity highs) in days.'

Which means for our asset as example:
  • Looking at the maximum days below previous high of 281 days in the last 5 years of Yale U's Unconventional Portfolio, we see it is relatively larger, thus worse in comparison to the benchmark SPY (187 days)
  • Looking at maximum days below previous high in of 146 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (131 days).

AveDuration:

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. The Avg Drawdown Duration is the average amount of time an investment has seen between peaks (equity highs), or in other terms the average of time under water of all drawdowns. So in contrast to the Maximum duration it does not measure only one drawdown event but calculates the average of all.'

Which means for our asset as example:
  • Compared with the benchmark SPY (39 days) in the period of the last 5 years, the average days under water of 63 days of Yale U's Unconventional Portfolio is higher, thus worse.
  • Looking at average days below previous high in of 43 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (33 days).

Performance of Yale U's Unconventional Portfolio (YTD)

Historical returns have been extended using synthetic data.

Allocations of Yale U's Unconventional Portfolio
()

Allocations

Returns of Yale U's Unconventional Portfolio (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of Yale U's Unconventional Portfolio are hypothetical, do not account for slippage, fees or taxes, and are based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.