Description

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 (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:
  • The total return, or performance over 5 years of Yale U's Unconventional Portfolio is 38.4%, which is lower, thus worse compared to the benchmark SPY (66.2%) in the same period.
  • During the last 3 years, the total return, or increase in value is 21.8%, which is lower, thus worse than the value of 36.8% from the benchmark.

CAGR:

'The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (10.7%) in the period of the last 5 years, the annual performance (CAGR) of 6.7% of Yale U's Unconventional Portfolio is lower, thus worse.
  • Looking at compounded annual growth rate (CAGR) in of 6.8% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (11%).

Volatility:

'In finance, volatility (symbol σ) is the degree of variation of a trading price series over time as measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices. Implied volatility looks forward in time, being derived from the market price of a market-traded derivative (in particular, an option). Commonly, the higher the volatility, the riskier the security.'

Applying this definition to our asset in some examples:
  • Looking at the historical 30 days volatility of 11.6% 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 (19%)
  • During the last 3 years, the historical 30 days volatility is 13.1%, which is lower, thus better than the value of 22% from the benchmark.

DownVol:

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (13.9%) in the period of the last 5 years, the downside risk of 8.8% of Yale U's Unconventional Portfolio is lower, thus better.
  • Compared with SPY (16.1%) in the period of the last 3 years, the downside deviation of 10.1% is smaller, thus better.

Sharpe:

'The Sharpe ratio was developed by Nobel laureate William F. Sharpe, and is used to help investors understand the return of an investment compared to its risk. The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return allows an investor to better isolate the profits associated with risk-taking activities. One intuition of this calculation is that a portfolio engaging in 'zero risk' investments, such as the purchase of U.S. Treasury bills (for which the expected return is the risk-free rate), has a Sharpe ratio of exactly zero. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.'

Using this definition on our asset we see for example:
  • Looking at the Sharpe Ratio of 0.36 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 (0.43)
  • Looking at ratio of return and volatility (Sharpe) in of 0.33 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (0.39).

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.'

Applying this definition to our asset in some examples:
  • The ratio of annual return and downside deviation over 5 years of Yale U's Unconventional Portfolio is 0.48, which is lower, thus worse compared to the benchmark SPY (0.59) in the same period.
  • During the last 3 years, the ratio of annual return and downside deviation is 0.42, which is smaller, thus worse than the value of 0.53 from the benchmark.

Ulcer:

'Ulcer Index is a method for measuring investment risk that addresses the real concerns of investors, unlike the widely used standard deviation of return. UI is a measure of the depth and duration of drawdowns in prices from earlier highs. Using Ulcer Index instead of standard deviation can lead to very different conclusions about investment risk and risk-adjusted return, especially when evaluating strategies that seek to avoid major declines in portfolio value (market timing, dynamic asset allocation, hedge funds, etc.). The Ulcer Index was originally developed in 1987. Since then, it has been widely recognized and adopted by the investment community. According to Nelson Freeburg, editor of Formula Research, Ulcer Index is “perhaps the most fully realized statistical portrait of risk there is.'

Using this definition on our asset we see for example:
  • The Ulcer Ratio over 5 years of Yale U's Unconventional Portfolio is 4.2 , which is smaller, thus better compared to the benchmark SPY (5.9 ) in the same period.
  • Compared with SPY (6.98 ) in the period of the last 3 years, the Ulcer Index of 4.84 is smaller, thus better.

MaxDD:

'Maximum drawdown measures the loss in any losing period during a fund’s investment record. It is defined as the percent retrenchment from a fund’s peak value to the fund’s valley value. The drawdown is in effect from the time the fund’s retrenchment begins until a new fund high is reached. The maximum drawdown encompasses both the period from the fund’s peak to the fund’s valley (length), and the time from the fund’s valley to a new fund high (recovery). It measures the largest percentage drawdown that has occurred in any fund’s data record.'

Applying this definition to our asset in some examples:
  • Looking at the maximum reduction from previous high of -23.7 days in the last 5 years of Yale U's Unconventional Portfolio, we see it is relatively larger, thus better in comparison to the benchmark SPY (-33.7 days)
  • During the last 3 years, the maximum reduction from previous high is -23.7 days, which is higher, thus better than the value of -33.7 days from the benchmark.

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). Many assume Max DD Duration is the length of time between new highs during which the Max DD (magnitude) occurred. But that isn’t always the case. The Max DD duration is the longest time between peaks, period. So it could be the time when the program also had its biggest peak to valley loss (and usually is, because the program needs a long time to recover from the largest loss), but it doesn’t have to be'

Using this definition on our asset we see for example:
  • Looking at the maximum time in days below previous high water mark of 175 days 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 (187 days)
  • Compared with SPY (139 days) in the period of the last 3 years, the maximum days under water of 146 days is greater, thus worse.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (44 days) in the period of the last 5 years, the average time in days below previous high water mark of 45 days of Yale U's Unconventional Portfolio is greater, thus worse.
  • Looking at average time in days below previous high water mark in of 41 days in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to SPY (41 days).

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations
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Allocations

Returns (%)

  • Note that yearly returns do not equal 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.