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:

'The total return on a portfolio of investments takes into account not only the capital appreciation on the portfolio, but also the income received on the portfolio. The income typically consists of interest, dividends, and securities lending fees. This contrasts with the price return, which takes into account only the capital gain on an investment.'

Using this definition on our asset we see for example:
  • Looking at the total return, or performance of % 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 (64.1%)
  • Compared with SPY (48.1%) in the period of the last 3 years, the total return, or performance of % is lower, thus worse.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (10.4%) in the period of the last 5 years, the annual performance (CAGR) of % of Yale U's Unconventional Portfolio is lower, thus worse.
  • Compared with SPY (14%) in the period of the last 3 years, the annual performance (CAGR) of % 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 % 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 (13.6%)
  • During the last 3 years, the volatility is %, which is lower, thus better than the value of 12.8% from the benchmark.

DownVol:

'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:
  • Looking at the downside risk of % 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 (14.9%)
  • During the last 3 years, the downside volatility is %, which is lower, thus better than the value of 14.5% from the benchmark.

Sharpe:

'The Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. Normally, the 90-day Treasury bill rate is taken as the proxy for risk-free rate. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. The measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University.'

Which means for our asset as example:
  • Compared with the benchmark SPY (0.58) in the period of the last 5 years, the risk / return profile (Sharpe) of of Yale U's Unconventional Portfolio is lower, thus worse.
  • During the last 3 years, the ratio of return and volatility (Sharpe) is , which is lower, thus worse than the value of 0.9 from the benchmark.

Sortino:

'The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk.'

Which means for our asset as example:
  • Looking at the downside risk / excess return profile of 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 (0.53)
  • Compared with SPY (0.79) in the period of the last 3 years, the excess return divided by the downside deviation of is smaller, thus worse.

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.'

Which means for our asset as example:
  • Compared with the benchmark SPY (4.02 ) in the period of the last 5 years, the Ulcer Index of of Yale U's Unconventional Portfolio is lower, thus better.
  • Looking at Ulcer Index in of in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (4.09 ).

MaxDD:

'A maximum drawdown is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum Drawdown is an indicator of downside risk over a specified time period. It can be used both as a stand-alone measure or as an input into other metrics such as 'Return over Maximum Drawdown' and the Calmar Ratio. Maximum Drawdown is expressed in percentage terms.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (-19.3 days) in the period of the last 5 years, the maximum drop from peak to valley of days of Yale U's Unconventional Portfolio is larger, thus better.
  • Compared with SPY (-19.3 days) in the period of the last 3 years, the maximum DrawDown of 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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (187 days) in the period of the last 5 years, the maximum days under water of days of Yale U's Unconventional Portfolio is lower, thus better.
  • Compared with SPY (139 days) in the period of the last 3 years, the maximum time in days below previous high water mark of days is lower, thus better.

AveDuration:

'The Average Drawdown Duration is an extension of the Maximum Drawdown. However, this metric does not explain the drawdown in dollars or percentages, rather in days, weeks, or months. 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:
  • The average days under water over 5 years of Yale U's Unconventional Portfolio is days, which is smaller, thus better compared to the benchmark SPY (41 days) in the same period.
  • Compared with SPY (35 days) in the period of the last 3 years, the average days under water of days is smaller, thus better.

Performance of Yale U's Unconventional Portfolio (YTD)

Historical returns have been extended using synthetic data.

Allocations of Yale U's Unconventional Portfolio
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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.