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, when measuring performance, is the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time. Total return accounts for two categories of return: income including interest paid by fixed-income investments, distributions or dividends and capital appreciation, representing the change in the market price of an asset.'

Applying this definition to our asset in some examples:
  • The total return, or increase in value over 5 years of Yale U's Unconventional Portfolio is 33%, which is lower, thus worse compared to the benchmark SPY (75.6%) in the same period.
  • Looking at total return, or increase in value in of 16.7% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (40%).

CAGR:

'The compound annual growth rate isn't a true return rate, but rather a representational figure. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. In reality, this sort of performance is unlikely. However, CAGR can be used to smooth returns so that they may be more easily understood when compared to alternative investments.'

Using this definition on our asset we see for example:
  • The annual performance (CAGR) over 5 years of Yale U's Unconventional Portfolio is 5.9%, which is lower, thus worse compared to the benchmark SPY (11.9%) in the same period.
  • Looking at annual performance (CAGR) in of 5.3% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (11.9%).

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.'

Using this definition on our asset we see for example:
  • The historical 30 days volatility over 5 years of Yale U's Unconventional Portfolio is 12.5%, which is lower, thus better compared to the benchmark SPY (20.3%) in the same period.
  • During the last 3 years, the 30 days standard deviation is 14.7%, which is lower, thus better than the value of 23.6% from the benchmark.

DownVol:

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

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (14.9%) in the period of the last 5 years, the downside risk of 9.5% of Yale U's Unconventional Portfolio is lower, thus better.
  • Compared with SPY (17.3%) in the period of the last 3 years, the downside deviation of 11.3% is lower, 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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (0.46) in the period of the last 5 years, the Sharpe Ratio of 0.27 of Yale U's Unconventional Portfolio is smaller, thus worse.
  • Compared with SPY (0.4) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 0.19 is lower, thus worse.

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.'

Applying this definition to our asset in some examples:
  • The downside risk / excess return profile over 5 years of Yale U's Unconventional Portfolio is 0.36, which is smaller, thus worse compared to the benchmark SPY (0.63) in the same period.
  • Looking at downside risk / excess return profile in of 0.25 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (0.54).

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:
  • The Ulcer Index over 5 years of Yale U's Unconventional Portfolio is 5.11 , which is lower, thus better compared to the benchmark SPY (6.62 ) in the same period.
  • Compared with SPY (7.55 ) in the period of the last 3 years, the Ulcer Ratio of 6.01 is smaller, thus better.

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.'

Using this definition on our asset we see for example:
  • Looking at the maximum drop from peak to valley 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)
  • Looking at maximum reduction from previous high in of -23.7 days in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (-33.7 days).

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:
  • The maximum days under water over 5 years of Yale U's Unconventional Portfolio is 146 days, which is greater, thus worse compared to the benchmark SPY (139 days) in the same period.
  • Compared with SPY (120 days) in the period of the last 3 years, the maximum days below previous high of 128 days is higher, thus worse.

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.'

Using this definition on our asset we see for example:
  • Looking at the average days below previous high of 39 days in the last 5 years of Yale U's Unconventional Portfolio, we see it is relatively greater, thus worse in comparison to the benchmark SPY (37 days)
  • Looking at average time in days below previous high water mark in of 32 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (31 days).

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations ()

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.