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.'

Using this definition on our asset we see for example:
  • The total return over 5 years of Yale U's Unconventional Portfolio is 67%, which is lower, thus worse compared to the benchmark SPY (129.1%) in the same period.
  • During the last 3 years, the total return is 50.1%, which is smaller, thus worse than the value of 71.3% 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.'

Which means for our asset as example:
  • Looking at the annual performance (CAGR) of 10.8% 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 (18.1%)
  • Compared with SPY (19.7%) in the period of the last 3 years, the annual performance (CAGR) of 14.5% is lower, thus worse.

Volatility:

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Applying this definition to our asset in some examples:
  • The 30 days standard deviation over 5 years of Yale U's Unconventional Portfolio is 11.4%, which is lower, thus better compared to the benchmark SPY (18.7%) in the same period.
  • Looking at volatility in of 13.7% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (22.5%).

DownVol:

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

Which means for our asset as example:
  • Looking at the downside risk of 8.6% 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 (13.6%)
  • Compared with SPY (16.3%) in the period of the last 3 years, the downside volatility of 10.3% is smaller, thus better.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (0.83) in the period of the last 5 years, the risk / return profile (Sharpe) of 0.73 of Yale U's Unconventional Portfolio is smaller, thus worse.
  • Compared with SPY (0.76) in the period of the last 3 years, the Sharpe Ratio of 0.88 is greater, thus better.

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:
  • The ratio of annual return and downside deviation over 5 years of Yale U's Unconventional Portfolio is 0.97, which is lower, thus worse compared to the benchmark SPY (1.15) in the same period.
  • Looking at downside risk / excess return profile in of 1.16 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (1.05).

Ulcer:

'The Ulcer Index is a technical indicator that measures downside risk, in terms of both the depth and duration of price declines. The index increases in value as the price moves farther away from a recent high and falls as the price rises to new highs. The indicator is usually calculated over a 14-day period, with the Ulcer Index showing the percentage drawdown a trader can expect from the high over that period. The greater the value of the Ulcer Index, the longer it takes for a stock to get back to the former high.'

Using this definition on our asset we see for example:
  • The Ulcer Ratio over 5 years of Yale U's Unconventional Portfolio is 3.89 , which is lower, thus better compared to the benchmark SPY (5.59 ) in the same period.
  • Compared with SPY (6.38 ) in the period of the last 3 years, the Ulcer Index of 4.3 is lower, 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.'

Which means for our asset as example:
  • The maximum DrawDown over 5 years of Yale U's Unconventional Portfolio is -23.7 days, which is higher, thus better compared to the benchmark SPY (-33.7 days) in the same period.
  • During the last 3 years, the maximum DrawDown is -23.7 days, which is greater, 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'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (139 days) in the period of the last 5 years, the maximum days under water of 146 days of Yale U's Unconventional Portfolio is greater, thus worse.
  • Looking at maximum days below previous high in of 127 days in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to SPY (119 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.'

Applying this definition to our asset in some examples:
  • The average time in days below previous high water mark over 5 years of Yale U's Unconventional Portfolio is 33 days, which is larger, thus worse compared to the benchmark SPY (32 days) in the same period.
  • Looking at average time in days below previous high water mark in of 22 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (25 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.