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.'

Which means for our asset as example:
  • Compared with the benchmark SPY (66.9%) in the period of the last 5 years, the total return of % of Yale U's Unconventional Portfolio is lower, thus worse.
  • During the last 3 years, the total return, or performance is %, which is smaller, thus worse than the value of 50.6% 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.'

Using this definition on our asset we see for example:
  • The annual return (CAGR) over 5 years of Yale U's Unconventional Portfolio is %, which is lower, thus worse compared to the benchmark SPY (10.8%) in the same period.
  • Looking at compounded annual growth rate (CAGR) in of % in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (14.7%).

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:
  • The volatility over 5 years of Yale U's Unconventional Portfolio is %, which is lower, thus better compared to the benchmark SPY (13.5%) in the same period.
  • Compared with SPY (12.8%) in the period of the last 3 years, the historical 30 days volatility of % is lower, thus better.

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.'

Using this definition on our asset we see for example:
  • Looking at the downside risk of % in the last 5 years of Yale U's Unconventional Portfolio, we see it is relatively smaller, thus better in comparison to the benchmark SPY (14.8%)
  • Looking at downside risk in of % in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (14.7%).

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (0.61) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of of Yale U's Unconventional Portfolio is smaller, thus worse.
  • Compared with SPY (0.95) in the period of the last 3 years, the risk / return profile (Sharpe) of is lower, thus worse.

Sortino:

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

Which means for our asset as example:
  • The excess return divided by the downside deviation over 5 years of Yale U's Unconventional Portfolio is , which is smaller, thus worse compared to the benchmark SPY (0.56) in the same period.
  • During the last 3 years, the downside risk / excess return profile is , which is lower, thus worse than the value of 0.83 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.'

Which means for our asset as example:
  • Looking at the Ulcer Index 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 (3.99 )
  • Compared with SPY (4.1 ) in the period of the last 3 years, the Ulcer Ratio of is lower, thus better.

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.'

Applying this definition to our asset in some examples:
  • Looking at the maximum DrawDown of 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 (-19.3 days)
  • During the last 3 years, the maximum DrawDown is days, which is larger, thus better than the value of -19.3 days from the benchmark.

MaxDuration:

'The Maximum 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. It is the length of time the account was in the Max Drawdown. A Max Drawdown measures a retrenchment from when an equity curve reaches a new high. It’s the maximum an account lost during that retrenchment. This method is applied because a valley can’t be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the bottom of the largest trough is recorded.'

Which means for our asset as example:
  • The maximum days under water over 5 years of Yale U's Unconventional Portfolio is days, which is lower, thus better compared to the benchmark SPY (187 days) in the same period.
  • During the last 3 years, the maximum time in days below previous high water mark is days, which is smaller, thus better than the value of 139 days from the benchmark.

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 lower, thus better compared to the benchmark SPY (42 days) in the same period.
  • Compared with SPY (36 days) in the period of the last 3 years, the average days below previous high 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 (%)

  • 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.