Standard 60-40 portfolio outperformed every single Ivy League Endowment fund in the past decade
''The performance of Ivy League endowments has trailed a passive portfolio of 60 percent U.S. stocks and 40 percent bonds over the past ten years — and has been more volatile to boot, according to a new report from research and analytics provider Markov Processes International.
MPI says this is the first time in the 16 years that it has been collecting data on all the Ivies that Yale, Harvard and the other elite colleges have lagged the indexed portfolio when looked at over a decade. The firm looked at performance, gross of fees, for the period between July 1, 2008 and June 30, 2018. ''
So, what went wrong here?
I would think the heart of that answer lies within the timeframe analyzed.
Or, in other words, that asset prices increased?
Bruh you do realize that during '08 - '18, passive portfolios dramatically outperformed actives ones (on average at least).
Most standard portfolios have a higher rate of return than high grade portfolios. Same goes for women.
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Same here, bonus pool is down 10% YoY and it was down about the same last year. And we are way outperforming our benchmarks. Clients wants lower fees as well and we got rid of some of our equity products because they were a cash drag.
I stopped studying for the CFAs and will probably just work for a big tech company once I vest. I am just glad I have an easier out than most because I have a tech background.
Did you get to the last paragraph of the article:
“The endowment returns were measured against a U.S. portfolio, which has generated extraordinary returns over the past ten years. Though this is the standard benchmark for all endowments, according to the report, investors that had any international holdings would have lagged a U.S-.only portfolio over the past decade.”
The interesting thing out of all of this, it can be used as an argument in favour and against diversification at the same time.
You’re not obligated to do anything. However, it would be weird to not include non US equities in a comparison of how an equity portfolio should perform when they’re probably half of the global market value. The S&P 500 is not synonymous with the ‘stock market’. That’s where this analysis leaves a lot to be desired.
Some good responses from DickFuld and others above. I'd like to add that one should probably consider that the investment objectives and risk appetite for a massive university endowment is likely very different from the sort of retail investor that pursues a 60/40 stock/bond split.
Remember that current income is important for an endowment. The annual cash flows generated by the endowment must remain consistent to fund the sorts of annual expenses that endowments support (scholarships, expansion efforts, etc.)
Furthermore, preservation of capital is therefore likely a prominent objective in a foundation investor's mind. Their whole purpose is to grow the nest egg if possible, but at all costs to preserve it so that its income can continue to support various initiatives. If it is necessary to forgo some return in exchange for higher certainty that they will not gamble away the endowment, I imagine many portfolio managers would gladly take that risk.
Endowments are largely grown through donations and fundraising campaigns - not by placing risky bets on a historical bull market that directly followed a historical crash.
Now, it's fair to say that according to the article, endowments are apparently more volatile than a 60/40 strategy, and that this doesn't square with the objective of capital preservation. I would reply that using the volatility of a liquid 60/40 strategy is likely unfair/meaningless in this context when one considers that investors as large as endowments must diversify into more esoteric/illiquid/volatile investments as a matter of necessity, since they aren't a small investor whose actions fail to move markets.
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