Yale ETF Portfolio: If It’s Good Enough For Yale…
The portfolio manager of Yale University’s endowment fund, David Swensen, recently published a book called Unconventional Success. This is notable because in it he discusses what individual investors should do to ensure that their investments perform well. His thoughts are worth considering given that the fund he manages has returned 16.1% annually over the past two decades since the endowment became his responsibility.
In a less than surprising revelation, Swensen comments that professional money managers such as him have huge advantages that aren’t available to the over the 95 million small investors that participate in the stock markets. From this assertion, Swensen concludes that Main Street investors simply can’t compete in the market against actively managed funds because they’re forced to play by other people’s rules. Instead, Swanson recommends individual investors avoid actively managed funds entirely.
Swensen’s original purpose in writing the write a book was to share with investors the tactics he used to make a lot of money for Yale University. Instead, he discovered that his returns can’t be matched by being a shareholder of actively managed funds.
Here’s Swanson’s recommended portfolio for individual investors. The last column is what I consider the equivalent ETF for the fund that Swanson suggests.
|Sector||% of Fund||Fund||ETF Equivalent|
|Total Market Index||30%||VTSMX||IYY or ISI|
|Total International Stock Index Fund||20%||VGTSX||EFA|
|REIT index||20%||VGSIX||ICF or IYR|
|U.S. Treasury Bond Index||15%||VFISX||SHY, IEF, or TLT|
|TIPS Bond Index||15%||VIPSX||TIPS|