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
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  1. 10-2017 If Swensen uses Van Guard mutual funds, perhaps he should subcontract the endowment fund investing to the quants/wonks at Van Guard, Fidelity Magellan or Charles Schwab or to the person who handles investing for Bill Gates at Cascade Investments in Washington state.

  2. Dave Swenson's Yale's portfolio dropped $5bn from $21bn to $16bn in 2008.

    He didn't see it coming. He was hired to do so.

    • Swenson does not navigate bull markets & bear markets, but rather navigates through all climates by limiting his correlation [statistical] to the stock market.
      21Bn to 16Bn is about a 25% drop, versus a 50% drop in the S&P 500. Thus, while he did experience some mild affects from a tremendously huge bear market, his overall portfolio appears to fair against all obstacles in style, especially considering the magnitude of the Bear market.

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