Thursday, August 13, 2009

Replicating The Asset Allocation Of The Ivy League

by Aussie 0 comments

I'm a big fan of the returns the big Ivy League endowment funds have been able to produce over the years. Yale has been able to produce a compound return of almost 16% over a 20 year period. Harvard produced a compound return of just over 14% over the same time frame. So it is with interest that I study the asset allocation of these funds each year.

However, as a small investor, I've always felt that I was unable to replicate the asset allocation of these endowment funds. They have been reducing these exposure to listed equity investments in recent years thereby making more difficult for an investor like myself to approximate what their investment portfolio contains.

But just recently, I read an article on the Kiplinger website (The Ivy Endowment-Fund Portfolio) where a simple portfolio is put forward which aims to copy the diversification and risk management techniques employed by the ivy league schools. The best part is that because the portfolio is composed of 10 exchange traded funds, the average investor like myself is able to buy these ETF's directly on the stock market.

The diversification achieved and low cost of using ETF's in an investment portfolio have been discussed at length many times the world over so I wont go into the arguments again here. Suffice to say that I'll be taking a closer look at the asset allocation recommended in the article to see whether it's worth incorporating some of the investment ideas into my own portfolio.

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