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7% Annualized Returns (8/15)

August 10, 2015 By dkreinces

Over the past decade, the average annual return for colleges was 7%, slightly behind the investable benchmark portfolios over the same period.

The investable benchmarks provide strategic sample portfolios, comprised of leading ETFs from Vanguard and iShares, in a separate account structure.

Richly Endowed

Erin Arvedlund, 7/21/15

Swarthmore College ranks among the nation’s wealthiest liberal-arts colleges, overseeing a $1.9 billion endowment – an average of more than $1 million for each of its 1,577 students.

Swarthmore’s endowment prospered in its most recent fiscal year, with publicly traded stocks constituting almost half its portfolio. Riding a booming market, Swarthmore has generated a 17.8 percent gain last year and an average annual gain of 14 percent over the last five years.

Much of the credit goes to Mark Amstutz, chief investment officer at Swarthmore, an historically Quaker school situated on a garden-like campus west of Center City. His use of an asset class known as “private equity” – investing in private, or non-traded, companies – has helped fuel returns.

“My view on private equity is it is equity [stocks] on steroids,” Amstutz told Bloomberg News, which published the latest endowment figures. “You don’t want to own anything private unless you get a higher return.”

So, what’s in Swarthmore’s portfolios?

According to a recent breakdown: “marketable alternatives,” which in Wall Street lingo refers to alternative investments such as hedge funds ($243 million); private equity funds ($316 million); “real” assets, such as real estate and commodities ($146 million); fixed income ($38.25 million); and public equity, or common stocks ($164 million).

How would ordinary investors mimic Swarthmore’s investment style? They can’t, says Chuck Widger, founder of Brinker Capital, who has sat on Gettysburg College’s endowment board.

One firm has tried to create an endowment-like fund based on a book titled Unconventional Success, by Yale University endowment manager David Swensen.

This exchange-traded fund, or ETF, aims for returns similar to the investment portfolios of Yale, a model made famous by Swensen, but using publicly traded companies and funds. Set up by ETF Portfolio Management in Thousand Oaks, Calif., this exchange-traded fund invests in public real estate investment trusts and U.S. and global stocks to try to mimic Yale’s portfolio.

Launched in 2012, the Yale-model ETF in 2014 gained 9 percent, versus 13.5 percent for the S&P 500. In 2013 the ETF was up 10 percent versus 32 percent for the S&P.

“Swensen counsels against retail investors using the non-traditional asset classes because retail investors lack the resources and expertise to evaluate and manage them,” Widger says.

Swarthmore’s endowment also did well long term, with 10-year returns of 8.8 percent annually. That places it in the company of top-performing endowments at Yale, the University of Pennsylvania, Princeton, and Harvard.

Ten-year returns averaged 7.1 percent for colleges nationally, according to last year’s data for 832 U.S. colleges and universities from the NACUBO-Commonfund Study of Endowments for the 2014 fiscal year (July 1, 2013-June 30, 2014).

Click here for the full article.

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Category iconAll News,  Blog,  Investable Benchmarks,  Media Tag iconDavid Swensen,  endowment fund,  ETF,  exchange-traded fund,  Financial Adviser,  investable benchmarks,  passive investing

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