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A 19 basis point portfolio beats the average of most college endowments

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Re: A 19 basis point portfolio beats the average of most college endowments

#31

Post by mjfl »

skolos wrote: post #16

Anyone who looked at investing knows that you don't compare pure returns, you compare return per risk (say Sharpe ratio or some other measure). 10% return might be truly impressive if it does not involve much risk. EDIT: For people who look first at comments - the article compared some endowment funds returns with broad market returns and found that funds did not outperform the market. My argument that this is flawed…

I work in investing and take issue with the standard deviation of returns being taken as equivalent to "risk". For example there were many quant funds that had great Sharpe ratios up until 2008, after which they got completely annihilated. But I have nothing else to add. It is hard to measure risk.

Re: A 19 basis point portfolio beats the average of most college endowments

#32

Post by OscarCunningham »

skolos wrote: post #16

Anyone who looked at investing knows that you don't compare pure returns, you compare return per risk (say Sharpe ratio or some other measure). 10% return might be truly impressive if it does not involve much risk. EDIT: For people who look first at comments - the article compared some endowment funds returns with broad market returns and found that funds did not outperform the market. My argument that this is flawed…

You would think that these massive funds can afford to take on more risk than your average Vanguard investor. So they should be seeing better returns. If they truly have less risk than Vanguard then they're investing too conservatively.

Re: A 19 basis point portfolio beats the average of most college endowments

#33

Post by tosseraccount »

AstroJetson wrote: post #20

Index fund are a market basket of funds. The Index 500 fund is stock in the 500 largest companies in the US. It's intent is to give you the average across all those companies. Lets look another way. If you are a golfer, the "average" score for a golf round is called PAR. Ask the regular golfer what would they do to be able to play par rounds all the time, most would sell you a beloved grand parent. The index funds ar…

"Index fund are a market of basket funds". Index funds are a basket of securities designed to mimic a benchmark.

Re: A 19 basis point portfolio beats the average of most college endowments

#34

Post by _acme »

thanksgiving wrote: post #28
ikeboy wrote: post #18

Earlier quoted context omitted.

It gave a handwavy argument that risk for the endowments was higher, but no numbers.

The university with the highest total endowment suffered along with the market. It would be an obvious statement to say that Harvard suffered along with the rest of the market. Of course, they did better than the biggest losers. One could always say they could have done worse and put all their money in Citi. I have to admit that I have no clue whether the endowment funds did better or worse than an index fund trackin…

This NY Times article is from 2008. How is it relevant to the post or your comment now, in 2016?

Re: A 19 basis point portfolio beats the average of most college endowments

#35

Post by hackeranswer »

AstroJetson wrote: post #20

Index fund are a market basket of funds. The Index 500 fund is stock in the 500 largest companies in the US. It's intent is to give you the average across all those companies. Lets look another way. If you are a golfer, the "average" score for a golf round is called PAR. Ask the regular golfer what would they do to be able to play par rounds all the time, most would sell you a beloved grand parent. The index funds ar…

stupid question, but when it lists 5 year return at 10.7%, does that mean it returned on average 10 % per year for 5 years? So if someone started with 100k, they would now have about 160,000?

Re: A 19 basis point portfolio beats the average of most college endowments

#36

Post by skolos »

mjfl wrote: post #31
skolos wrote: post #16

Anyone who looked at investing knows that you don't compare pure returns, you compare return per risk (say Sharpe ratio or some other measure). 10% return might be truly impressive if it does not involve much risk. EDIT: For people who look first at comments - the article compared some endowment funds returns with broad market returns and found that funds did not outperform the market. My argument that this is flawed…

I work in investing and take issue with the standard deviation of returns being taken as equivalent to "risk". For example there were many quant funds that had great Sharpe ratios up until 2008, after which they got completely annihilated. But I have nothing else to add. It is hard to measure risk.

I agree that standard deviation might not be the best measure of risk. That's why there are many other measures exist that try to address issues. But you cannot compare returns without looking at risk.

Comparing fund performance is a tricky business and often you can cherry pick methodology easily to support any conclusion you desire.

Re: A 19 basis point portfolio beats the average of most college endowments

#38

Post by ucha »

JumpCrisscross wrote: post #2

Be wary of reading this as "if endowments fired their managers and invested in Vamguard funds, they'd on average boost their returns". Perhaps true of the smaller, consistently-underperforming ones. But at the endowment side, a lot of planning goes into avoiding your size being felt by the markets.

Non sequitur. The point of active investment isn't to avoid having a market impact but to selectively pick over-performing assets. For example, assets indexed on the S&P 500 represent 2.2 trillions dollar; it's very easy to buy execution services to have limited market impact even if your position is in the tens of billions.

Re: A 19 basis point portfolio beats the average of most college endowments

#39

Post by nickff »

skolos wrote: post #16

Anyone who looked at investing knows that you don't compare pure returns, you compare return per risk (say Sharpe ratio or some other measure). 10% return might be truly impressive if it does not involve much risk. EDIT: For people who look first at comments - the article compared some endowment funds returns with broad market returns and found that funds did not outperform the market. My argument that this is flawed…

How do you respond to the Fama and French paper on luck versus skill in mutual fund performance? They showed that on average, active managers hold a market portfolio, and since they take a cut, ETF portfolios make more money; there was no evidence of skilled managers getting better returns for the investor. Do you believe that institutional managers are better than mutual fund managers?

Re: A 19 basis point portfolio beats the average of most college endowments

#40

Post by zrail »

Blindly shoving all your money into Vanguard ETFs is a strategy that works well for almost every individual who's retirement period maxes out at 70 years (for the MMM types).

An endowment is a fund of money designed to sustain operations of it's benefactor forever. Not 10 years. Not 50 years. Literally forever. When you're operating on an indefinite timescale your idea of "risk" changes considerably.

Take a look at the Harvard Endowment report[1], specifically the table on page 2. They are incredibly well diversified, across domestic and international public equities, as well as private equity, commodities, fixed income securities (bonds, etc), real estate, and a category they call "absolute return", which is where they've placed money into external hedge funds. If the US economy tanks, they'll be fine. If Europe falls apart, they'll be fine. A bunch of start up unicorns fail in Silicon Valley? Fine.

My point is that the article completely misses the goals of an endowment. They don't particularly care about matching or beating an index, nor do they care about risk (as measured by volatility). They care about wipe out risk, on the scale of centuries.

[1]: http://www.hmc.harvard.edu/docs/Final_Annual_Report_2014.pdf

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