Fun With Allocation

An article hit my email about endowment allocations that you can read (I think) here. Chances are you know something about the Yale and Harvard endowments and the success they have with allocations that are far from run of the mill.

What you may not know (or maybe, like me, never thought about) is that most of the endowments out there are much closer to "regular" portfolios. According to the article the average allocation as follows;

• Listed Equity 57%
• Fixed Income 19%
• Real Estate 3%
• Commodities 2%
• Hedge Funds 11% (ok, not very regular)
• Private Equity 3% (also not that regular)
• Cash 5%

Now compare that with the weightings (per the article) of the "Super Endowments," Harvard and Yale;

• Listed Equity 34%
• Fixed Income 11%
• Real Estate 9%
• Commodities 15%
• Hedge Funds 18%
• Private Equity 14%
• Cash -1% (negative implying a little leverage that Harvard often uses)

It would have been nice if there had been a more detailed breakdown like with listed equity, how much to foreign, or with hedge funds how much to absolute return and so on.

A recurring theme on this blog has been that it is becoming much easier for do-it-yourselfers, depending on how much time they can devote, to construct portfolios that emulate these endowments, not mimic because there is no way to track their moves in any sort of timely manner but having your own opinion about these sorts of asset classes and blending them together in a way that makes sense to you is becoming easier.

In the last few weeks there has been a rush of new products that speak to this point. The myriad of commodity ETN from iPath including coffee which I have been hoping would come for ages have changed the landscape in my opinion. Here, the point is not go out and buy tin and short platinum (to pick two things that I don't think have anything to do with each other) but that the choice has become much more abundant and again depending on how much time can be devoted, people will be able to do some very sophisticated things with commodities.

From the exchange traded strategy realm we have seen the recent listing of an ELEMENTS ETN that like some other funds executes a managed futures strategy. Barclays launched a pegged currency ETN with ticker PGD that allows for betting on whether certain pegged currencies will float freely in the future.

There is also a carbon ETN that I wrote about here for TSCM.

Now add in some of the Canadian trusts and other segments I have tried to explore here and elsewhere and hopefully you get a sense for the possibilities that exist. It is very exciting stuff.

Now that you're all pumped up I'll say, like in the Ping Iron commercials, "whoa champ."

Go a little heavier into foreign over time? Sure. Maintain a moderate commodity exposure for diversification that goes beyond just owning a broad based fund like DBC or DJP? Sounds good. Seek out a little in the way of alternative assets? Boo yeah (the Stuart Scott version).

Dissecting these sorts of portfolios is always useful and Monday's theoretical post about going new school notwithstanding I don't think it makes sense to bet on global stock markets not working. Learning more about how to enhance (whatever that means to you) your portfolio makes a lot of sense, giving up on equities does not.

There is nothing wrong with learning a little more about cocoa or sugar, go study all of it just don't go hog wild.