Broker Check

 (866) 885-3248

Endowment Model

The Endowment Model Portfolio Strategy

College endowments such as Yale, Harvard, and Stanford enjoyed excellent investment success from 2000 – 2012. In contrast, a large percentage of traditional investment strategies using only U.S. Stocks and Bonds produced little or no gain.

Key Portfolio Changes

Diversify performance assets (assets expected to provide strong, long-term returns) away from solely U.S. stocks into low (or lower) correlation* performance oriented assets such as:

  1. Foreign developed market stocks
  2. Emerging market stocks
  3. Real assets such as real estate, commodities, and energy related holdings
  4. Private equity (holdings in private companies that do not trade on the public markets)
  5. Absolute return investments such as managed futures and hedge funds that seek to earn returns less correlated to the stock market
  6. Other low correlation assets such as debt instruments with yields linked to interest rates

Minimize bond holdings with low return expectations and unfavorable inflation exposure.

  1. Reduce traditional bond holdings
  2. Diversify remaining holdings internationally in an attempt to increase yield, raise total return, reduce currency risk, and lower inflation risk

Incorporate assets with limited liquidity that may provide higher performance and lower volatility for a given level of risk.

* Investing in alternatives and international equities, including emerging markets, may not be suitable for all investors.

  1. The Yale Endowment Report for years 2000-2012, Harvard University Financial Report for years 2000-2012, The Stanford Management Company Report for years 2000-2012. (Note: Endowments measure returns from July 1st through June 30.)
  2. U.S. stocks refer to the S&P500. All data used was supplied directly by Standard and Poor. Bonds returns are calculated from the Barclays Capital U.S. Aggregate Bond Index, and all bond data was supplied by Barclays Capital.

Hypothetical Portfolio Designs

Potential Improvements: Including low (or lower) correlated performance assets can decrease portfolio volatility, improve performance potential, and provide more inflation protection. The bond portfolio can be diversified lessening exposure to low U.S. rates.

Potential Risks: Alternative investments may be illiquid, are not suitable for all investors, and may require larger minimum investment. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. All investments can create adverse tax consequences.

Customizing: Your needs, resources, risk tolerance, and experience will differ from Endowments and Institutions. You must construct and manage your portfolio to serve your specific situation.

Disclosure: These are material differences between the terms under which endowments and individuals can invest in alternative investments. These differences include, but are not limited to commissions and fees, conflicts of interest, access to investment opportunities, size, investment time horizons, and the ability to tolerate illiquidity. There is no standard or exact definition of the endowment model. Portfolio design, specific investments and ultimately performance vary considerably among endowment, institution, or other investor. Kalos’ Investment Adviser Representatives have a conflict of interest when they recommend securities where they earn a commission as Registered Representatives of Kalos Capital. We address this conflict by disclosing the fees and commissions related to the investments recommended to our clients. Also, Kalos representatives do not earn both advisory fees and brokerage commissions on the same assets.