Our Strategy2019-05-23T13:03:45-04:00

Our Strategy

The Endowment Model Portfolio Strategy

To increase the total portfolio return expectations, the Endowment Model minimizes bond holdings with low return expectations and unfavorable interest rates and inflation exposure. Holdings can include:

  • Both domestic and foreign developed market equities;
  • Emerging market equities;
  • Real assets such as real estate, commodities, energy related holdings, private equity (holdings in private companies that do not trade on the public markets);
  • Absolute return investments such as managed futures and hedge funds that seek to earn returns less correlated to the stock market; and
  • Other low correlation assets such as debt instruments with yields linked to interest rates

During implementation, specific decisions and tactics are often determined by unique opportunities, structures and relationships.

Endowment Performance

College endowments such as Yale, Harvard and Stanford enjoyed excellent investment success from July 1998 – June 2018.

In contrast, a large percentage of traditional investment strategies using only U.S. stocks and bonds produced smaller gains.

Wildermuth Advisory Atlanta Endowment Model Overview Portfolio Returns graph through June 2018

Key Endowment Model Strategy Goal: Increase portfolio performance while lowering portfolio volatility.

Key Portfolio Changes

Diversify performance assets (assets expected to provide strong, long-term returns) away from solely U.S. stocks into low (or lower) correlation3 performance-oriented assets such as:

  • Foreign-developed market stocks
  • Emerging market stocks
  • Real assets such as real estate, commodities, and energy related holdings
  • Private equity (holdings in private companies that do not trade on the public markets)
  • Absolute return investments such as managed futures and hedge funds that seek to earn returns less correlated to the stock market
  • 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:

  • Reduce traditional bond holdings
  • Diversify remaining holdings internationally in an attempt to increase yield, raise total return, provide currency diversification, and lower inflation risk

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

1The Yale Endowment Report for years 1996-2015, Harvard University Financial Report for years 1996-2015, The Stanford Management Company Report for years 1996-2015, press releases for Yale and Harvard for June 30, 2015 data. (Endowments measure returns from July 1st through June 30.)

2U.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.

3Correlation is a statistical measure of how two securities move in relation to each other.

Hypothetical Portfolio Design

Traditional Investor Portfolio:

60% US Stock, 40% US Bond

Traditional 60% stock and 40% bond portfolio commonly employed by many investors and money managers.

Wildermuth Advisory Atlanta Hypothetical Portfolio Design US stocks bonds

Performance Assets Diversified,  40% Diversified Bonds Retained:

Seeks to Reduce Volatility While Improving Portfolio Performance

This portfolio seeks to improve performance through diversifying performance-oriented assets and fixed income positions. Total bond holdings are left at the same level.

Wildermuth Advisory Atlanta Diversified Bonds

A Portfolio More Aligned with an Endowment: Seeks to Improve Performance While Lowering Volatility

The portfolio seeks to emulate the general investment strategy widely employed by leading endowments and institutions. Diversified, performance-oriented assets comprise a much greater percentage of the portfolio.

Wildermuth Advisory Atlanta Endowment Portfolio

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

Potential Risks: Alternative investments may be illiquid and require a larger minimum investment, making them not suitable for all investors. Investments in foreign markets entail specific risks such as currency, political, economic, and market risks. As always, all investments can create adverse tax consequences and all investments bear the risk of loss.

Customizing: Your needs, resources, risk tolerance, and experience will differ from Endowments and Institutions. For this reason, it’s critical for investors and money managers alike to construct and manage portfolios designed to serve a specific individual’s financial situation.

Disclosure: The opinions in the preceding commentary are as of the date of publication and are subject to change. Information has been obtained from third-party sources we consider reliable, but we do not guarantee that the facts cited are accurate or complete. This material is not intended to be relied upon as a forecast or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. We may execute transactions in securities that may not be consistent with the report’s conclusions. Investors should consult their financial advisor on the strategy best for them. Past performance is not a guarantee of future results. Diversification and asset allocation do not assure or guarantee better performance and cannot eliminate the risk of investment loss. You should not invest in a security or investment strategy that you do not understand.