Research Roundtable Publication
Updated with new performance comparisons as of June 30th, 2021
Should we maintain a steady course or should we change?
This is a question often asked in both life and investing.
Investors should consider new thoughts and ideas. Changes can add complexity, though, which prompts this follow-up question.
Are they worth it?
We have written about this before in pieces we titled What Needs to Change? and Should We Be Tactical?
In both posts, we summarized research that showed that many of the calls for investment change and added portfolio complexity have failed to deliver on their promises of increased diversification and increased returns.
At the end of each paper is a link to a comparative analysis we have updated each year. It highlights how a simple portfolio of index funds has performed as compared to top performing endowments over multiple, rolling 10-year periods.
In keeping with our annual tradition, below are updates based on the latest performance rankings of top endowments from the National Association of College and University Business Officers (NACUBO) as of the most recent fiscal year-end, June 30, 2021.
The charts continue to illustrate that an investor who kept it simple and only allocated to a globally diversified 75% equity and 25% bond mix of index funds has been a consistent top performer. The simple portfolio model matches the most recent approximate long-term allocations of endowments and follows a process that only rebalances back to targets once a year on January 1st.
Allocations of top endowments drift over time but, as before, the evidence continues to show that simple alternatives have been top quartile performers, outperforming 75% of all endowments in the U.S. over 12 consecutive rolling 10-year periods that span the bursting of the internet bubble, the great financial crisis, and now the market drop during COVID.
In posting these rankings, we are not suggesting that simple index portfolios are the correct solution for everyone or that the more complex alternative oriented portfolios many endowments hold are inappropriate. Every investor has different goals and some alternative approaches have added value.
We are just continuing to be candid that the odds aren’t that great when it comes to adding value through the implementation of complex strategies.
Warren Buffett once said this:
“Investing is simple, but not easy.”
Understanding how hard it is to keep it simple and resist calls for change, we turn Buffett’s quote around a little…
It is not easy to be simple.
Life can be complex and the best path forward can require hard work, but how about this…
Rather than hard work translating into more complex solutions, maybe we should work harder on being simple.
Perspectives of a Trillion Dollar Allocator – Our Talk with Richard Ennis – Charlie Henneman, CFA and Preston McSwain
Are Selectors Good At Selecting? – Elisabetta Basilico, PhD, CFA
How to Actively Add Value – Joachim Klement, CFA
NACUBO Endowment Rankings – The National Association of College and University Business Officers
Return Data Sources: NACUBO-Commonfund Study of Endowments and Foundations (NCSE), Morningstar and MPI Software
Past performance does not guarantee or indicate future results.
All data and return calculations are from third party sources. Fiduciary Wealth Partners, LLC does not guarantee the accuracy of any data in this presentation and does not take responsibility for reliance on it. All data and opinions are subject to change at any time.
The returns of the 75/25 Global Balanced Portfolio (GBP) are based on the historical results of actual Vanguard index funds, but represent hypothetical returns of the GBP portfolio re-balanced back to the allocations illustrated above once a year on January 1st. GBP returns would be lower if outside investment advisory fees were applied and would change depending on how the funds were implemented and re-balanced. Actual returns might differ and the future returns of the GBP may be higher or lower.
According to NACUBO, the approximate allocations of endowment have been trending higher over the last 5-10 years. The allocations used for the 75/25 portfolio represent lower allocations to equities than the recently reported allocations according to NACUBO. NACUBO reported allocations close to 70% equities and 30% bonds prior to approximately 2015. For more information on historical allocation targets, please click here to reference the complete details from NACUBO.
GBP returns assume reinvestment of all distributions at NAV & deduction of fund expenses. 10-year returns are annualized.
This complete document is for informational purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other instruments mentioned in it.