The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets

by Mebane T. Faber, Eric W. Richardson

Overview

Over the past twenty years, the Yale University and Harvard University endowments have achieved unprecedented investment success. Since 1985, the Yale University endowment returned 16.62% per year, easily surpassing the S&P 500 Index's 11.98% return. The Harvard University endowment returned over 15% a year—and both endowments achieved these results with significantly less volatility than the S&P 500.

Despite the general success of the top endowments, 2008 proved difficult for many buy-and-hold investors as well as the endowments. Many asset classes finished the year with declines of 30% or more.

The Ivy Portfolio shows how individual investors can mimic the stellar long-term investment track records of these top endowments while avoiding bear markets like 2008.

The Ivy Portfolio begins by examining the theory, process, and discipline behind the success of the Yale University and Harvard University endowments. It demystifies the techniques that the ivory-tower academic practitioners use to manage their portfolios and shows step by step how an individual investor can hope to duplicate their returns using an innovative ETF-based investment strategy.

The Ivy Portfolio then demonstrates a simple tactical asset approach to dampen the impact of bear markets on long-term investment results. The model would have protected an investor from the carnage of 2008, all while eliminating the uncertainty and emotions of investing.

The Ivy Portfolio also showcases a method to piggyback the stock-picking abilities of top hedge funds, allowing investors to achieve greater success by following the valuation insights of the smart money.

The Ivy Portfolio will show investors exactly how all this can be accomplished—and allow them to achieve an unparalleled level of investment success in the process.

Product Details

ISBN-13:	9780470442814
Publisher:	Wiley
Publication date:	04/01/2009
Sold by:	JOHN WILEY & SONS
Format:	eBook
Pages:	240
File size:	4 MB

About the Author

Mebane T. Faber, CAIA, CMT, is the Portfolio Manager at Cambria Investment Management where he manages equity and global tactical asset allocation portfolios and the Cambria Global Tactical ETF (GTAA). He is a frequent speaker and writer on investment strategies and authors the World Beta blog.

Eric W. Richardson, JD, is the founder and CEO of Cambria Investment Management. He serves as the co-manager of the global tactical asset allocation portfolios and the Cambria Global Tactical ETF (GTAA).

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Table of Contents

Preface ix

Acknowledgments xi

Part One Constructing Your Ivy Portfolio 1

Chapter 1 The Super Endowments 3

Endowments Are Different 4

Size Matters ... 8

... and So Does Performance 11

Active Management over Passive 14

Summary 16

Chapter 2 The Yale Endowment 17

History of the Endowment 18

David Swensen's Ascent 22

Of Alphas and Betas 30

Outlining the Yale Process 33

Domestic Equity 34

Foreign Equity 35

Fixed-Income 37

Real Assets 37

Private Equity 38

Summary 39

Chapter 3 The Harvard Endowment 41

History of the Endowment 42

The Owner's Mentality 43

Harvard's Swensen 45

More Money, More Problems 48

How Harvard Does It 50

Summary 53

Chapter 4 Building Your Own Ivy League Portfolio 55

Do as I Do-Shadowing the Super Endowments 56

Risk-Adjusted Returns 64

Do as I Say 66

Inflation Is the Enemy 68

Creating an All-Weather Policy Portfolio through Indexing 71

Implementing Your Portfolio 74

Rebalancing Your Portfolio 77

Summary 78

Part Two Alternatives 81

Chapter 5 Private Equity 83

What Is Private Equity? 84

Historical Returns and Benchmarking 85

How to Invest in Publicly Listed Private Equity 91

Summary 96

Chapter 6 Hedge Funds 97

A Brief Introduction to Hedge Funds 98

Fund of Funds 101

Options to Invest in Hedge Funds 113

Individual Hedge Funds 123

Fund of Funds 125

Practical Considerations 131

Summary 132

Part Three Active Management 133

Chapter 7 Winning by Not Losing 135

Losing Hurts 136

The Quantitative System 141

Out-of-Sample Testing and Systematic Tactical Asset Allocation 151

Extensions 158

A Rotation System 159

Practical Considerations and Taxes 160

Discipline 162

TheSystems versus the Endowments 165

Why It Works 166

Summary 169

Chapter 8 Following the Smart Money 171

Introduction to the 13F 172

Combining the Top Fund Managers to Create Your Own Fund of Funds 182

Summary 185

Chapter 9 Develop an Action Plan 187

Implementing Your Ivy Portfolio 188

Portfolios Discussed in The Ivy Portfolio 191

Appendix A A Brief Review of Momentum and Trend Following 195

Appendix B Additional Charts 199

Appendix C Recommended Reading 207

Bibliography 211

About the Authors 218

Index 219

Editorial Reviews

"The most useful recent book could be The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets, by money managers Mebane Faber and Eric Richardson, who work at Cambria Investment Management. They analyze how the endowments of Harvard and Yale posted such world-beating performance. Then they offer a simplified model that regular people can adopt." (BusinessWeek, April 9, 2009)

"Markets left investors almost no place to hide last year, with nearly every asset class heading south. Money manager Mebane Faber of Cambria Investment Management outperformed by a mile, however.... Faber is co-author of the The Ivy Portfolio, which details his approach. Following the investment tenets of the Harvard and Yale endowments (which until last year both had sterling performance) but without using their riskier alternative assets, he demonstrates how to outperform with lower volatility." (Barron's, April 27, 2009)

"Does The Ivy Portfolio deserve a spot on Dad's bookshelf? With its graphics, tables and step-by-step guidance, the book is often more straightforward than a college financial aid form." (Wall Street Journal, June 16, 2009)

"We all know that the most impressive investment returns are from endowment funds and in particular, Yale and Harvard. Faber and Richardson take us inside these two funds and show us how to replicate that model for our portfolios. The Ivy Portfolio is an easy-to-read and -understand book that will make the process of asset allocation and investment easier for readers. And in light of the recent market turmoil, its lessons are even more important."
—John Mauldin, author of the bestselling Bull's Eye Investing and the weekly newsletter Thoughts from the Frontline

"Meb Faber makes a most compelling case for quantitative active asset allocation. Investors of all levels of sophistication will benefit handsomely from the insights and analyses presented in The Ivy Portfolio."
—Rob Arnott, Chairman, and Jason Hsu, Chief Investment Officer, Research Affiliates; coauthors of The Fundamental Index: A Better Way to Invest

From the Publisher