Tue. Oct 19th, 2021

An earlier version of this article misspelled the last name of former Yale CEO David Swensen. It has been fixed.

The 1990s were a great time: peaceful, hopeful, with an expanding economy, innovative technology, and vibrant music.

That’s not to say there were no problems, and in retrospect, the leaders of that time today, President Bill Clinton and British Prime Minister Tony Blair, have lost their brilliance. And perhaps the ideal portfolio construction of that era also needs to be updated.

The recent death of Yale portfolio manager David Swensen has put the spotlight on the university’s pound sterling portfolio, which rose from $ 1 billion when it began in 1985 to $ 31 billion last year. . And it was as far from the conventional 60% and 40% equity model as anything else. Last year it spent only 2% on national equities and 14% on cash and fixed income. The rest comes largely from private markets, with 23% for venture capital, 22% for the so-called absolute return asset class and 16% for leverage purchases.

Yale’s allocation to traditional stocks and bonds has fallen over the years.

It is true that other universities that tried to replicate the Swensen model were less successful. Institutional Investor magazine at one point wondered if Swensen was great for Yale and “horrible to invest.” Yale not only has the scale to limit commissions (often exorbitant for alternative assets), but Swensen had the ability to choose large managers.

But perhaps retail investors can be more successful at doubling Yale’s performance than imagined. William Heathcoat Armory, co-founding partner of the British investment research firm Kepler Partners, found that so-called investment trusts (closed-end funds, in US language) were reasonably close, over two decades, to match Yale’s returns on different assets. classes, apart from venture capital.

Asked by email, he had no specific fund recommendations for US investors, but what he said about private equity applies. For US investors, there are publicly traded funds, such as the Invesco Global Listed Private Equity PSP ETF,
-0.49%,
Private equity ETF listed on ProShares, PEX,
-0.18%
and Morgan Creek – ETX SPXZ originated in Exos SPAC,
+ 0.07%,
as well as the businesses of the private equity managers themselves, such as Blackstone BX,
-1.19%
and KKR & Co. KKR,
+ 0.32%

“We believe that most traditional investment portfolios have only superficial exposure to these areas, and therefore most investors trying to switch to a Yale model could start by replacing conventional equity exposure (e.g. that is, from the public market) [listed private equity] trusts, “he said.” In the short term, the portfolio-level effect is unlikely to be significant – for better or for worse – but over private equity value creation should be added considerably to portfolio returns “.

Forecast of the first places of the work report

The United States created 943,000 new jobs stronger than expected in July, as the unemployment rate fell by half a point to 5.4%.

“It will really solidify the view that the Fed is not far from warning of a reduced announcement in advance,” said James McCann, chief economist at Aberdeen Standard Investments.

US stock futures ES00,
+ 0.13%

NQ00,
-0.53%
it didn’t take long after the numbers. The performance of the Treasury TMUBMUSD10Y at 10 years,
1,294%
rose to 1.27%.

In the business field, Novavax NVAX,
-19.41%
fell 10% in pre-market trade as it pushed the date to submit U.S. approval of its coronavirus vaccine in the fourth quarter, the second time it changed its timeline, and also recorded a larger-than-expected loss.

Zynga ZNGA,
-18.07%
shares fell 15% after the video game maker’s soft outlook.

United Airlines UAL,
+ 0.58%
became the first major U.S. carrier to require vaccination of its workers.

The Congressional Budget Office said the infrastructure bill being debated in Congress would add $ 256 billion to the deficit over the next decade.

The graph

Here’s a path to 6,000 for the S&P 500 SPX,
+ 0.17%.
Jim Paulsen of Leuthold Group says that historically, a real GDP growth rate of 3.5% has been associated with an annual growth of 8.2% in profit. Carry on this GDP growth rate over the next four years (which is not an extravagant proposition) and the S&P 500 earnings per share would exceed $ 300, if the correlation between profits and GDP were maintained. Over the past 30 years, the final P / E multiple has been 20.2. A level of 6,000 by the end of 2025 would represent a total return of approximately 10% between 2022 and 2025, given the current dividend yield of 1.3%.

“Maybe this analysis will turn out to be too polyethylene,” Paulsen says. “As many expect, it would not be surprising that today’s high valuations will result in poor buying and retention returns in the coming years. But if the “fundamentals of EPS” continue to exceed consensus expectations, perhaps the stock market will produce surprisingly rewarding long-term results, ”he says.

Random readings

Astronomers have found evidence of a planet that could support life.

Closer to home, the rocks of Stonehenge are nearly 2 billion years old.

Here’s a € 200 review of fries – they turn out to be pretty good.

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