Harvard Endowment: Yale Endowment:
12% Domestic 12% Domestic
19% Foreign 15% Foreign
31% Real Assets 27% Real Assets
- Commodities - Real Estate
- Inflation-Indexed Bonds - Oil Gas
- Real Estate - Timberland
17% Absolute Return 25% Absolute Return
13% Private Equity 17% Private Equity
13% Fixed Income 4% Fixed Income

Total = 105% Total = 100%

Smartmoney Magazine, September Edition:
20% TMW - similar to VTI - Wilshire 5000 total market index
15% PRMSX - T Rowe Price Emerging Markets Stock
10% EFA - IShares EAFE Index
5% LSBRX - Loomis Sayles Bond
10% GAGEX - Guinness Atkinson Global Energy
3% XME - SPDR SP Metals and Mining
15% HSGFX - Hussman Strategic Growth
2% PCL - Plum Creek Timber Co. Inc.
10% EUEYX - Alpine US. Real Estate Equity
10% PSP - PowerShares Listed Private Equity

Source: Smartmoney Magazine

I wonder what changes we should make this year to get above-average returns. One of my guesses is to lean towards natural gas in energy stocks, to buy retail, financials, consumer staples, and gadgets in the tech sector. I'm really interested in financials and retail at least by April of 2008 or sooner. This portfolio and the following portfolios is taking a look at theory and trying to see why Harvard may have succeeded in obtaining above-average returns; it is by no means, a portfolio that I normally would invest in unless someone could convince me that maybe I should. I think I would hold off on homebuilders until the 2nd half of 2008 but am interested in Chinese real estate for the early part of 2008. I like RIMM but would buy puts on VMW during 2008. Any ideas or suggestions? I think tech has a lot more to room. I think the next expansion will be biotech in nature.

China has begun it's bear market having dropped approximately 18%. I think this will continue. FXP is the ultra-short China option. With it, I would buy TAO (China Real Estate). I would also be interested in (to have a basket), RWX, RAP, FFR, WPS, DRW, and VNQ. I think the spread between real estate and the Chinese market could be a nice return.

Source: Poster OldMoney

Possible Suggested Portfolio (for an investor in his/her 20s and a 9 or 10 for risk tolerance); it's probably not suitable for an investor over age 30. All expense ratios listed are estimates only. I usually would limit real estate to only 20% despite on how much it declined in value; the portfolio of 31% is far in excess of a normal risk position, thus HUGE LOSSES AND SUBSTANTIAL RISK APPLY. I DON'T ENDORSE OR UTILIZE THIS STRATEGY.

In fact, this is not a portfolio that I normally would suggest an individual taking on; it is solely for those who can accept a very high level of risk. It is solely to discuss the Harvard Endowment and doesn't signal my typical investing pattern. The only thing that I'm trying to do is think maybe what the Harvard or Yale or an Ivy-League Endowment might invest in this year. It probably will NOT be similar to any Ivy-League Endowment, but it uses last year's endowment as a starting point. The strategy may lead to HUGE LOSSES AND SUBSTANTIAL RISK AND THUS I DON'T ENDORSE OR UTILIZE THE STRATEGY.

Normally, I suggest someone to limit their commodities exposure to 5% of their portfolio (including natural gas). Moreover, I tend to suggest people to limit their emerging market exposure to 5% of their common stock position; in this case, it would be limited to 1.25% of the portfolio. The portfolio thus has more than 4.5 times as much emerging markets as I would suggest an individual should take on. Even more important, emerging markets have had a run that could run out, thus the strategy may lead to HUGE LOSSES AND SUBSTANTIAL RISK.

Sample Portfolio (involving many real assets):

11% Domestic Equity
(2% VTI, SPY, DIA, or TMW; 4% QQQQ or 2% VBR and 2% VBK; and 5% XLF)

1) VTI (.07% expense ratio) - Vanguard Total Stock Market ETF
1) SPY (.08% expense ratio) - SPDRs
1) DIA (.17% expense ratio) - DIAMONDS Trust, Series 1
1) TMW (.2% expense ratio) - SPDR DJ Wilshire Total Market

2) QQQQ (.2% expense ratio) - PowerShares QQQ or

2) VBR (.12% expense ratio) - Vanguard Small Cap Value ETF and
3) VBK (.12% expense ratio) - Vanguard Small Cap Growth ETF

3 or 4) XLF (0.24% expense ratio) - Financial Select Sector SPDR

14% Foreign Equity

6% Emerging Markets (2% VWO, 2% RSX, and 2% EWZ) or 6% PRMSX or 6% FEMKX).

1) VWO (.3% Expense Ratio) - Vanguard Emerging Markets Stock ETF
2) RSX (.5% expense ratio) - Market Vectors Russia ETF
3) EWZ (.69% expense ratio) - iShares MSCI Brazil Index

or (not likely an option)

1) PRMSX (1.26% expense ratio) - T. Rowe Price Emerging Markets Stock

or (not likely an option)

1) FEMKX (1.11% expense ratio) - Fidelity Emerging Markets

Others to consider:
GAF (.59% expense ratio) - SPDR SP Emerging Middle East Africa or
DGS (.63% expense ratio) - WisdomTree Emerging Mkts Small Cap Div
GUR (.59% expense ratio) - SPDR SP Emerging Europe
EEM (.74% Expense Ratio) - iShares MSCI Emerging Markets Index
GML (.59% expense ratio) - SPDR SP Emerging Latin America
GMM (.59% expense ratio) - SPDR SP Emerging Markets
BIK (.5% expense ratio) - SPDR SP BRIC 40
ADRE (.3% expense ratio) - BLDRS Emerging Markets 50 ADR Index
EEB (.64% expense ratio) - Claymore/BNY BRIC
FXP (.75% expense ratio) - UltraShort FTSE/Xinhua China 25 Proshare

- 8% Developed Equities
(2% EFA, 2% IOO or 2% EFV, 2% VPL, and 2% VGK or 8% FIGRX)
1) EFA (.34% expense ratio) - iShares MSCI EAFE Index

2) IOO (.4% expense ratio) - iShares SP Global 100 Index or
2) EFV (.4% expense ratio) - iShares MSCI EAFE Value Index

3) VPL (.18% expense ratio) - Vanguard Pacific Stock ETF
4) VGK (.18% expense ratio) - Vanguard European Stock ETF

or not likely an option

1) FIGRX (1.09% expense ratio) - Fidelity International Discovery

47% Real Assets

- 8% Oil/Natural Gas (2.5% XOP; 2.5% IEO; 3% NLR)
1) XOP (.35% expense ratio) - SPDR SP Oil Gas Exploration Prod
2) IEO (.48% expense ratio) - iShares Dow Jones US Oil Gas Ex Index
3) NLR (1.07% expense ratio) - Market Vectors Global Nuclear Energy ETF

- 5% Precious Metals (1% GDX; 1% XME, 1% DBC; 1% SLX; and 1% PRFM)
1) GDX (.55% expense ratio) - Market Vectors Gold Miners ETF
2) XME (.35% expense ratio) - SPDR SP Metals Mining
3) DBC (.83% expense ratio) - PowerShares DB Commodity Idx Trking Fund
4) SLX (.54% expense ratio) - Market Vectors Steel ETF
5) PRFM (.76% expense ratio) - PowerShares FTSE RAFI Basic Materials

- 3% Global Water (1% PIO; 1% PHO; and 1% CGW)
1) PIO (expense ratio = .75%) - PowerShares Global Water
2) PHO (expense ratio = .66%) - PowerShares Water Resources
3) CGW (expense ratio = .72%) - Claymore SP Global Water

- 13% Domestic Real Estate (4.0% VNQ; 4.0% RWR; 2.5% REZ; and 2.5% FIO)
1) VNQ (.12% expense ratio) - Vanguard REIT Index ETF or
2) RWR (.25% expense ratio) - DJ Wilshire REIT ETF
3) REZ - (.48% expense ratio) - iShares FTSE NAREIT Residential
4) FIO - (.48% expense ratio) - iShares FTSE NAREIT Industrial/Office

- 18% International Real Estate (2% RWX; 4% TAO; 4% FFR; 4% DRW; and 4% WPS) or 18% FIREX

1) RWX (.6% expense ratio) - SPDR DJ Wilshire Intl Real Estate
2) TAO (.65% expense ratio) - CLAYMORE/ALPHASHARES
3) FFR (.58% expense ratio) - First Trust FTSE EPRA/NAREIT Glb Real Es
4) WPS (.45% expense ratio) - iShares SP World ex-US Property Index
5) DRW (.58% expense ratio) - WisdomTree International Real Estate

or

1) FIREX (1.07% expense ratio) - Fidelity International Real Estate

Caution: RAP (2.25% expense ratio) -
RMR Asia Pacific Real Estate Fund; this shows how the expense ratio of the ETFs can be higher than expected especially if the fund doesn't have one listed. Data provided here may have significant discrepancies from the actual expense ratio.

15% Private Equity (10.0% PSP; 5.0% PFP)
1) PSP (.71% expense ratio) - PowerShares Listed Private Equity
2) PFP (.75% expense ratio) - PowerShares Intl Listed Private Equity

18% Absolute Return (8% VLEOX; 5% HSGFX; 5% PRSGX) or (2% EXT; 2% ITA; 2% NXT; 2% DTN; 2% SSO; 2% QLD; 2% UCC; 2% UYG; and 2% USD)

1) VLEOX (1.16% expense ratio) - Value Line Emerging Opportunities

2) HSGFX (1.17% expense ratio - Hussman Strategic Growth
3) PRSGX (.81% expense ratio) -
T. Rowe Price Spectrum Growth

OR

1) EXT (.28% expense ratio) - WisdomTree Total Earnings
2) ITA (.48% expense ratio) - iShares Dow Jones US Aerospace Defense
3) NXT (.5% expense ratio) - NYSE Arca Tech 100 ETF
4) DTN (.38% expense ratio) - WisdomTree Dividend Top 100
5) SSO (.95% expense ratio) - Ultra SP500 ProShares - Ultra stands for 200% ownership
6) QLD (.95% expense ratio) - Ultra QQQ ProShares
7) UCC (.95% expense ratio) - Ultra Consumer Services ProShares
8) UYG (.95% expense ratio) - Ultra Financials ProShares
9) USD (.95% expense ratio) - Ultra Semiconductor ProShares

Caution: CZG has an expense ratio of 2.07%

5% Fixed Income (3% AGG, 3% IEI, 3% BIV, 3% BND, or 3% ITE; and 2% TLT, 2% LQD, or 2% TLH)

1) AGG (.2% expense ratio) - iShares Lehman Aggregate Bond or
1) IEI (.15% expense ratio) - iShares Lehman 3-7 Year Treasury Bond or
1) BIV (.11% expense ratio) - Vanguard Intermediate-Term Bond ETF or
1) BND (.11% expense ratio) - Vanguard Total Bond Market ETF
1) ITE (.14% expense ratio) - SPDR Lehman Intermediate Term Treasury

2) TLT (.15% expense ratio) - iShares Lehman 20+ Year Treas Bond or
2) TLH (.15% expense ratio) - iShares Lehman 10-20 Year Treasury Bond or
2) LQD (.15% expense ratio) - iShares iBoxx $ Invest Grade Corp Bond

Total: 110% (114.5% stocks, 14.5% Fixed Income as it includes 10% of 200% leveraged stock)
Margin 10%

Total 110% (104.5% stocks, 4.5% Fixed income as it includes mutual funds instead of the ProShare Funds)

Just an idea. I'm curious as to maybe how you have a portfolio. Thanks in advance for your comments. I don't advise going above 10% margin because the risk becomes enormous. That means that risk is substantial as margin is 14.5% effectively by using the 200% leveraged shares (the Proshare ETFs).

---

Aqua

you have a link?

Aqua, timely posting, as usual... here is an alternative view of the Harvard Endowment fund that I have run across:

15%Domestic Stocks
10%Foreign Stocks
11%Domestic Bonds
6%Inflation-indexed Bonds
5%Foreign Bonds
5%Junk Bonds
13%Commodities
10%Real Estate
13%Private Equity
12%Absolute Return (hedge fund)

My notes:

1) 25% of the portfolio is in stock asset class. I think this is much too low for an individual investor, particularly one (like me) focused on accumulating wealth rather than protecting it (like Harvard).

2) 27% of the portfolio is in fixed income asset class. See above. I'd likely move more than half of this allocation and put it into equities.

3) I don't have a problem with 13% in commodities, particularly if you lump in energy and alterative energy into the asset class as I do. It does seem you'd be buying commodities at relatively expensive prices these days, so I'm not sure I'd be pulling the tigger here anytime soon.

4) 10% real estate is very reasonable, particularly if you split it 50:50 U.S. versus international (especially Asia).

5) The private equity asset class is just very difficult for the individual investor to participate in. While there are now publicly traded private equity firms (e.g. Blackstone), this is not the same thing as investing directly in one of their funds since the fund manager earns zero return until a mimum return threshold is met. Also, while private equity seems moribund in the U.S., there is a *ton* of private equity happening in Asia at the moment: I am considering BX for my own portfolio, since they are still the smartest guys in the room.

6) Absolute return is another asset class that has historically been difficult for the individual investor to particpate in. However, it looks like this is quickly changing with the new 130/30 Powershares (?) funds. If you're a value-oriented investor, you could also pick up incremental return by going long fixed weight and short market weight on a given index.

One last thing is that an individual investor is highly unlikely to "accidentally" stumble into non-correlated investments even using this as a guide.

andy_youngzy:

you have a link?

http://seekingalpha.com/

The ETF asset allocation and Portfolio Risk Management sections on Seeking Alpha is highly recommended reading.

Thanks OldMoney. I'll include some other ETFs that go with that sector in a subsequent message or as edited, i.e., private equity if I can find it.

---

Aqua

Ran across http://allaboutalpha.com/ which made me raise an eyebrow...

Here is the take away: In conclusion, if you are an endowment manager do not try to copy the
Harvards or the Yales of the world. In fact, we looked at what
consequences such herding behavior would have: implementing passively
the asset allocations of the top 25, 10 or even 5% performers produces
a portfolio whose returns rank in the bottom 30-40% of the endowment
universe. Instead, focus on those asset classes where your alpha
generating capabilities are best.

So maybe passive ETF asset allocation is not the best approach to achieving better Sharpe ratios. Nevertheless, I personally am going to focus in the "broad areas" that the endowments are looking, namely real assets and private equity.

Great discussion here! Keep in mind Yale and Harvard have essentially unlimited time horizons, it's not like they need to "retire" or anything.