1) The Yale Endowment Report for years 2004-2013, Harvard University Financial Report for years 2004-2013, The Stanford Management Company Report for years 2004-2014, press releases for Yale and Harvard for June 30, 2014 data. (Endowments measure returns from July 1st through June 30.)
2) U.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.
3) Correlation is a statistical measure of how two securities move in relation to each other.

There are material differences between the terms under which endowments and individuals can invest in alternative investments.  These differences include, but are not limited to commissions and fees, conflicts of interest, access to investment opportunities, size, investment time horizons, and the ability to tolerate illiquidity.  There is no standard or exact definition of the endowment model.  Portfolio design, specific investments and ultimately performance vary considerably among endowments and investors.  Kalos does not claim that any investor will achieve the same result as any endowment, institution, or other investor.  Kalos Investment Adviser Representatives have a conflict of interest when they recommend securities where they earn a commission as Registered Representatives of Kalos Capital.  We address this conflict by disclosing the fees and commissions related to the investments recommended to our clients.  Also, Kalos representatives do not earn both advisory fees and brokerage commissions on the same assets.

Hypothetical Portfolio Design

The portfolio to the right is more similar to an Endowment. Diversified performance oriented assets comprise a much greater percentage of the portfolio. The portfolio design seeks to improve performance while lowering 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
  • ​Other low correlation assets such as debt instruments

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 risks

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

Key Endowment Model Strategy Goal

Increase portfolio performance while or lowering portfolio volatility.

endowment model

The Endowment Model Portfolio Strategy

College endowments such as Yale, Harvard and Stanford enjoyed excellent investment success from July 1995 - June 2014. In contrast, a large percentage of traditional investment strategies using only U.S. Stocks and Bonds produced smaller gains.