Endowment Returns

July 2, 2009

Barron’s recently ran an article on large college endowment returns (see the table below). Most of the schools use a 6/30 fiscal year and are reporting losses on the order of -25 to -30%. Most of these funds use some type of strategic asset allocation, and in recent years they have had large allocations to private equity and hedge funds.

2009 Endowment Returns (courtesy of Barron's)

click to enlarge

Our own Arrow DWA Balanced Fund (DWAFX), rather than strategic allocation, uses tactical allocation to domestic equities, international equities, fixed income, and alternatives. We do not have access to some of the asset classes of the large endowments like private equity and hedge funds, which were believed to be high return-low volatility opportunities. Despite the lack of access, the trailing one-year return for DWAFX compares favorably with the major endowments. Perhaps there is something to tactical asset allocation after all!

Click here to visit ArrowFunds.com for a prospectus & disclosures. Click here for disclosures from Dorsey Wright Money Management.

Leave a Comment » | Tactical Asset Alloc | Permalink
Posted by Mike Moody

Zen Investing

July 2, 2009

A useful article from Forbes about the patience required to be a successful investor. Two damaging trends are discussed: 1) bailing out simply because the markets have encountered a difficult period, and 2) measuring performance expectations over a time period that is far too short.

Perhaps these points seem overly elementary, but evidence from mutual fund asset flows and holding periods show that many real-world investors really struggle with these concepts. Resisting the impulse to cut and run from a long-term strategy that you have researched thoroughly can be remarkably profitable in the long run.

Leave a Comment » | Investor Behavior | Permalink
Posted by Mike Moody

The World Turned Upside Down

July 2, 2009

When General Cornwallis surrendered at Yorktown to George Washington, his military band played “The World Turned Upside Down.” It didn’t seem in the natural order of things for a collection of colonies with a rag-tag army to defeat a global power, but it was a foreshadowing of things to come.

This article from the Financial Times (free subscription if you can’t read the whole article) points out that China was able to float more debt in the last year than Japan. We are witnessing one of the post-war global powers being eclipsed in its own region.

We can safely assume that expected rates of return and expected risks in various capital markets will be very different going forward. A more tactical approach may be required—relying on historical assumptions could be quite dangerous in this environment.

Leave a Comment » | Markets, Tactical Asset Alloc | Permalink
Posted by Mike Moody