Weekend Reading: Unconstrained Bonds, Yale Endowment Lessons and More…

Weekend Reading

Welcome to the final Weekend Reading article before the Thanksgiving Holiday – for all of our American readers, I wish you a Happy Thanksgiving.

Last weekend I noted the spike in the CBOE Volatility Index (VIX) that we saw for the prior week, which was driven by some week numbers out of China and the Paris terrorist attacks. With better news this week and a positive reaction to the Fed minutes from October, equity markets rebounded and the VIX Index term structure declined across the board:

VIX term structure 20151120

With an improved outlook this past week, the S&P 500 Index moved sharply higher (SPY) and investors modestly bid up the Euro relative to the Dollar (EURUSD), while oil prices continued their decline (down 1.17% on the week based on the OIL ETF), and 10-year intrest rates moved higher by 0.31%.

Weekly performance 20151121

Weekend Reading

In the second article below, John Rekenthaler of Morningstar reviews the Yale Endowment’s investment structure and provides some lessons for investors looking to go beyond traditional investments. While Rekenthaler inappropriately compares the returns of Yale’s highly researched and hand selected alternative investments, which currently make up 73% of Yale’s portfolio allocation targets (see below), to category averages for liquid alternatives, he does highlight some important points that have led to Yale’s success. Here is a snapshot of Yale’s current portfolio allocation targets:

Yale Endowment Asset Allocation 2016Yale’s portfolio is dominated by less liquid alternative investments, thus making it difficult to replicate in a portfolio of mutual funds and ETFs. None the less, opportunities do exist to move in a direction that more closely aligns with that of Yale.

Other articles this week include a thorough review of momentum investing by Newfound Research, an outlook for unconstrained bond investing by Western Asset (via the WisdomTree blog) and dive into why managed futures managers love the bond markets by RCM / Attain).

Have a great weekend, and happy reading.

Liquid Alternatives

Alternative Investments


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