The Ivy Portfolio featured in Meb Faber and the late Eric W. Richardson’s book seeks to mirror the asset allocation of the best endowment funds like Yale, Harvard and Princeton. The Ivy Portfolio incorporates traditional assets like stocks and bonds with commodities and REITs. It is a portfolio with global exposure.
The Ivy 5 Portfolio: Meb Faber’s Diversifying Winner
Contents
Asset Allocation
Returns and risk for the Ivy 5 Portfolio
| Portfolio Name | Number of asset classes | 1 year return 2018 | YTD (August 2019) | 10 year return | Drawdown | Risk Level | Market Correlation | Dollar Value |
|---|---|---|---|---|---|---|---|---|
| S&P 500 (Benchmark) | 1 | -4.52% | 19.24% | 12.97% | -37.71% | 5 - very high risk | 0.99 | $167,045.76 |
| Meb Faber Ivy 5 Portfolio | 5 | -8.07% | 12.60% | 6.01% | -31.56% | 4 - high risk | 0.79 | $77,175.93 |
Variations on Meb Faber’s Ivy 5 Portfolio
In their book, Meb and Eric describe several ways to construct an Ivy portfolio. Variations include the Ivy 10 Portfolio which you can find here. They also describe various timing models for the portfolios. The timing model uses a simple moving average to decide whether to be invested in an asset class or not.
- Variation one: a portfolio of 10 asset classes instead of 5. See this post for details.
- Variation two: Timing model
Building the portfolio
Below you can see which mutual funds or ETFs you can use to build the portfolio. They are the best-in-class funds and ETFs for this purpose. Low-cost index funds. Read here how we selected the best funds.
Asset allocation for the Ivy 5 Portfolio
- 20.00% US Total Stock Market (VTI)
- 20.00% REITs (VNQ)
- 20.00% International Developed Blend (VEA)
- 20.00% Total US Bond Market (BND)
- 20.00% Commodities (DBC / GSG)
If you’re looking for a more advanced portfolio take a look at the Ivy 10 Portfolio.
Advantages and disadvantages of the Ivy 5 Portfolio
Advantages:
- Simple to understand
- Global and well diversified
- Constructed by Meb Faber – a respected financial quant that almost single-handedly has revived market timing.
- Makes a bet on commodities.
- You get a portfolio that resembles that of Yale and Harvard. David Swensen of Yale has had astonishing returns using a similar model.
Disadvantages:
- The bet on commodities may not be desirable.
- The inclusion of commodities makes the portfolio slightly more expensive due to the higher expense ratio of commodity ETFs.
- May be too heavy on hard assets such as commodities and REITs (40% in total). They have done great in the past but their performance may not continue.
- May not be suitable for some as the premise for the endowments holding a similar portfolio is holding the assets “forever”. Private investors do not have forever. Most have between 5-50 years.
Resources
Go here for a rebalance excel worksheet.
Also be sure to visit Meb Faber site. It is a wealth of information and inspiration. His podcast is also very good (the first episode is absolutely awesome as he runs down what investing is really about.
Summary and your next steps
The Ivy 5 Portfolio is a well-diversified global portfolio that offers returns like that of top investment endowments. The Yale endowment fund has $27.2 Billion under management under the guidance of David Swensen. David Swensen is a rock star among portfolio managers.
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