Swensen Six And Faber 'Ivy Ten' Portfolios

by: Lowell Herr

Two model portfolios to consider using are those recommended by David Swensen, chief investment officer of Yale University and author of Unconventional Success, and Mebane Faber, portfolio manager at Cambria Investment Management and co-author of The Ivy Portfolio. While Faber's book focuses on Ivy League portfolios, there are differences in the make up of the portfolios recommended by Swensen and Faber.

The small investor needs to recognize that universities like Princeton, Yale, and Harvard have access to professional money managers and investment vehicles that reside outside our sphere of accessibility. We do not, for example, have access to private equity as does Yale. I've been told many times, if you cannot employ a top quartile hedge fund manager, forget it. Faber bridges this gap in his recommendations.

Before moving into the differences and similarities between the "Swensen Six" and "Faber Ten," permit me to digress and address the Faber Five. I will quickly mention that Eric W. Richardson co-authored The Ivy Portfolio, and he needs to be given proper credit.

In the Faber - Richardson Five portfolio the asset classes are similar to those advocated by Swensen. The make-up of the portfolio is as follows.

1. Domestic Stocks - 20% - VTI

2. Foreign Stocks - 20% - VEU

3. Bonds - 20% - BND

4. Real Estate - 20% - VNQ

5. Commodities - 20% - DBC

These five asset classes are identical to those advocated by Swensen. Swensen breaks bonds into TIPs and Treasury Bills, a move I also advocate. If one is a TD Ameritrade customer, the above five ETFs can be purchased commission free so long as one signs up for this service. There is no reason not to take advantage of this option.

Now let's take a look at the Faber Ten and Swensen Six.

Here is the construction of the Faber-Erickson ten portfolio.

1. Domestic Large Cap - 10% - VTI

2. Domestic Small Cap - 10% - VB

3. Foreign Developed Stocks - 10% - VEU (This ETF also holds emerging market companies.)

4. Foreign Emerging Markets - 10% - VWO

5. Domestic Bonds - 10% - BND

6. TIPS - 10% - TIP

7. Real Estate - 10% - VNQ

8. Foreign Real Estate - 10% - RWX

9. Commodities - 10% - DBC

10. Commodities - 10% - GSG

Note: GSG is not one of the 100 commission free ETFs available through TD Ameritrade.

Now we move on to the recommended Swensen portfolio. I am using a slight variation of this portfolio with Maxwell, Euclid, and Madison.

1. Domestic Equities - 30% - VTI (Swensen does not recommend particular ETFs. These are my recommendations.)

2. Foreign Developed Equities - 15% - VEU (Once more, this ETF contains emerging market stocks.)

3. Emerging Market Equities - 5% - VWO

4. Real Estate - 20% - VNQ

5. U.S. Treasury Bonds - 15% - TLT

6. U.S. Treasury Inflation-Protected Securities - 15% - TIP