The Investment Fund for Foundations: www.tiff.orgLong View Exhibits
(Investment Committee Behavior)
Source: 2002 4Q Commentary
(These are the exhibits referenced from the article Taking the Long View. Please use your browser's back button to return to the main article.)
Exhibit 1 — Policy Portfolio over Time
| Neutral Weights | |||||
| Policy Portfolio | Orig | V.2 | V.3 | V.4 | V.5 |
| Inception Date | 3/95 | 12/97 | 9/99 | 12/00 | 7/02 |
| US Stocks | 25% | 25% | 25% | 25% | 25% |
| Foreign Stocks | 30% | 25% | 25% | 25% | 25% |
| Absolute Return | 15% | 20% | 20% | 20% | 20% |
| Resource-Related Stocks | 10% | 10% | 5% | 5% | 5% |
| US Bonds | 15% | 15% | 20% | 15% | 10% |
| Foreign Bonds | 5% | 5% | 0% | 0% | 0% |
| Inflation-Linked Bonds | 0% | 0% | 5% | 10% | 15% |
| Total | 100% | 100% | 100% | 100% | 100% |
| Note: Changes highlighted in boldface. | |||||
| Value Added by Policy Portfolio Changes | |||||
| 3/95-12/02 | 12/97-12/02 | 9/99-12/02 | 12/00-12/02 | 7/02-12/02 | |
| Cumulative Impact | +11.2 | +8.0 | +6.8 | +4.6 | +1.1 |
The data immediately above indicate in cumulative percentage terms the incremental returns produced by the policy portfolio changes depicted in the upper panel over the time periods shown. Thus, had the original policy portfolio remained intact since its initial construction in March 1995, a constructed index reflecting its segment weights would have produced a cumulative return 11.2% lower than the return produced by the linked monthly returns of the evolving constructed index — an index revised four times since 1995. Importantly, each version has produced returns superior to its predecessor over all measurement periods (detailed data available upon request).
Exhibit 2 — TIPS Perform Well
Solid lines depict cumulative total returns for the 10-year Treasury Inflation Protected Security, Wilshire 5000 Index, and Lehman Aggregate Bond Index (right y -axis). Dotted line depicts 10-year TIPS real yields (left y-axis).
Exhibit 3 — Current versus Proposed Policy Mix
| Asset Class | Current Norm | Proposed Norm | Change | Current Benchmark | Proposed Benchmark |
| US Stocks | 25% | 23% | -2% | Wilshire 5000 | No Change |
| Foreign Stocks | 25% | 23% | -2% | MSCI ACWFxUS | No Change |
| Absolute Return | 20% | 20% | - | T-Bills + 5% | No Change |
| High Yield Bonds | - | 3% | +3% | - | ML US HY Constrained Index |
| REITS | - | 3% | +3% | - | Morgan Stanley REIT Index |
| Resource-Related Stocks | 5% | 7% | +2% | Global Index of RR Stocks* | Revised Global Index* |
| Conventional Bonds | 10% | 8% | -2% | Lehman Aggregate | SSB 10-year US Treasury Bond |
| Inflation-Linked Bonds | 15% | 13% | -2% | 10-year TIPS | No Change |
| Total | 100% | 100% | NA | Weighted Average of Segmented Benchmarks | Revised Weighted Average of Segment Benchmarks |
*Current resource-related benchmark comprises MSCI World Index sectors of 75% energy, 20% metals and mining, and 5% paper and forest products; revised benchmark comprises 50% energy, 30% metals and mining, and 20% paper and forest products.
Exhibit 4 — Mean-Variance Optimization Inputs
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Correlations
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| Real Return | Value Added* | Total Real Return | Total Nominal Return** | Std Dev | Asset Class | US Stocks | Foreign Stocks | Global Private Equity | Absolute Return | High Yield Bonds | Inflation-Linked Bonds | Conventional Bonds | Private Real Estate | REITs | Resource-Related Stocks |
| 3.5 | 1.0 | 4.5 | 7.0 | 16% | US Stocks | 1.00 | |||||||||
| 5.0 | 1.5 | 6.5 | 9.0 | 17% | Foreign Stocks | 0.60 | 1.00 | ||||||||
| 8.0 | [s] | 8.0 | 10.5 | 20% | Global Private Equity | 0.50 | 0.40 | 1.00 | |||||||
| 5.0 | [s] | 5.0 | 7.5 | 8% | Absolute Return | 0.70 | 0.60 | 0.50 | 1.00 | ||||||
| 5.0 | 2.5 | 7.5 | 10.0 | 12% | High Yield Bonds | 0.55 | 0.35 | 0.20 | 0.50 | 1.00 | |||||
| 2.5 | 0.0 | 2.5 | 5.0 | 3% | Inflation-Linked Bonds | 0.10 | 0.00 | 0.10 | 0.10 | 0.20 | 1.00 | ||||
| 1.5 | 0.0 | 1.5 | 4.0 | 7% | Conventional Bonds | 0.35 | 0.15 | 0.15 | 0.25 | 0.40 | 0.40 | 1.00 | |||
| 6.0 | [s] | 6.0 | 8.5 | 12% | Private Real Estate | 0.20 | 0.15 | 0.15 | 0.15 | 0.10 | 0.20 | 0.40 | 1.00 | ||
| 3.0 | 1.5 | 4.5 | 7.0 | 13% | REITs | 0.60 | 0.40 | 0.20 | 0.20 | 0.40 | 0.20 | 0.20 | 0.70 | 1.00 | |
| 3.0 | 1.5 | 4.5 | 7.0 | 13% | Resource-Related Stocks | 0.40 | 0.40 | 0.20 | 0.20 | 0.30 | 0.20 | 0.20 | 0.20 | 0.20 | 1.00 |
* Expected value added from the use of assets or strategies that could cause a segment's returns to deviate from the returns of its benchmark
** Assumes 2.5% inflation (uncompouned for simplicity's sake), a 15-year time horizon, and access to top-tier managers in all markets.
[s] Subsummed in Total Return.
Source: TIFF estimates.
Exhibit 5 — Morgan Stanley REIT vs Wilshire 5000
Data represents cumulative total return of the Morgan Stanley REIT Index and the Wilshire 5000 Index.
Exhibit 6 — ML High Yield Index
Data represents cumulative total return (left axis) and average yield-to-maturity (right axis) of the Merrill Lynch US High Yield Master II Index (Unconstrained).
Exhibit 7 — Proposed Policy Mix Including Private Investments
| Asset Class | Proposal 1 | Proposal 2 | Change | Proposed Benchmark |
| US Stocks | 23% | 16% | -7% | Wilshire 5000 |
| Foreign Stocks | 23% | 16% | -7% | MSCI All Country World Free ex US Index |
| Global Private Equity | - | 16% | +16% | Wilshire 5000 + 3.5% per annum |
| Absolute Return | 20% | 20% | — | Treasury Bills + 5% per annum |
| High Yield Bonds | 3% | 3% | - | Merrill Lynch US High Yield Constrained Index |
| Private Real Estate | - | 7% | +7% | CPI + 3% per annum |
| REITS | 3% | - | -3% | Morgan Stanley REIT Index |
| Resource-Related Stocks | 7% | 5% | -2% | Global Index of Resource-Related Stocks |
| Conventional Bonds | 8% | 8% | - | SSB 10-year US Treasury Bond |
| Inflation-Linked Bonds | 13% | 9% | -4% | 10-year Treasury Inflation Protected Security |
| Expected Real Return* | 4.7% | 5.3% | 0.6% | |
| Expected Standard Deviation | 9.1% | 9.0% | -0.1% | |
| Return/Standard Deviation | 0.52 | 0.59 | +0.07 |
*Computed using assumptions set forth in Exhibit 4.
Exhibit 8 — US vs Foreign Returns
| Annualized Returns through 12/31/02 | ||||
| 1 Yr | 5 Yrs | 10 Yrs | 15Yrs | |
| US Stocks | -20.9 | -0.9 | 8.8 | 11.1 |
| Developed Foreign Stocks | -15.9 | -2.9 | 4.0 | 3.1 |
| Emerging Markets Stocks | -8.0 | -6.7 | -0.8 | 7.4 |
Data represents Wilshire 5000 total return, MSCI EAFE Index (with net dividends reinvested), and MSCI Emerging Markets Free Index (price change only). The MSCI EMF Index inception date was December 31, 1987.
Exhibit 9 — Global Stock Market Capitalizations
| United States | 54.0% | |
| Developed Foreign Markets | 42.1% | |
| Emerging Markets | 3.9% |
Data represents MSCI All Country World Free Index weights.
Exhibit 10 — Precedence or Mere Coincidence?
* Cumulative total return for the MSCI Japan Index (in local currency) from January 1982 through December 2002.
** Cumulative total return for the Wilshire 5000 Index from January 1993 through December 2002.
