News

Fees, Valuation and Performance: Understanding Exchange-Traded Funds
6/1/2012

Fees, Valuation and Performance: Understanding Exchange-Traded Funds

For investment committee members it is important as fiduciaries to have an understanding of not only why the investment portfolio is structured the way it is, but also how it is structured.

Guard Against Inflation: Preserving the Purchasing Power of Your Assets
4/1/2012

Guard Against Inflation: Preserving the Purchasing Power of Your Assets

Many nonprofit organizations have failed to construct portfolios with sufficient inflation protection because inflation has been relatively tame over the past 20 or so years. As a result, their assets are exposed to a reduction in purchasing power over time. In order to address this risk, nonprofit organizations should consider a long-term, strategic allocation to asset classes that benefit from inflation, such as commodities, Treasury Inflation-Protected Securities (TIPS) and real estate investment trusts (REITs).

What’s in a Name? The Decision to Hire an Investment Advisor
2/1/2012

What’s in a Name? The Decision to Hire an Investment Advisor

Shakespeare famously wrote in Romeo and Juliet, “What's in a name? That which we call a rose by any other name would smell as sweet.” The meaning: what matters is what something is, not what it is called.

Is There a Value Premium in the U.S. Equity Market?
10/1/2011

Is There a Value Premium in the U.S. Equity Market?

In order to outperform the broad U.S. equity market, most institutional investors focus primarily on hiring active managers to outperform a narrow part of the market, such as large-cap growth or small-cap value, while maintaining an equal allocation between growth stocks and value stocks. In addition to active management, however, institutions should also consider taking advantage of a structural bias that exists in the U.S. equity market: the outperformance of value stocks relative to growth stocks over longer periods (the value premium).

The Importance of a Strong Investment Policy Statement
6/1/2011

The Importance of a Strong Investment Policy Statement

One of the major challenges that nonprofit boards face is turnover among investment committee members. Finding qualified, volunteer fiduciaries to oversee the investment portfolio can be difficult, posing a significant problem for the organization. Moreover, board turnover could lead to frequent changes in investment policy strategy and management tactics.

Investing with a Purpose: A liability-driven investing approach
4/1/2011

Investing with a Purpose: A liability-driven investing approach

When structuring an investment portfolio, institutional investors oftentimes focus solely on the assets of the institution with little, if any, consideration for their embedded liabilities. Doing so typically leads to a strategic asset allocation designed to outperform either a benchmark or an absolute level of return, which is often chosen arbitrarily by adopting historical “norms.”

Thinking Beyond the Financial Aspect of a Conflict of Interest
1/1/2011

Thinking Beyond the Financial Aspect of a Conflict of Interest

Congratulations, you have just been asked to serve on the board of a local nonprofit corporation. At your first meeting, the board is set to make a decision on engaging a new financial advisor. You are excited to see that a former mentor who helped propel your professional career is one of the finalists being considered. You have always felt in debt to this individual for helping you launch your career.

Spending Policy Rules: Which One is Right for You?
10/1/2010

Spending Policy Rules: Which One is Right for You?

The traditional goals of an endowment are preservation (or growth), budgetary stability and intergenerational equity. Unfortunately, no spending policy can simultaneously maximize all three; each organization must implement a spending policy that best reflects these goals’ relative importance. The two major tradeoffs of any spending policy are stability vs. utility maximization and spending vs. portfolio growth. Utility, in this article, is the real value of spending plus the current portfolio value, which accounts for the differences in a dollar amount’s value over time.

When and Why to Rebalance a Portfolio
7/1/2010

When and Why to Rebalance a Portfolio

The last issue of the Nonprofit Minute discussed the perils that can occur when investors unsuccessfully try to time the market (“The Math and Mentalities of Market Timing,” Spring 2010). Another way in which investors unknowingly time the market is through the lack of a disciplined portfolio rebalancing policy.

The Math and Mentalities of Market Timing
4/1/2010

The Math and Mentalities of Market Timing

The concept of “market timing” continues to divide the investment industry: Some investors, particularly active traders, believe an investor can profit from changes in an asset class’s outlook by moving entirely into or out of that asset class at a certain moment, while academics tend to believe it impossible to consistently generate excess returns this way. Active traders build portfolios around market timing strategies, and even those who don’t engage in highly active investment strategies are still susceptible to emotional market timing – for example, eliminating or reducing exposure to the U.S. equity market after a significant decline.