Truths about U.S. stock investment conveyed [Vol.45] Distributed May 2, 2022
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Telling the Truth About U.S. Stock Investments
［Vol.45］Distributed May 2, 2022
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Shigenobu Kawada's "Matters of U.S. Stock Investing Trained by the Media"
＊＊＊Table of contents＊＊＊
Market Review
This Week's Featured Articles
Kawada's Notable Stocks
Investment Tips
Walkabout
Teach Me: “Tips for Not Failing in Asset Formation”
What Private Investors with Ultra-High Net Worth Practice: “Private Investment Strategies”
Activity Information
Closure day: May 30
New Program 【How to Read Nikkei to Enrich Your Life】
A project that selects articles of interest from Nikkei, which I have been reading for over 40 years as a working adult, and comments on them. It is held every Saturday from 9:00 to 9:45 a.m. via Zoom.
Participation is free, so if you are interested, please apply onPeatix.
Below are some headlines from articles covered last Saturday.
Online Salon “Dream-Realizing Asset Formation School”
An online salon where participants learn together and inspire each other to achieve asset formation. It offers member-only seminars that convey content that the popular newsletter “Matters of U.S. Stock Investing Trained by the Media” cannot fully deliver, and lets you experience the魅力 of U.S. stock investing.
2000 Million Yen Milestone Pace Setter
Source: Financial Services Agency; created by ExeTrust Co., Ltd. based on asset management simulations
*The above figures are for simulation purposes only and do not guarantee future investment results. Fees and taxes are not reflected.
How to Read: Target Yield and Achieving Year
3–4% for over 30 years: Wrap funds and balanced mutual funds fit here
5–7% may take 25 years: with non-U.S. stock funds perhaps
8–10% around 20 years: a modest projection based on S&P 500 performance
S&P 500 Performance Record (Dividends Reinvested, 1970-2021)
Achieve 20,000,000 yen in the early stage with proper risk taking
Kawada's message is extremely simple. To reach 20 million yen, let as much of your excess funds work for you as efficiently as possible. For that, participants must properly understand risk and reward. Before reading the weekly newsletter, glance at this table to confirm your correct investment stance.
Now, start the countdown to 20,000,000 yen right away!
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1. Market Review (April 25–April 29)
＜Major Indices＞
・Dow Jones -2.5%
・S&P 500 -3.3%
・Nasdaq Composite -3.9%
＝Snapshot Version＝
Last week saw large price swings due to earnings reports and inflation concerns. While some companies beat earnings expectations, surpassing the historical average, investor caution about monetary policy and weaker outlooks from major tech firms led to a sharp drop by week’s end.
＝A Little More Detail＝
Early in the week, concerns about China’s slowing economy were tempered by Twitter accepting an acquisition proposal, causing a rebound in IT-related growth stocks.
However, as Tesla’s stock fell sharply on concerns about funds for financing the Twitter acquisition, market sentiment deteriorated and the market declined.
GDP growth for Q1 came in negative against expectations, but Meta’s strong earnings led to a substantial rally.
By Friday, concerns about inflation intensified after a sharp rise in the core Personal Consumption Expenditures price index, and unexpected red ink from Amazon along with weak outlooks from Apple and Intel widened the decline.
Ahead of the upcoming Federal Open Market Committee (FOMC) meeting, caution weighed on IT growth stocks, contributing to a broader decline.
S&P 500 Chart – 1 year
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2. This Week's Pick-Up Articles
A section that selects information helpful for asset formation from what I have gathered, ranks it, and comments with a very personal view.
【1】 Nikkei NewspaperDeep Insight: Ukraine in Crisis, Lessons for Japan 4/26
Russia's invasion of Ukraine has inflicted daily casualties and destruction. Is national safety secure as things stand? In the autobiography “Diplomacy in Crisis” by former diplomat Okamoto Yukio (Shinchosha), published April 15, the inner turmoil of such predicaments is vividly described.“Diplomacy in Crisis” continues the discussion.
During the Gulf War (1991), in order to liberate Kuwait from Iraqi invasion, the United States organized a multinational force and pressured Japan to participate. In the end, Japan could only contribute $13 billion (about 1.67 trillion yen), and was criticized as a “nation that pays with money.”
Mr. Okamoto "Japan has been protected by foreign militaries while not helping foreigners when they are attacked. It has kept defense spending to a minimum and spent mainly on its own prosperity and welfare." "This Japan First doctrine cannot continue."
Views of Japanese officials and scholars: three important lessons.
First, no matter how many friendly countries surround you, the only truly reliable ally in an emergency is an alliance partner.
Second: "Heaven helps those who help themselves" (Heaven helps those who help themselves). In the mid-2010s, Prime Minister Shinzo Abe stated that when the Senkaku Islands were invaded, the worst thing to do was to contact the United States immediately and ask for help. If Japan does not first try to defend itself, the alliance will not function."
Third, not only military power but also the discipline of political leaders greatly influences the outcome of war. Ukraine's President Zelenskiy remains in the capital Kyiv, continuing to call for unity from the people and the military directly.
Going forward, a challenge is the nature of nuclear deterrence. Russia's nuclear forces intimidate the United States and deter direct intervention in Ukraine. Yet U.S. nuclear weapons cannot stop Russia, nor prevent the invasion.
If we apply the same pattern to the Taiwan Strait, what would happen? The United States cannot intervene for fear of a China-U.S. nuclear war, while China would not be deterred by U.S. nuclear weapons and might invade Taiwan... Such a scenario is not a fantasy.
【2】Nikkei NewspaperTaiwanese people "do not believe" in U.S. military deployment in a crisis 54% up sharply in six months: Nikkei4/27
In a crisis, the possibility of U.S. military deployment: "not at all" 24.8%, "not really" 29%. On the other hand, those who answered "believe" or "somewhat believe" totaled 36.3%.
The possibility of China actually invading Taiwan: those who answered "very likely" or "somewhat likely" were 38.6%.
The Taiwan Relations Act, enacted by the United States in 1979, provides arms supply to Taiwan but, due to considerations toward China, does not explicitly obligate defense. The U.S. has so far maintained an "ambiguity strategy" about how it would respond in a crisis.
【Kawada's Comment】
I agree with article 【1】. At the nearest station to my home, I sometimes encounter groups shouting "War is coming!" Also mainstream media repeatedly indoctrinates us with the horrors of war.
But can we shout "No more war!" at full volume and expect the enemy not to attack? Such a world is unrealistic.
If a Ukrainian-style crisis were to befall Japan, shouting "No war" while being killed would be intolerable.
When discussing security issues, debates flare up everywhere and someone ends up burnt. Yet maintaining ongoing discussion and a steady sense of crisis and vigilance is likely the deterrent effect.
However, when headlines in magazines like "Will" are boldly dramatic, one might recoil a bit. Still, facing reality means getting used to such headlines too; what do you think?
【3】Nikkei NewspaperUkraine war updates: Russia's three scenarios for territorial gains4/26
【Scenario A: Russian forces in advantage, partially seize Ukrainian territory】
Russia will intensify its southern offensive and a corridor connecting to the pro-Russian "Transnistria" region in eastern Moldova may form. In that case, President Putin would declare victory, claiming he achieved the objective of saving ethnic Russians abroad.
【Scenario B: Ukrainian forces hold out, Russia pushed back】
Military aid from the U.S. and Europe to Ukraine is increasing in both quantity and quality. "With Ukraine's counteroffensive gaining momentum, Russia may be pushed back to its homeland."
If that happens, while Ukraine regains peace, Russia's domestic situation would destabilize. The crisis could shift from the Ukraine invasion to Russia's instability.
【Scenario C: Russia uses weapons of mass destruction to recover from setback】
If battles in the east and south bog down or Ukraine gains clear superiority, Russia might resort to chemical or nuclear weapons.
The three starting scenarios—\"Partial seizure of Ukrainian territory by Russia\"; \"Russia's retreat and Russia's instability\"; \"Use of weapons of mass destruction and World War III\"—continue with battles in the eastern and southern theaters. The only certainty is that whatever happens next, sooner or later, "Russia's self-destruction" is inevitable.
【Kawada's Comment】
NHK Close-Up: "Russia's people shaken by Putin's war" aired on April 26, 2022.
"In Russia, as economic sanctions against Ukraine gradually affect citizen life, the regime tightens information control. Public opinion polls show Putin's approval rate exceeding 80%. Meanwhile, Russians face inner turmoil in light of Ukraine's situation. In neighboring Georgia, journalists who were displaced are trying to report the truth. Will these struggles bring about change? We investigate Russia's 'reality' from our own reporting."
This program reports how Russia's general citizens are subjected to information control regarding the Ukraine invasion.
Controlling information and shaping public opinion is common in politics. However, if one’s own will is strong and one can digest information, one might think one will not be swayed by false information.
But reality is likely more complex. Opposing state policy could threaten one’s life. The show’s material reveals many Russians silently accept government narratives. Hence, many may lull themselves into belief.
Survival instincts when sensing danger are natural for us Japanese too. It is our duty to prevent society from being driven to a state of mindless consumption and thoughtlessness.
【4】Nikkei NewspaperHousehold outflow from abroad slowly rising: Bad yen fuels selling of Japan 4/27
In April, reports from market participants pointed to "capital flight by households."
"Truly frightening is household currency selling". Daisuke Karakama of Mizuho Bank titled a report like this, noting that "Japanese people naturally react to the mere atmosphere," potentially causing a surge in individual yen selling.
In markets, "from savings to investments" has become an oft-quoted slogan, but yen deposits keep expanding. The trigger could be the arrival of a bad yen that raises prices of everyday goods.
According to Bank of Japan's Flow of Funds, as of end-2021, household financial assets exceeded 2000 trillion yen, with about half in yen cash and deposits. Karakama notes that "even a 10% shift to foreign assets could trigger roughly 100 trillion yen of yen selling," far exceeding Japan's roughly 5.7 trillion yen trade deficit for 2021.
In reality, interest in foreign investments is rising rapidly, especially among younger generations, and investment amounts have surged in step with a weaker yen after the COVID-19 shock.
【Note】
Share of household financial assets in yen: over 95%; more than 50% in cash/deposits (Figure 1).
【5】NikkeiIndex funds, near 20 trillion yen in assets under management: Tailwind for Tsumitate NISA, 4/28 Evening Edition
As of March, the net asset value of index funds excluding ETFs approached 20 trillion yen, having doubled over two years. Leading fund by assets is "eMAXIS Slim U.S. Equity (S&P 500)" linked to U.S. stock indices. Since its inception in 2018, its net assets have grown past 1 trillion yen.
Notably, there are no Japanese stock index-linked funds in the top ranks. Most are money-on-hand type, or DC-only, reflecting the spread of regular, low-cost, long-term investment by ordinary individuals. This mirrors a growing trend among individuals to steadily accumulate wealth.
【Kawada's Comment】
The increase in funds tracking the S&P 500 via mutual funds and ETFs indicates Japanese asset formation is moving in a healthy direction. However, the scale remains far smaller than desired. I hope to see assets in trillions of yen backing ETFs and funds that track the S&P 500 or major U.S. indices.
Some may worry about investing such large sums in foreign stocks. Yet Japan's security relies on the United States. Moreover, services from platform leaders like Microsoft, Apple, and Amazon are integral to business and daily life.
Facing reality, investing in U.S. stocks is tantamount to protecting Japanese assets. In other words, investing in U.S. equities aligns with national interests.
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3. Kawada’s Interesting Stocks
In this section, I introduce stocks that Kawada personally holds and that caught my attention while following U.S. stock information.
This Week's Stock
FedEx FedEx Corporation
Overview
One of the world's largest shipping companies, primarily providing fast and reliable air freight services across the United States and over 220 other countries and regions. In addition to air transport, the company operates parcel delivery and land transportation, as well as office services under the "Kinko's" brand.
What makes it attractive
Long-term demand growth and global network
As online shopping becomes more convenient and prevalent, demand for freight transportation is expected to grow steadily over the long term. Few logistics companies operate both land and air transportation and parcel delivery globally, and in this quasi-oligopolistic market, rising labor and fuel costs can be offset by higher freight rates.
In 2016, FedEx acquired TNT Express for 4.4 billion euros, expanding its network across Europe, the Middle East, Africa, and Asia-Pacific. By FY2022, integration of operations was nearly complete, with further contributions anticipated to earnings.
Capital expenditure cycles and shareholder returns
Capital expenditure as a share of revenue has declined since the TNT acquisition and network modernization, suggesting less need for heavy investment and room to boost shareholder returns.
(Figure 1: FedEx capex as a share of revenue)
FedEx had been increasing dividends, but due to pandemic-related uncertainties and North American delivery network enhancements, it paused increased dividends in FY2020 and FY2021; it resumed with an annual dividend of $3.00 in FY2022.
(Figure 2: FedEx dividend history by fiscal year)
Valuation and upside
FedEx stock currently trades at around 9x forward P/E, making it relatively inexpensive versus the market and peers, suggesting limited downside. However, potential upside could be significant if profit margins improve or if shareholder returns expand, attracting renewed investor interest amid current uncertainty.
Risks
FedEx’s fiscal year ends in May. An investor briefing is planned for late June 2022. The founder remained CEO for a long time, but a new mid-to-long-term strategy from the new CEO is anticipated. If the new strategy fails to excite, upside could stall.
FedEx basic data (sources: company data, Yahoo! Finance)
(As of Apr 29)
Stock price $198.74
Market cap $51.51 billion
Total revenue $91.6 billion
Expected P/E 8.8x
Trailing yield 1.5%
HQ: Memphis, Tennessee
Founded: April 1978
(Figures 1 and 2 from FedEx materials)
Stock price chart
Chart provided by TradingView.com
(This column is for general information purposes only and does not solicit the purchase or sale of any securities)
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4. Investment Tips
In addition to discussing investment methods and stock picks, this section covers "indicators or statements that caught my eye" and "societal and political movements."
This time, contributions from Masaru Okura, a familiar writer to our YouTube channel "Investing in U.S. Stocks for 40 Years."
Longer-term interest rates than the yield curve
Previously titled "Monetary policy and the yield curve," we explained how monetary policy affects the yield curve. This time, we will explore the relationship between the yield curve and economic conditions.
1. Yield curve as a predictor
The yield curve reflects macroeconomic trends such as the business cycle and inflation, and the stance of monetary policy. The slope of the yield curve, measured by the difference between long-term and short-term interest rates, is called the yield spread. The idea that the yield spread is a leading indicator of the economy has long existed among economists and fund managers.
What has drawn attention recently is the relationship between an inverted yield curve and recessions. Specifically, when the 10-year and 2-year yields invert, a recession tends to follow. In the U.S., the 10-year and 2-year yields briefly inverted in April, triggering such concerns.
Now let's examine the relationship between the 10-year and 2-year spreads and the business cycle. Figure 1 compares industrial production year-over-year with the 10-year minus 2-year spread, showing that the yield spread tends to move ahead of industrial production. After an inversion, recessions often follow.
Figure 1 Yield spread (10y–2y) and industrial production
2. Shape of the yield curve before a recession
Next, let's review inversions that occurred since 2000 (dashed sections in Figure 2) one by one (Figures 3–6).
Figure 2 Yield spread (10y–2y) and recession
Figure 3 ① before the dot-com bust
Figure 4 ② before the Lehman shock
Figure 5 ③ before the COVID-19 shock
Figure 6 ④ as of March 2022
In all four cases, the 10-year rate fell below the 2-year rate, i.e., the yield curve inverted.
However, in cases ①–③, the 3-month rate (closely aligned with the policy rate) was higher than the 2-year rate, whereas in case ④ the 3-month rate had not risen much yet. This means the shape of the yield curve varies significantly depending on whether you measure the short end with 2 years or 3 months. Therefore, there is debate even among experts about the timing and magnitude of a recession risk ahead.
In practice, yield spread measurements use 10-year vs 2-year rates among market participants; researchers often use 10-year vs 3-month (or the policy rate, FF rate) in empirical analysis. The difference is that the 2-year vs 3-month reflects market expectations, while 3-month (or FF rate) more closely reflects current policy stance and contains less anticipation.
Which short-term rate to use is not clear-cut. The 10y–2y spread responds more quickly to policy expectations, while the 10y–3m (or FF rate) spread tends to be more predictive of the business cycle.
3. Patterns of inverted yield curves
Let's look at how inversions signal recessions. Figure 7 shows the moves of the 10-year rate, 2-year rate, and FF rate since April 1988. Inversions at the circled red dashed points have preceded recessions.
Figure 7 U.S. interest rates since April 1988
Looking at the circled points, around the economic peak, the Fed continues tightening while the market anticipates a downturn, causing long-term rates to peak and invert the yield curve. In other words, long-term rates peak before short-term rates.
Moreover, a closer look shows that first the 10-year rate falls below the 2-year rate, and later it falls below the FF rate. Thus, the inversion between 10-year and 2-year is an early signal, while the inversion between 10-year and FF rate is the main signal.
However, as Figure 8 shows, this time the 10-year rate has risen slowly while the 2-year rate jumped earlier, causing an inversion between 10-year and 2-year rates. This pattern is different from past inversions. Given that long-term rates are still rising and the Fed has just begun rate hikes, even if a premature signal is not a false alarm, it may take longer for the main signal to trigger.
Figure 8 U.S. interest rates since March 2021
4. Long-term rates rather than inverted yield curves
As noted in this newsletter before, the current U.S. stock market is transitioning from a liquidity-driven to a fundamentals-driven regime. In the transition to a fundamentals-driven regime, rates tend to rise and market volatility increases.
Furthermore, due to pandemic-related supply chain bottlenecks and commodity-driven inflation, inflationary pressures are high. Initially the Fed viewed inflation as temporary, but now is tightening policy with a hawkish tilt.
Also, quantitative easing began to taper last November and ended in March, which put downward pressure on long-term rates. Since tapering ended, long-term rates have started rising along with the 2-year rate, and the Fed is expected to begin quantitative tightening (QT) in due course. In the near term, long-term rates are likely to face upward pressure (at least until long-term rates peak). It goes without saying that higher long-term rates will weigh on P/E multiples.
From this perspective, in stock investing, the concern now should be not just the recession risk implied by inverted yield curves but the rise in long-term interest rates itself.
【Masaru Okura】
From Ehime Prefecture. Graduated Osaka University Economics in 1984. In 2005 earned a PhD in Economics from Saitama University. Worked at Citibank, N.A., Cititrust, Société Générale Trust Bank (now SMBC Trust Bank). Involved in pension and public funds and wealth management for high-net-worth individuals in private banking. In 2017 founded EagleCapital, an investment company in Kyoto's Higashiyama. CFA charterholder and certified member of the Japanese Securities Analysts Association.
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5. A Quick Walk-Through
◇◇Recent shops, films, museums, book edition◇◇
～Kumakura Tsuneshige’s Edition～
This is a contribution from former securities professional and voracious reader, Mr. Kumakura Tsuneshige.
Saga Monjuki / Kunio Tsuji
In Bunkyō, Tokyo, one envisions the academic district around the University of Tokyo, the tranquil neighborhoods of Nezu and Ichigawa, and a medical district with medical schools and hospitals.
From this scholarly milieu, publishing and printing houses cluster, and a thriving business flourishes from Otowa to Edogawabashi, centered on publishing houses.
Among the major players is the "Printing Museum," established within the corporate premises of Toppan Printing, with the aim "to establish and develop printing culture studies."
What is this "printing culture studies" about?
According to the museum's website, "Printing Culture Studies rethinks the relationship between printing and humans, which has not been seriously addressed before, from a civilizational historical perspective, and examines the activities of humanity and society involved."
Therefore, what can be viewed here comprises collected items related to printing—equipment, techniques, and printed works—assembled with the aim of comprehensive collection.
Among the collections, the standout in the Japanese books department is the "Saga-bon" collection.
【Saga-bon】 (excerpt from Nihon Kokugo Daijiten)
During the Keichō era (1596–1615) the late phase, Hon'ami Kōetsu and his school published books in Kyoto’s Saga primarily using movable wooden type. Named Saga-bon by place of publication. Saga-bon is renowned as the most beautiful book in Japanese publishing history, with luxurious designs in paper and binding.
Thus, the protagonists of Saga-bon—master calligrapher Hon'ami Kōetsu, master painter Sōtatsu, and the modern-day coordinator/producer Konkurou Soan—are woven into a long novel in the form of their individual soliloquies, titled "Saga no Meigetsuki" (Saga Field Moonlight Chronicles).
In my case, encountering this book led me to discover the existence of Saga-bon, view its originals, learn of Kōetsu, Sōtatsu, and Soan, and visit Kōetsu’s temple at Mount Takao, Kyoto.
Though the book's setting is the Sengoku era up to the founding of the Tokugawa Shogunate, it is not a heroic tale of warlords or famous events; the theme centers on an almost obsessive aesthetic pursuit by characters, where worldly matters become trivial in the face of beauty. Yet worldly intrigues continually attempt to manipulate or recruit these characters.
A cool, almost icy, emotional stance that rejects such enticements underpins the work’s main theme, flowing transparently and quietly.
This is a weighty theme in today’s chaotic world—the steadfastness of spirit.
Printing Museum
1-3 Suido, Bunkyo-ku, Tokyo, Totan Koishikawa Head Office Building
Opening hours: 10:00–18:00
Closed: Mondays (or the following day if a holiday or substitute holiday)
*Advance reservation required at present.
【Kumakura Tsuneshige】
1980 joined Daiwa Securities. Obtained MBA from University of Chicago Booth School of Business during corporate-sponsored study. Worked in Singapore and Hong Kong, involved in Asian business.
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6. Quick Guide: "Tips for asset formation that won't fail"
Former financial advisor Ryuichi Honmoto shares essential tips for steady long-term asset formation.
In this series, we will gradually share insights into the emotional pitfalls that investors tend to fall into and the traps to avoid when planning ahead.
Among those who consult me as a financial advisor, common concerns include the following.
① After starting asset management, profits are hard to come by and things aren’t going well.
② Invested in products recommended by financial institutions or hot new products, but unsure if they suit me.
③ Paying many fees yet not earning as much as expected; in fact, often losing money.
④ In the rare market crashes often reported in the news, what would I do if I were caught up in it…
⑤ Asset management is, after all, something for the rich, and not suitable for amateurs like me…
First determine where these worries come from and the negative effects of carrying around this uneasiness.
Then the responses typically are:
① You can't read the market, so you accept it… perhaps luck matters as well…
② You worry because you lack knowledge and experience in asset management.
③ Perhaps you are a layperson and asset management may not be suited to you…
And many people in this situation tend to do the following actions:
① Do nothing and wait (the “salted” approach) …
② Attend free seminars at other financial institutions to learn and consult experts (e.g., financial planners)…
③ Try to manage it yourself using low-cost online brokers and start asset management on your own… (best if you can do this!)
④ Gather information from money magazines and the web to find potentially profitable products…
⑤ Yet… "I still feel I’m unsuitable!" and finally give up asset management altogether…
None of these actions fully resolves the underlying anxiety.
So what is the root cause of this inability to rid yourself of anxiety?
This root cause is that people have not pre-anticipated the amount of loss they can bear before starting asset management.
This is not about being unsuited or asset management being too difficult.
I name this approach to asset management that starts after pre-anticipating the tolerated loss as "gentle-on-the-heart asset management techniques."
Why is starting with a pre-anticipated tolerated loss leading to reliable results?
Moreover, who practices this approach? …
As a private banker, I have learned from years serving ultra-wealthy clients their thinking and decision-making processes. In the next installments, I will share the common approaches.
Grew up in 1998 after graduating, started a career at Yokohama Bank. Later became a private banker at foreign financial institutions. The 2008 Lehman crisis occurred, and I aimed to become a true financial advisor rather than a top-level salesperson. After about 20 years in the industry, I went independent, studying overseas private banking and FA business models. I continually work on improving customer experience.
Currently, as an independent financial advisor, I do private financial consulting with a focus on truly aligning with clients’ values, without belonging to any single financial institution.
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7. What Ultra-High-Net-Worth Individuals Practice: Private Investment Strategies
Hiroshi Ichikawa, who specializes in IFA (Independent Financial Advisor) support for sales, shares the investment strategies used by ultra-wealthy individuals in a simple manner.
Today’s focus: Endowment investment. Endowment investing refers to the practice of managing assets funded by donations, as seen in U.S. universities. Endowment investing features unique asset allocations and strategies, delivering very high investment performance.
What is "Endowment"?
The word "Endowment" originally means "to donate or bestow." In asset management, it came to refer to the endowments of prestigious U.S. universities.
Donations do not require repayment, but endowments have an obligation to invest those funds semi-permanently to cover university expenses from the investment income.
Particularly large endowments, such as Harvard and Yale, have assets in the trillions of yen, with annual donations of hundreds of millions. These universities have investment offices that set targets, asset allocations, and manager selections.
There are about 800 endowments across U.S. universities, and the total assets under management are said to be around 50–60 trillion yen. Endowments are watched globally, not only in the U.S.
Harvard is currently the largest endowment, followed by the University of Texas and Yale. About a third of their expenditures come from endowment income.
Endowment investment characteristics
A summary of strategies was compiled by David Swensen, who led Yale University's endowment for 36 years (translated as "Yale's Investment Strategy").
Put stocks at the core of asset management as a long-term investor
Rebalance mechanically without trying to time the market
Actively invest in alternative assets such as real estate, private equity, hedge funds, and infrastructure to diversify risk from equities
In alternatives, emphasize selecting talented managers to achieve higher returns
Recently, portfolios show a high proportion of alternative assets like private equity and hedge funds.
Harvard’s asset allocation and management strategy
Let's look closely at Harvard’s management. Harvard’s portfolio delivers substantial returns annually. As of June 2021, the asset allocation shows that private equity (34%) and hedge funds (33%) account for about 70% of the allocation in alternatives.
How individual investors can replicate endowment investing
Endowments are large-scale and run by professionals, which may seem unreachable for individuals.
However, considering the nature of the capital, it is not someone else’s money or debt; it is individuals’ long-term capital. In this sense, individuals can emulate endowment strategies. This is a powerful advantage not available to banks, insurers, or pension funds.
Let us actively use this tool. The most important aspect of investing is to make time our ally. However, without diversification, large market swings can severely impact the portfolio, making long-term investing impractical.
Individual investors can emulate endowment strategies and pursue active, long-term diversification that large financial institutions or pension funds cannot.
Additionally, to invest in alternatives like private equity and hedge funds, it is crucial to diversify by asset and timing, but also to carefully select managers and optimize costs and structures.
【Ichikawa Hiroshi】
Investment strategies for becoming ultra-wealthy
President, Winviser Co., Ltd. He previously advised on asset management at SMBC Nikko Securities across Ibaraki, Fukuoka, and Tokyo, then moved to marketing ultra-wealth client financial products.
After switching to an Independent Financial Advisor (IFA) role, he advised ultra-wealth clients on asset management and, to support Japan’s financial industry development, founded a company specializing in IFA support. Now, in addition to supporting IFAs, he provides independent third-opinion asset management guidance to individual investors based on his experience.
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8. Upcoming Activities
◇ Stock Voice: May 11 and 18 (Wed) 11:00–
Nikkei CNBC: May 19 (Thu) telephone interview (Mr. Kanno)
May 24 (Tue) Studio appearance (Ms. Tsuguchi)
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