State Street Global Advisors plans to launch a new exchange-traded fund that encapsulates the investment strategy of one of the biggest institutional investors in the U.S. Named the UC Investments 90/10 Endowment Strategy Index ETF, this new fund aims to make the University of California’s endowment principles accessible to retail and institutional investors alike.
#What does the 90/10 asset allocation mean?
The term "90/10" reflects the fund's asset allocation, indicating a strategy of investing 90% in equities and 10% in fixed income or similar stabilizing assets. This allocation leans aggressively towards stocks, even by endowment standards. Historically, the University of California's endowment has operated under an 80/20 model. Its current Blue & Gold Endowment Pool has approximately $7 billion and achieved a recent annual return of 15.8%. The new ETF represents a shift toward an even greater emphasis on equity investments.
This decision aligns with a broader strategic direction at UC Investments, which is actively increasing its public equity exposure, targeting a 50% allocation of public equities in its total portfolio. Simultaneously, the institution has been reducing its commitment to hedge funds, a category that has faced declining popularity among major endowments due to factors like high fees and inconsistent performance.
#Has SPDR and UC Investments collaborated before?
The upcoming ETF is not a new venture for SPDR and UC Investments, who previously collaborated. In 2022, the University of California invested $300 million in the SPDR MSCI ACWI Climate Paris Aligned ETFs, which are designed to focus on companies aligned with the Paris Agreement goals.
#What should investors know?
While the ETF is still in early development and lacks a ticker symbol or expense ratio details, it signifies an aggressive investment strategy. A 90% equity portfolio could expose investors to significant risks during market downturns. However, for investors with long investment horizons, such as endowments, historical data shows that higher equity-weighted portfolios have potential for significant returns. The performance of the Blue & Gold pool is a prime example of the upside of this approach, although previous performance does not guarantee future results.
It's important to clarify that this ETF does not involve cryptocurrency or blockchain-related assets. There is no indication of any digital asset exposure in the fund.