The three co-winners of an asset allocation contest, in which BlackRock challenged sophomores and juniors at Duke University to design an ideal balanced portfolio for a volatile, low-yield world, were revealed last week in a New York Times article.
Junior economics majors Mike Du, Alex Kim and Jenny Zhang’s winning allocation was 43% stocks (30.3% Russell 2000 Index and 12.7% Russell mid-cap fund) and 57% bonds (32.1% Treasury Inflation-Protected Securities, or TIPS, and 24.9% aggregate bond fund).
The students projected an average annual return of 9.7% for this hypothetical portfolio, based on historical back-testing. The winners will get an interview at BlackRock and a shot at a summer internship at the Manhattan-based asset manager.
The team’s assumptions included an optimistic future average return of 5.91% a year from bonds in general and a 5.66% return from TIPS. They made no allocation to international equities, which many professional portfolio managers recommend.
The Times compared the Duke undergrads’ allocation with Vanguard and Fidelity target date fund allocations. Vanguard’s Target Retirement 2020 Fund puts 64% in stocks (20% in international equities). Fidelity’s Freedom 2020 Fund calls for 56% stocks (15% in international equities) and eight percent TIPS.
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