Prefab Modern - BreezeHouse and GlideHouse

I have always wondered why prefab houses had to be drab houses. Why doesn't someone just spend some time to design a cool, modern prefab that can be produced cost effectively while exuding style and class? San Francisco architect Michelle Kaufmann has done just that, and thrown in some eco-friendly design as well. I want one!

Video Tour of a BreezeHouse

Some Assembly Required - Wired

Michelle Kaufmann Designs

BreezeHouse- LiveModern

GlideHouse - LiveModern

GM Pension Asset Allocation

GM has been getting a lot of press recently about its deteriorating credit ratings, its underfunded pension, and its possibility of bankruptcy due to deteriorating financials. One of the biggest problems is its huge number of retirees, and the pensions it needs to pay to them. In the past, they have forecast a 9% rate of return for their expected pension returns, which some say is rather optimistic. The traditional media has a particularly annoying habit of leaving out the real details, so I had to do a bit of research on my own to find out what GM's pension situation is really like. I though it'd be particularly interesting to look at their asset allocation in which they plan to use to achieve this 9% rate of return.

According to this ValueLine report, GM has $115.9 billion in pension assets as of September 2005, but its pension obligation is listed at $184.9 billion. So, exactly what are they doing with their huge pension fund? Here's a published report on GM's Pension from December, 2003 that gives some details on asset allocation.

U.S. Equities    24-28%
Foreign Equities 17-21%
Global Equity    41-49%
Global Bonds     32-36%
Real Estate       8-12%
Alternatives      9-13%

This contrasts with their past history of allocating:

Equities                55-60%
Bonds                   30-35%
RealEstate/Priv. Equity 10-15%

The report states that they had considered shifting more into bonds to lower volatility, but that was deemed non-optimal due to low returns. Instead, they opted to shift assets into asset classes where active management generated higher excess returns with low correlation to stocks and bonds. In particular, such assets might include emerging market equity, emerging market debt, domestic high yield, small cap equity, real estate, private equity, and absolute return (hedging) strategies.

They consciously reduced exposure to large cap equities and diversified quite nicely into non-correlated assets. Overall, it looks like a reasonable financial plan. Diversifying to non-correlated assets makes financial sense. The main risks, however are that they are relying upon the skill of active managers to deliver outstanding returns. It's a big question mark whether those managers can do that. Unfortunately, the report doesn't give any more details on the asset classes and managers chosen.

Asset Allocation Strategies

A quick post here..... I came across this very interesting page on asset allocation strategies:

http://www.geocities.com/finplan825/ModelPortfolios-Data.html

I think these are all underweighting foreign markets, which now constitute around half the total world market capitalization of stocks, and completely ignore commodities, which are an important inflation hedge.

How a Multibillionaire Invests - Lessons from the Yale Endowment

The Yale Endowment is one of the most successful long-term investors. Last year (2005) their return was over 22%. And they have a long-term 20 year track record of over 16% in annual returns. They achieved these remarkable returns by careful asset allocation strategies. Anyone interested in asset allocation should read the Yale Endowment Report, which reads like a blueprint of their asset allocation strategy. It's interesting to see their historical graphs on how their asset allocation strategy has changed over time from being U.S.-centric 20 years ago to being much more diversified.

Some of the things they favor include hard assets, small caps, and value investing. They have a surprisingly small amount devoted to fixed income. They also tend to like active management and trying to beat benchmark indices.

Their current target allocations are:
Domestic Equity 14%
Fixed Income 5%
Absolute Return 25% (hedging strategies)
Foreign Equity 14%
Private Equity 17% (VC and leveraged buyouts)
Real Assets 25% (Real estate, oil, gas, timber, commodities)
Cash 0%

Green With Envy (Investing in SRI Funds)

Energy prices have been at record highs in recent months. The price per barrel of crude oil is around $66, which is near historical absolute highs (prices not adjusted for inflation though). So, with such high energy prices, everyone, even (surprisingly) President Bush, is suggesting we look at alternative energy sources. Socially responsible funds might fill the bill here- there are a few that I'm looking at.

At the top of the list is the Winslow Green Growth Fund (WGGFX) which invests in environmentally responsible, environmentally benign, or best-of-the batch (least irresponsible) companies. It is not a pure energy focused fund, but diversifies into various industries, including alternative energy, software, health care, and industrial materials among others. It currently has a 5 star Morningstar rating. It's a bit risky though, with a high beta of 1.81, and it is weighted more in small-caps. It's a no load fund with a 1.45% expense ratio (higher than I'd like, but within the range that I would consider).

Another SRI fund is the New Alternatives Fund (NALFX) which is more focused on the energy and industrial materials sectors than WGGFX - more concentrated, if that's what you're looking for. This fund has a 1.32% expense ratio, however, has a HUMONGOUS 4.75% front load- rather ironic that a socially responsible fund is gouging its investors charging such an outrageously high fee- Shame on them!

See also:
* Top Morningstar SRI Funds
* In the year of the oil boom...


(disclaimer, at the time of this writing, I currently do not own, but by the time you read this I may buy or have already bought and have sold funds mentioned in this article).