New Federal Reserve Chairman Janet Yellen soon will have more influence over Wall Street and the economy than anyone else in the world, but as an investor, she’s conservative to the point of making some classic mistakes, according to investment advisers who looked at her financial disclosure statement at the request of InvestmentNews.
The incoming Fed leader, who was confirmed by the Senate Monday, puts her assets largely in bond and equity index funds, and blue-chip stocks, according to her financial disclosure on file in the Government Ethics Office.
Ms. Yellen, 67, estimates the value of her assets at between $2.2 million and $4.9 million. In addition to her financial assets, she lists a stamp collection that she values at between $15,001 and $50,000.
“What jumps out at me is the conventionality of it,” said Arthur Grant, president and chief executive of Cadaret Grant & Co. Inc. “This looks like a quintessential asset allocation strategy. She knew it would be scrutinized for her philosophy of investing.”
Investment advisers described Ms. Yellen as largely avoiding risk while still participating in the market.
“She's taking the long view,” said Dave O'Brien, owner of O'Brien Financial Planning. “It looks prudent.”
Most of the joint assets owned by Ms. Yellen and her husband, George Akerlof, are held in the Akerlof and Yellen Family Trust. A former professor at the University of California, Berkeley, Ms. Yellen, and Mr. Akerlof, also a Berkeley professor, participate in the school's defined-contribution plans, which allocate investments among Fidelity funds and investments owned by the university.
Elsewhere in her portfolio, Ms. Yellen shows a strong preference for Vanguard, owning nine of the company's funds. This proclivity demonstrates one of the weaknesses of her portfolio — putting too much money into too few fund companies — according to advisers.
“I'm a Vanguard guy, but I also use some bond managers who are tactical,” Mr. O'Brien said. “I'd do a little bit more diversification.”
Not only is Ms. Yellen's portfolio largely centered on products offered by a handful of companies — Vanguard, Fidelity and TIAA-CREF — it also contains funds that sometimes duplicate each other on their individual holdings, according to Joseph Kelly, a certified financial planner at Valic Financial Advisors Inc.
“They're making the common mistake that most investors do — because they have a lot of holdings, they think they're diversified,” Mr. Kelly said. “There are so many choices out there. Why not spread some of the risk?”
Mr. Kelly also notes that Ms. Yellen does not own exchange-traded funds and has little international exposure. He would recommend that she hedge her portfolio a bit by adding commodities, real estate investment trusts, utilities and foreign bonds.
“I get the impression [Ms. Yellen and Mr. Akerlof] are so busy with their lives, they're not paying attention to their portfolio as closely as I think they should,” Mr. Kelly said. “Some minor tweaking would really optimize their return and minimize any volatility.”
Fed rules prohibit Ms. Yellen from buying or selling securities during the seven days prior to a meeting of the Fed's Federal Open Market Committee. She cannot hold a security for fewer than 30 days, other than shares of a money market fund.
In taking a risk-averse investing approach, Ms. Yellen is essentially showing confidence in the Fed's ability to manage the economy.
“One of the things she's not doing is making a bet against bonds,” Mr. Grant said.
She's also someone who eschews yield-chasing through the hottest new Wall Street instrument.
“She may be able to explain how these complex investments work, but her portfolio shows she doesn't believe they're the right thing for her,” Mr. O'Brien said.