How Stock Pickers Can Imitate Harvard and Yale
Harvard and Yale have the two largest university endowments in the United States, both of which are worth a combined value near $50 billion. David Swensen has managed the latter since 1985, while Jane Mendillo has served as President and CEO of Harvard Management Company since the summer of 2008.
Both endowments have investments in a variety of asset classes, but due to SEC regulations, the only positions that are publicly disclosed are those that trade on the U.S. markets. At Insider Monkey, we’ve discovered that the best stock picks of the best hedge funds and other prominent investors can outperform the market, and there are a few investments from Harvard and Yale that long-term piggybackers should pay attention to.
We’ll begin by discussing Yale. Known for his so-called “Yale Model,” David Swensen has overseen a period of enormous growth at his alma mater’s endowment, returning 13.7% per year between ’85 and 2012. The primary reason most often cited for Swensen’s success is his willingness to venture beyond a traditional stock/bond strategy into natural resources, alternative investment funds and emerging market instruments.
As mentioned above, we can only see his picks in U.S.-listed securities, and according to the history of his SEC filings, there aren’t many positions for piggybackers to mimic. In Yale and Swensen’s last 13F filing, for example, just six positions are reported: stakes in Vanguard FTSE Emerging Markets ETF (NYSEARCA:VWO) and iShares MSCI EAFE Index Fund (ETF) (NYSEARCA:EFA) that represent over 80% of the equity portfolio and small holdings in Approach Resources Inc. (NASDAQ:AREX), Palo Alto Networks Inc (NYSE:PANW), salesforce.com, inc. (NYSE:CRM) and Shutterstock Inc (NYSE:SSTK).
Of these four stock picks, Shutterstock and Salesforce were new positions in the second quarter, and Palo Alto was a new pick in the first quarter of this year. This leaves Approach Resources as the only long-term stock holding in Yale’s endowment. The stake was originally established in early 2011, and although shares of the oil and gas E&P haven’t fared well since this date, they are up 16% in the last three months.
Approach isn’t particularly cheap at current levels and it doesn’t pay a dividend, but growth is the main thing pushing investors into this stock of late, and the company did just report record production in its latest quarter. According to sell-side averages, Yale and Swensen’s lone long-term stock pick is expected to double its earnings next year before settling into a five-year annual average of 20% through 2018.
Harvard, meanwhile, manages its endowment primarily through Harvard Management Company, which is one of the firms we track. Unlike Yale, Jane Mendillo and her team at Harvard have held a few stocks since the beginning of 2011.
Pebblebrook Hotel Trust (NYSE:PEB), Service Corporation International (NYSE:SCI) and America Movil SAB de CV (ADR) (NYSE:AMX) are three such names, and are the only long-term holdings in Harvard’s top 25.
Pebblebrook, a hospitality REIT, and Service Corp, a deathcare provider, have each beaten the market this year, returning close to 30% on average. America Movil, meanwhile, hasn’t had a good 2013, but it does offer a dividend; in fact, all three of Harvard’s biggest long-term holdings pay dividend yields of at least 1.5%.
Generally speaking, if you’re interested in mimicking the world’s most successful investors, consensus filings are the way to go, but there are always investors out there that want to ape the Ivy Leaguers like Harvard and Yale. If you are one of these folks, it would be smartest to track stocks like Pebblebrook Hotel, Service Corp, America Movil and Approach Resources first, before placing any importance on the universities’ shorter term stock picks.