Wednesday, May 13, 2009

Harvard Favors Korea and Brazil ETFs

Harvard University, the richest U.S. college, raised its holdings of exchange-traded funds that track stocks in Brazil, China and Mexico in the first quarter as emerging markets outperformed U.S. equities.

The biggest new purchase reported by Harvard Management Co., which oversees the school’s $28.8 billion endowment, was 1.74 million shares of iShares MSCI South Korea Index Fund valued at $49 million, according to a filing yesterday with the U.S. Securities and Exchange Commission. Its largest stake was 8.28 million shares of iShares MSCI Emerging Markets Index valued at $205 million.

The quarterly 13F filing, which doesn’t reflect all of Harvard’s equities, offers a glimpse of how the Cambridge, Massachusetts, school is navigating the worst financial crisis since the Great Depression. The MSCI Emerging Market Index rose 0.52 percent in the quarter, while the Standard & Poor’s 500 Index, a benchmark of U.S. stocks, fell 12 percent.

Harvard Management Co. reported buying 61 U.S. listed securities in the quarter and selling off 28, leaving 90 issues. The value of its holdings rose 35 percent to $771 million.

Harvard’s endowment fell 22 percent from July 1 through Oct. 31, and is headed for its worst performance in at least four decades. The fund has been run since July by Jane Mendillo, former chief investment officer of nearby Wellesley College.

The report doesn’t show the school’s investments in stocks outside of the U.S. or in hedge funds, private equity, commodities and real estate. In addition, more than half of the endowment is overseen by outside firms. John Longbrake, a Harvard spokesman, didn’t respond to an e-mail seeking comment.

Harvard added to its ETF holdings in the quarter by buying 2.27 million shares of Vanguard Emerging Markets, as well as 1.5 million shares of iShares MSCI Brazil Index Fund and 1.14 million iShares FTSE/Xinhua China 25 Index Fund.

Exchange-traded funds typically are designed to mimic the performance of market indexes. Unlike mutual funds, whose shares are priced once daily after the end of each trading session, ETFs are listed on an exchange where shares are bought and sold throughout the day like stocks.

Harvard’s new purchases during the quarter include 1.47 million Class A shares of News Corp., the media company run by Rupert Murdoch, and 1 million shares of wireless phone company Sprint Nextel Corp. The school sold all 722,000 shares of GenCorp Inc., a manufacturer of aerospace and defense products; 605,000 shares of Heckmann Corp., which sells bottled water in China; and 575,000 shares of Columbus Acquisition Corp., a company set up to make acquisitions.

Harvard, projecting an endowment loss of as much as 30 percent, has frozen hiring and salaries and fired staff. Harvard raised cash by issuing $2.5 billion in bonds in December after failing to sell $1.5 billion in private-equity stakes.

Harvard Management in February said it planned to fire as many as 50 workers, including investment professionals, as part of an effort by Mendillo to “rebalance and reengineer the organization,” Longbrake said at the time.

(from Bloomberg, May 14, 2009)

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