Investing Genius: Harvard Just Poured $100 Million into this International Fund 

     Harvard Management Co. is the steward of the esteemed university's endowment fund, which, at about $35 billion, is one of the largest in the country. 

     It's safe to assume that Harvard Management is run by remarkably intelligent and capable people.  Not only is Harvard one of the world's leading academic institutions, but $35 billion qualifies as the big leagues of big money, which tends to attract the best and brightest. 

     Given that, you won't be too surprised to learn that Harvard Management is indeed a savvy investor.  It generated a +23% return last year, almost six times the S&P's tepid performance.  Every undergrad at the Harvard Business School who knows the "Rule of 72" knows that a +23% rate of return will double an investment in just over three years.

     You might think you'd have to be on the dean's list to see Harvard's portfolio, or at least be a member of the exclusive Porcellian Club.  Not so. Harvard reports the details of about $3.3 billion of its endowment to the SEC.  Our research staff crunched the numbers from those filings. The facts they uncovered won't just put information in your head, they can put dollars in your pocket.

     So what is this prestigious university doing to generate such remarkable returns?

     First, let's look at what the brain trust at Harvard has sold:

     It got out of Oracle, Starbucks and Valero.  It sold blue-chips like Wal-Mart, DuPont, Home Depot and Exxon Mobil. Warren Buffett's Berkshire Hathaway may own shares of M&T Bank, Johnson & Johnson, American Express, Coca-Cola and Norfolk Southern -- but Harvard sold its entire stake in all of those companies.

     What does Harvard own? 

     Harvard owns 209 securities.  On the surface, that's about the same as other funds its size, give or take. But looking a little closer we notice that Harvard's top ten holdings account for almost 65% of its portfolio.

     That level of concentration is very rare.  More typical: The Thrivent Large Cap Stock Fund, which has roughly the same asset base as the portfolio Harvard reports, has allocated only 19.7% of its portfolio to its top ten holdings. And no single security comprises more than 3% of the total. That sort of diversification, for better or worse, is the way most large funds operate. 

     So Harvard is clearly far more confident of its picks' ability to generate immense gains.  It isn't spreading its money around.  It isn't hedging its bets.  It has made its selections and is counting on them to deliver huge results.  Harvard's top holding makes up 12.8% of its portfolio -- four times the size of most funds' largest stakes. 

     What's more, Harvard's portfolio has an obvious international theme. Of its top ten equities, eight are exchange-traded funds, and seven of those are focused on international markets.  In fact, roughly $1.4 billion of Harvard's assets -- about 45% of its portfolio -- is invested in international ETFs.  Its foreign equities have returned an annualized +19.8% for the past five years -- a rate of growth that turns $1 billion into $2.5 billion in five years.

     Here's a closer look at Harvard Management top ten portfolio holdings:

      We've been telling our readers about the importance of international investments for years.  In fact, Harvard's No. 2 holding, the iShares MSCI Brazil Fund (EWZ), is a recommendation we started giving to to investors -- in 2004.  This pick has returned an amazing +573.5% in the past five years.  That's exactly the type of return you need if you want to propel a $3.3 billion portfolio forward at a +23% annual clip.  Today, more than 12% of Harvard's portfolio hinges on Brazil's continued success.

     On Aug. 18, Harvard disclosed its holdings for the second quarter.  These filings showed it had bought 7.2 million shares of EWT, the iShares MSCI Taiwan Fund -- a $100 million purchase.  We call Taiwan a "Harvard Hot Spot." 

     Readers of our premium High-Yield International newsletter had already heard the Taiwan story.  Editor Nick Lanyi had presented his findings on Taiwan's promise earlier in the month.  His report didn't stop with an insightful analysis of the country's promise.  Nick went on to spotlight a high-tech manufacturer whose shares not only offer the same kind of growth potential that Harvard is betting on, but that are also paying a robust 9.2% dividend. 

     Harvard's filing showed three more "Hot Spots" where it increased its holdings.

     The university is undoubtedly wise to pursue a growth strategy in these countries.  And while businesses in those nations are expanding at a robust clip, these countries are also home to mature industries that pay steady dividends. 

     To that end, High-Yield International has sought -- and found -- a host of compelling income opportunities in the same countries Harvard is betting hundreds of millions of dollars on.

     Here are Harvard's other Hot Spots, where Nick also found high yields:

     Harvard Hot Spot No. 2:  South Africa.  Harvard has invested $140 million in South Africa.  Nick was hard at work studying South Africa this spring and unveiled his findings to High-Yield International subscribers in May.  He introduced his readers to a telecom stock there with a 9.3% yield. 

     Harvard Hot Spot No. 3: China.  Harvard has $200 million in China.  In July, Nick took his readers there and showed them a leading electric utility with a 6.7% yield.  This utility's price appreciation potential is significant: the Chinese government just allowed it to raise rates +5.7% effective Aug. 20.  Best of all, this stock trades as an ADR, so it's every bit as easy to own as one of Harvard's ETFs. 

     Harvard Hot Spot No. 4: Brazil.  Harvard's stake in Brazil is $400 million.  Nick manages two portfolios for High-Yield International subscribers, "Reliable Income" and "Ultra High-Yield."  His Reliable Income portfolio contains a Brazilian telecommunications company that's currently yielding 12.4%.  Nick published his analysis about Brazil in his April issue. 

     Harvard's investment strategy is devised by the best minds in the business.  They don't earn +23% a year being lucky -- they earn it by being smart.  But if you're looking for gains like these PLUS a rich income stream, you're not going to find it in Harvard's portfolio. 

     Only High-Yield International will provide you with hefty yields of 9.2%, 9.3%, 6.7%, and 12.4% in these "Harvard Hot Spots."  And high yields like these are just the beginning -- every monthly issue of High-Yield International will be chock full of high-yielding investment ideas.

     Learn how to get the names of all four of these high-yielders right now. 

-- Research Staff
Global Dividend Opportunities
GlobalDividends.com
839-K Quince Orchard Blvd. 
Gaithersburg, MD 20878-1614

It's a myth that international bonds are only for very aggressive investors. Adding international bonds to a portfolio of domestic securities offers U.S. investors greater diversification and the potential for reduced volatility. Adding just a 10% allocation of international bonds to a domestic stock portfolio would have reduced its risk by 9.78%, while achieving 97.01% of the return of the stock portfolio over the 20-year period ended December 31, 2007.

-- Franklin Templeton

-- CNBC

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