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Harvard's Portfolio Secrets: Discover the Next Growth and Income "Hot Spots"
By: Andy Obermueller
Chief Investment Strategist
Government-Driven Investing
Published: September 1, 2008

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. So maybe it's not surprising that Harvard grew its portfolio by +23% last year, and its long-term results are easily in the top 5% of all institutional funds.

Harvard didn't lock in these market-crushing gains by investing in U.S. companies and index funds. It couldn't have -- the S&P rose only +4.3% last year.

A peak inside Harvard's portfolio reveals that the university currently has $837 million invested in ETFs that are focused in Taiwan, China, South Africa and Brazil. And Harvard has been actively adding to its international holdings, boosting its stake in countries like Brazil (up +573.5% in five years), Mexico (+245.1%) and South Africa (+156.2%).

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 Securities and Exchange Commission (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.

While Harvard's portfolio provides a fascinating view of where these experts expect the next growth spurt, we're going to take you a step further. We're going to show you how to add a rich income stream to that growth by finding just the right investments in Harvard's high-growth hot spots. After all, why not have the best of both worlds? For example, we've found a telecom in Brazil with a 12.4% yield.

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.

So 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 pretty uncommon.  Most funds with a similar asset base might allocate roughly 20% of their portfolio to their top ten holdings, with the largest holding representing about 3% of the total. Harvard's top holding makes up 12.8% of its portfolio -- four times the size of most fund's largest stakes.

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.

Granted, Harvard's top holdings are in more diversified funds, but there can be no question it is betting big on the international front. Of its top ten equities, eight are exchange-traded funds (ETFs), 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:
 
Harvard's Top Ten Holdings Ticker Allocation

Value

iShares Russell 2000 Index IWM 12.8% $417,174,000
iShares MSCI Brazil EWZ 12.2% $395,778,000
iShares MSCI Emerging Mkts Index EEM 9.0% $293,247,000
iShares FTSE/Xinhua China 25 FXI 6.1% $199,322,000
Weyerhaeuser WY 5.7% $185,917,000
iShares MSCI South Korea EWY 4.7% $153,627,000
iShares MSCI Mexico EWW 4.7% $152,974,000
iShares MSCI South Africa Index EZA 4.3% $140,119,000
iShares MSCI Taiwan EWT 3.2% $102,563,000
Clear Channel Communications CCU 1.4% $45,760,000
  TOTAL 64.1% $2,086,481,000

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 (NYSE: 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.

According to Harvard's August 18th SEC filing, it bought 7.2 million shares of EWT, the iShares MSCI Taiwan Fund in the second quarter -- a $100 million purchase. We call Taiwan "Harvard Hot Spot No.1."

Readers of our StreetAuthority's premium High-Yield International newsletter have already heard the Taiwan story. Editor Nick Lanyi presented his findings on Taiwan's promise earlier in August. And his report didn't stop with an insightful analysis of the country's prospects. 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 is also paying a robust 9.2% dividend.

Harvard's filing identified 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 August 20th. 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 by 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.

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