A favorite word in and around my hometown. The picture is (not very good) of Harvard Square.Yesterday Paul Kedrosky (you read him right?) posted some info about the holdings of the Harvard Management Company.
Before we get too far into this, I would remind that these are just the holdings of publicly traded stocks and funds directly managed by HMC and not representative of the part of the fund that is hired out.
Below is the table that Paul had of the top ten holdings via filings dated December 31. That it is so heavy in narrower ETFs says a couple of things to me. Given their resources and personnel if they wanted to own more individual stocks they certainly have the wherewithal to pick more stocks. So I take the ETFs as a comment about individual stocks not having a great risk reward proposition which, if correct, is an interesting comment at SPX 800.
Also interesting is how heavy it is in emerging market ETFs. I'm not sure what to conclude from that. It actually seems rather unsophisticated. Perhaps it is beyond my grasp (there are plenty of smaller positions that are individual stocks) or some sort of manner of hiding out until things improve, the filing does not say how much is in cash.Also odd is that almost 40% of the portfolio is in EEM. I would not doubt that the reasoning is beyond me but I don't get it. In fact 72% appears to be in emerging market ETFs. I'm sure there is more to this story but this makes a great argument for something I have been saying for a while about the endowments which is read and learn as much as you can from them but trying to emulate them is probably not a great idea.
15 comments:
There are no percentages listed, are there? Simply ranks.
That said, yeah, the list is kind of weird. How in heck do you trust Russia as an investment right now.
Given the amounts they farm out, who knows what total percentage these 10 ETFs are in their portfolio. Also of interest: I believe the group that runs the endowment has had some layoffs.
if you click on the link of the filing you can figure the percentages of this portfolio just eyeballing. figuring the entire twenty something billion would only take a little more work.
HMC announced a layoff of 25% of its staff, don't know if they have done it yet.
Interesting to think if the ETF is the chicken or the egg in the layoffs. Also, Havvvaad seems to have always viewed the direct equity side as throw away...to me it could mean they beleive the US market trades sideways to down and speaks to the issue you have brought forth of Secular v. Cyclical for US v. Internationals. On the other hand, I cant cut the deals Haavvvaad can with the PE, VC, and Hedgies so best just to read and feel for the 25% staff being cut. I always thought if I were a PE fund and I had Haaavvaad as a client, I'm inflating that mark to market to keep them happy and keep up those sick performance numbers...interesting to see what happens now.
On another note, maybe sometime next week, in all your free time, you could discuss a little about Planners using funds that are actively managed, but really only out perform 3% or so as opposed to "real" investors that go off script. I have viewed this as a business risk v. doing what you should for your clients. It seems like a soft question, but if you play around with it a bit, it has wide implications. Happy weekend, hopefully no more snow for you for a while.
no more snow until...monday.
i will mull the rest of your qeustion, thank you.
the weather here is actually fantastic. during the week, after the storm the temp got up into the mid-40s which is very warm while you're shoveling snow.
Take a look at Jeremy Grantham's at GMO LLC's Feb 2009 Part II letter regarding overweighting in EM. As a top-down guy, I would think you would endorse his methodologies.
The second to the last sentence in the piece is, "Consequently, there is great advantage to be had in getting out of the way of the freight train, rather than attempting to prove your discipline by facing it down." Did he borrow that line from you Roger?
Those holdings look suspiciously like a core and explore portfolio that Jim Jubak posted awhile back at msn money. The topic, as I recall, was something like when and how to get back into emerging markets.
70% as overweight or core? that seems like a lot to me.
The last sentence seems to say it all. What a vicious circle! Jobs are lost...people spend less...manufacturers produce less...manufacturers lay off people...jobs are lost...people spend less...and on and on and on.
So how do we get out of this mess?
'Malign deflation'
U.S. consumers are used to seeing the price of manufactured items like laptops and T-shirts fall year after year while commodities prices make big swings. Earlier this decade, oil prices traded under $12 a barrel.
Such deflation isn't bad news because prices are falling as companies find more efficient ways to make products. Wealth is created in that process as people's buying power and standard of living rise.
But this time around, prices are mostly being driven lower by a damaging drop in demand, which raises alarm bells.
The International Monetary Fund sees many of the same pressures around the globe. It estimates the risk of "malign deflation" is much greater to the world economy than during the 2002 to 2003 deflation scare.
"If inflation is falling by 2% a year, people won't buy a car or TV, because they know anything they'll consider buying will be cheaper next year," said UC Berkeley's Eichengreen. "If no one's buying, no one's producing and no one's hiring - that's the problem we are trying anxiously to avoid."
Roger- a great article by Mish on gold. Are you overweighting gold?
http://globaleconomicanalysis.blogspot.com/2009/02/you-cant-fool-gold.html
"If inflation is falling by 2% a year, people won't buy a car or TV, because they know anything they'll consider buying will be cheaper next year," said UC Berkeley's Eichengreen. "
There's a man who is far removed from reality. maybe he can commisssion a study to call 1000 people and see if they know the inflation rate.
The following is an excerpt from Grantham's Part 2...
"GMO has attempted to tiptoe through the land mines in asset allocation and to minimize regrets as described last quarter, caught between the potential regret of missing decent investment opportunities, and the potential regret of investing too much too soon and then watching our tactical 2 to 1 guess of a new low come true. In October, our Global Balanced Asset Allocation Strategy was at 39.8% in global equities, well below our 45% target minimum (itself lowered from 50% in the previous year with clients’ consent). We are now at 55% against a 65% norm and a 75% maximum equity position. If the market stays moderately below fair value, our current intention is to move “creeping like snail” toward a neutral 65% by late summer. If prices pull ahead of fair value, we
will freeze and stay underweight. If prices plummet to new lows, we will invest more rapidly according to a prepared schedule, e.g., at 600 on the S&P, invest in another several percentage points of equities, etc. This plan minimizes our potential regrets and leaves us feeling as little discomfort as possible, given the strange world in which we now live."
SD, no doubt, if TV's ONLY fell 2% per year, I'd be disappointed.
Barry Ritholtz had lunch with Taleb, the following is a link whereby Barry suggests SP fair value is 440...
http://www.ritholtz.com/blog/2009/02/fair-value-for-sp-440/
I predict that by the end of March Roubini is saying the S&P 500 is worth $23.
I work for a multi-billion US endowment. There is nothing to be learned from Harvard's 13-f. They use these securities in conjunction with other strategies. They could be beta plugs for assets in transition among outside managers. they could be underweight in an area and use them for rebalancing. You also do not know how these assets are funded or what they may be held against (they could be relative value trades against derivatives). Endowments do not care how people perceive their filings or their asset allocation reports (you shouldn't take those at face value either). All of this applies for endowments with in-house management staff (not those that rely on consultants).
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