Harvard University is the world’s richest college, measuring by endowment size. As a result, the $32 billion endowment, overseen by Harvard Management Co., is closely watched — with some investors looking for new investment ideas and others just curious about whether the smarty-pants Ivy League institution can put its money where its mouth is on matters of business.
Right now, it’s interesting to see Harvard moving out of some big private-equity stakes. Reports indicate the university is looking to sell some $1.5 billion in holdings as it cuts back on investments that led to some rather brutal losses during the financial downturn.
Jane Mendillo, chief executive officer of Harvard Management, took over the school’s investments in July 2008. Mendillo said recently that the school’s private-equity and real estate investments have been reduced to between $5 billion and $6 billion from $11 billion two years ago.
So what’s Harvard doing with all that freed up cash? Well it’s keeping some as a cushion against another shock, but it appears to be investing heavily in dividend stocks and related investments. Over the decade that ended June 2011, the endowment’s best-performing asset class was fixed income. And across the last full-year reporting period, the endowment scored 21% gains — led in large part by Harvard’s portfolio of public stocks and dividend investments, which climbed more than 28%.
Dividend investors shouldn’t be surprised by the fact that income and equities are a big part of Harvard’s game plan. Many of the top-performing sectors in 2011 have been dividend-rich blue chips.
Utility stocks, as measured by the broader Utilities SPDR ETF (NYSE:XLU), are up almost 12% this year — well above the 5% gains for the broader market since January 1, 2011. Also riding high are tobacco stocks, with Altria Group’s Philip Morris (NYSE:MO), Lorillard (NYSE:LO) and Reynolds American (NYSE:RAI) all up more than 20% this year. It doesn’t really matter that there isn’t red-hot growth in these sectors, because investors are flocking to the stocks and pushing up share prices in pursuit of stable, cash-rich businesses like these.
It’s interesting to note the divergence from Harvard’s approach just a few years ago, which led to a fantastic crash for the storied endowment. The school’s exposure to complex derivatives and commodity investments left it very exposed to the financial crisis — and with little cash on hand, it was forced to sell between $2 billion and $3 billion in stock into a crashing market.
Now, risky bets have been replaced and the school continues to move out of private equity stakes in buyout firms and real estate to reduce its exposure to these volatile sectors.
Perhaps investors could learn a thing or two from the Ivy League school and its focus on dividend investing.
Jeff Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.
