amsterdamtrader

After reading Paul Kedrosky’s post about Harvard’s portfolio changes I decided to walk through its holdings in the latest SEC 13F report. Top investments where clearly some Emerging Markets ETF’s, but assumed this was because of the concentration of Emerging Market investments in a few lines, while regular stock holdings were scattered in a lot of different single stocks. Wrong.

After liquidating their US stocks in the last quarter of 2008, emerging markets make up for an astonishing 74% of their listed stock portfolio, and in my calculation France has even been shared under the developed markets. They put their money where their mouth is. Apparently Harvard is one of the last believers of the decoupling theory, in which the US economy is slowing down but the emerging markets continue to grow.

See chart below for their biggest ETF’s in their $ 571 million stock portfolio. Not a real change from three months earlier, just a little shuffle with various nations. Note: I’ve made a small mistake in the x-axis with one decimal. Numbers are in 10 million – hence the biggest ETF is 220 million instead of 22.

After removing the ETF’s, blank check companies and pref shares here’s the top 10 list of their major holdings. Again three emerging market stocks in the list, all of which are mobile phone operators.

Very interesting to see the boys from Harvard had some listed derivatives left as well. Year end 2008 they had a few long positions in single stock options left. No puts, no short positions and only front month far otm calls. Not much value left to liquidate. The x-axis is the quantity of the position.

First impression is that the portfolio “looks like it was chosen by someone who watched a few episodes of CNBC’s Squawk Box and heard that the hot new investments were emerging markets, commodities, and private equity”, as concluded by Daniel Gross in a Slate article in November ’08. Of course the investments listed with the SEC are only a small part of the Harvard Endowment portfolio. Emerging markets make up for only 11% in the whole asset allocation. Missing something, as $422 million of listed emerging markets should make up for around 4 billion of total investments – where one would expect 35 billion. They still have to rebalance I guess.

Worrisome are some of the fashionable real investments, like liquid commodities, agricultural land and real estate (altogether 26%). Sure it works as a fine hedge for inflation, but maybe a little tricky with the first European country in deflation as reported today (Ireland). Last year Harvard announced a $8 billion loss, excluding hard to value assets. Overweighted in private equity, emerging markets and commodities, more financial trouble to be expected at the campus.

“There are three types of lies – lies, damn lies, and statistics”, a famous quote attributed to the British politician Benjamin Disraeli. As of today we can add the bubble charts. Researchers from JP Morgan messed up their data on the capitalization of banking stocks terribly. The lay offs apparently have reached the researchers in the basement, wife and children have been put to work. Confusing diameter with area leads to chart junk, overstating the impact of the crisis (yes, overstating). Heard they left out Fortis of the research – the remaining market cap couldn’t be visible on pixel level. A decent and less dramatic graph from portfolio.com.

Click for larger image of the bubble chart.

A wave of bankruptcies will hit the US stock market according to Gunnar Stangl, strategist at Dresdner Bank in Frankfurt. “The crest of the wave is still going to hit us. Bankruptcies are really just like a slow avalanche”. Impressing chart. Busy with option expiration today. (click for larger picture)