It's probably no surprise that Harvard University has cranked out more billionaires than any other university in the world.
What might come as a surprise to you is just how much of that money from wealthy alums makes its way back into the prestigious Ivy League school, contributing to a jaw-dropping endowment of over $32 billion. That stockpile puts Harvard as the richest college in America, with Yale coming in at a distant second (with a relatively paltry $20.7 billion). (In fact, some joke the university is in fact a giant hedge fund with a tiny school attached to it.)
Nearly $1 billion of that cash is disclosed quarterly to the SEC in a Form 13F, which outlines Harvard Management Co.'s long-only stock and debt positions, as well as some option positions. Because they have a mandate to generate market-beating returns while fulfilling long-term fiduciary responsibilities, university management firms like Harvard's are particularly interesting candidates for closer looks during filing season.
Harvard Management’s 13F for the first quarter of this year showed a heavy slant toward South America, with an emphasis on Brazil. Were these positions short-term trades to capitalize on the World Cup or rumors that Brazilian President Dilma Rousseff might lose in the upcoming October elections?
Not necessarily. Let’s take a closer look at three Brazilian ADRs (American depositary receipts) with yields over 6% to see whether Harvard Management might be looking for an exit now that the Cup has wrapped up and elections are around the corner. (My colleague Joseph Hogue, a resident of Colombia, gave his own take on Brazil's post-Cup prospects last month.)
Telefonica Brasil (NYSE:VIV)
Despite this telecom's impressive 7.7% yield, Harvard Management had only about $330,000 in VIV at the end of the first quarter. If consumer sentiment is any predictor of future performance, perhaps the endowment’s small investment is for the best: Last year, Telefonica generated more consumer complaints than any other telecom in Brazil. That's not to say Telefonica has been a short-term investment for Harvard Management, which has had a stake in VIV off and on for 31 quarters since 2001. That history gives me reason to think Harvard Management will continue to hold a small stake.
Banco Bradesco (NYSE:BBD)
Brazil's second-largest private bank, Banco Bradesco consistently generates returns on equity above 20%, fueling BBD's nearly 24% gain over the past 12 months. Harvard Management has had BBD in its portfolio since 2001, with a maximum position of $10.6 million at the end of 2010. As of Harvard Management’s last 13F filing, the fund has kept its holdings around the $2.2 million mark. Banco Bradesco offers a dividend yield of 7.2% and often returns money to shareholders in the form of special dividends.
The global mining giant is Harvard Management's largest Brazilian holding, with a stake of $5.4 million at the end of the first quarter, down from a peak of $25 million at the close of 2010. The consensus price target for VALE is near $17, representing upside of better than 20% from current levels -- but that target may be hard to meet, however, given that prices for iron ore have fallen to four-year lows. In addition to offering a 6.1% dividend yield, VALE looks undervalued compared with mining peers Rio Tinto (NYSE:RIO) and BHP Billiton (NYSE:BHP), at a price-to-EBITDA (earnings before interest, taxes, depreciation and amortization) multiple of 4, well lower than RIO's 5.7 and BHP's 6.7.
Risks to Consider: We're on the cusp of newer filings from Harvard Management, but long-term-oriented firms don't typically dart in and out of investments.
Action to Take --> South America (and Brazil in particular) is well-represented in Harvard Management’s portfolio, and if history is any indication, we can expect many of these plays to keep a presence for some time to come.
P.S. -- Would a risk-averse institution like Harvard Management Co. have millions of dollars in international stocks if they were just "risky" growth investments? If you're ignoring overseas markets, then you could be missing out on some of the market's biggest income opportunities. All told, we've found 93 companies paying 12%-plus yields -- and nearly a thousand more paying above 6%. Click here to learn more.