U.S. stocks, foreign stocks and high-yield funds went down in value, while hedge funds were a disappointment.
Domestic, foreign and inflation-indexed bonds made significant gains. Real assets such as commodities excelled.
We’re not talking about anyone’s 401(k) here, but rather the $34.9 billion Harvard University endowment.
It posted an 8.6 percent investment return for the fiscal year ended in June. Although not as good as the previous year’s 23 percent return, that result was nothing to sneeze at in a period of relentless financial tumult.
Here are several points that average investors can glean from Harvard’s results:
*It spread around its holdings in several investments.
The portfolio of investments is diverse and not simply in equities. In the past, many endowment funds have gone overboard into stocks in technology, new-idea companies or specific firms. Just as individual investors did, those funds ultimately paid a huge price for being so myopic. Portfolio diversity is crucial as conditions change.
*It kept its own hand in its investing.
Harvard does not blindly turn its entire portfolio over to outside managers as some other endowments do, but handles 30 percent internally. That allows it to move nimbly into various measures that reduce market swings.
*Everyone will inevitably have investment losers.
Harvard lost half of its $975 million investment in hedge fund Sowood Capital Management when that stumbling fund’s portfolio was sold to hedge fund Citadel Investment Group. Sowood took its tumble when it made poor bets on corporate bond spreads and hedge positions.
*Its expectations for the future are reasonable.
Volatile market conditions will challenge the endowment fund for the foreseeable future, its officials have said. During the past 10 fiscal years, Harvard has an annual return of 14 percent, but it isn’t promising that it can keep up that pace. Too many investors look at past results as what to expect in the future.
You might call all this the old-time religion of investment. It is clear that many major financial institutions have not followed that basic financial theology, opting instead to veer wildly into unproven territories.
Better that you invest your own money the Harvard way.
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Andrew Leckey is a Tribune Media Services columnist.
