Invest Like Harvard and Yale

If you've followed the financial press for a while, you've surely heard of the great successes that the managers of the Harvard and Yale endowment funds have achieved. Respectively, they hold $35 billion and $23 billion -- together, that's more than the combined nominal gross domestic products of Uruguay, Cambodia, Armenia, Madagascar, Iceland, and Bhutan. The Yale fund grew by 28% in the recently ended fiscal year and has averaged about 18% over the past decade, while Harvard's fund earned 23% in the past year and has averaged about 15% over the past decade. I don't think I have to tell you that these are stellar results.

So how have the managers done it? Well, Smart Money magazine recently offered a breakdown of the target allocations of each endowment. Upon glancing at them, I was struck by one thing: Each devotes a lot of attention to areas outside the United States. Yale aims to hold 15% of its assets in foreign equity, which is the third highest category, after 27% for real assets (such as real estate, timberland, and oil and gas) and 17% for private equity. Harvard tops that international figure, by aiming for 19% in foreign equity, which is second only to real assets, at 31%.

An international boom
A glance at the performance of various foreign investment indexes gives us a hint as to how Harvard and Yale have been able to rack up such great gains. Many foreign economies have been booming in recent years. For example:

  • The Vanguard Emerging Markets Stock Index (VEIEX) fund is up 39% so far this year and has averaged more than 36% annually over the past five years. Its top 10 holdings hail from the U.K., Hong Kong, Mexico, South Korea, Brazil, Russia, and Taiwan.
  • The Vanguard European Stock Index (VEURX) fund is up some 14% this year so far and about 22% annually, on average, over the past five years.
  • Compare the numbers above to the S&P 500, up about 6% this year and a respectable 11.5% annually over the past five years.

What to do
So given this wake-up call that you might want to add some more foreign investments to your mix, how should you proceed? Well, you have lots of options. Here are a few.

  • You could just stick with American companies but add some big ones that do a lot of business abroad, so you can still get a lot of international exposure in your portfolio. McDonald's (NYSE: MCD  ) and ExxonMobil (NYSE: XOM  ) , for example, each take in roughly two-thirds of their revenues from outside the States. As foreign nations grow (especially developing ones, such as China), so will the bottom lines of these companies.
  • You could seek out strong performers among international companies and invest in their stocks. This approach is a bit tricky, though, since you'll want to do a lot of research into each company's country. Many countries are riskier, politically and economically, than ours. And accounting standards vary internationally, too.
  • You could invest in one or more international index funds. The Smart Money article suggested the iShares MSCI EAFE (NYSE: EFA  ) exchange-traded fund. It represents the European, Australasian, and Far Eastern markets, and its top holdings recently included BP (NYSE: BP  ) , HSBC (NYSE: HBC  ) , Vodafone (NYSE: VOD  ) , and Nokia (NYSE: NOK  ) . It has gained roughly 14% so far this year and has averaged nearly 22% over the past five years.

So go ahead and be a smarty-pants, like those folks at Harvard and Yale. Look beyond our national borders for some handsome profits.

Help us in our goal to give every young person around the globe a financial education! Learn more about the new direction of Foolanthropy, now in its second decade, here.

Read/Post Comments (1) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 557474, ~/Articles/ArticleHandler.aspx, 10/22/2016 10:03:53 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 12 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
BP $36.25 Up +0.20 +0.55%
BP CAPS Rating: ****
HSBC $38.23 Up +0.19 +0.50%
HSBC Holdings CAPS Rating: ***
MCD $113.93 Up +3.36 +3.04%
McDonald's CAPS Rating: ***
NOK $4.92 Down -0.08 -1.60%
Nokia CAPS Rating: **
VOD $27.77 Down -0.05 -0.18%
Vodafone CAPS Rating: ****
XOM $86.62 Down -0.59 -0.68%
ExxonMobil CAPS Rating: ****