Really Good Reasons Investors Should Invest Like Harvard

Since the 1980s, Harvard has adopted a strategy of diversifying investments beyond mainstream U.S. stocks and bonds. Using a strategy pioneered by David Swensen of Yale, the diversification includes investing in non-traditional asset classes like timber, real estate, private equity, shipping container investments and global stocks and bonds.

Harvard recently announced that its endowment rose 15.4 percent for the fiscal year ending on June 30th 2014, trailing well behind the S&P 500’s return of 24.6 percent over the same time frame. Harvard’s strategy had been performing well until 2008, when the value tumbled 27.3 percent. As a result, their 10-year track record is a less than impressive 8.9 percent, compared to the S&P 500’s 8.38 percent over the same time frame. With Harvard’s diversification, however, only 11 percent of its allocation is to U.S. equities. That allocation outperformed the S&P 500 by 1.1 percent in 2014 and speaks to the importance of investing in emerging markets and that Asian markets are a wise investment too.

It is over the long time horizon that Harvard’s diversification reveals its appeal. Over the last 40 years, Harvard’s 12.3 percent average annual returns beat the S&P 500’s 10.29 percent. For investors with patience and a long-term horizon, Harvard-like diversification can be achieved through exchange-traded funds (ETFs).

Investing in timber stocks through ETFs like iShares Global Timber and Forestry (WOOD), and publicly traded private equity firms through the PowerShares Global Listed Private Equity Portfolio (PSP) allow for Harvard-like diversification. Adding the Global X Guru Index ETF (GURU) and the AlphaClone Alternative Alpha ETF, allow for further diversification through investment in the stock holdings, favored by the largest hedge funds. That said, investors saving for retirement or have long-term goals, can use a number of the well-established nontraditional investments, to invest like Harvard does; and enjoy favorable returns and much-needed diversification.