Harvard goes low-cost with big investment in high-yield bond ETF

The endowment's largest publicly traded holding is $841 million in the iShares iBoxx High Yield Corporate Bond ETF.
MAY 16, 2017

The Harvard University endowment's biggest publicly traded holding is a high-yield bond exchange-traded fund, a move into a cheap, passive investment as the school replaces some of its own traders with external money managers. Harvard Management Co. disclosed in a filing that it held 9.6 million shares of iShares iBoxx High Yield Corporate Bond ETF, valued at $841 million in the first quarter. The ETF gained 1.9% for the three months. The fund also purchased options with a face value of almost $500 million for two other ETFs and sold out of 30 positions, including real estate developer Howard Hughes Corp. N.P. "Narv" Narvekar, Harvard Management's chief executive, announced plans in January to overhaul the $35.7 billion endowment to improve performance. Harvard Management is letting about half of the 230-person staff go by year end, shuttering internal hedge funds that traded in fixed-income and equities markets and seeking to rely more on outside money managers. Harvard Management declined to comment on the holdings. While Harvard seeks new outside portfolio managers, it set up a new internal team to oversee a so-called public markets beta portfolio that invests in exchange-traded funds and other similar strategies that deliver index-like returns at low cost, according to a person familiar with the matter. The team is overseen by Jake Xia, Harvard Management's chief risk officer, who was hired from Morgan Stanley in 2013. The endowment, according to its 13F filing, bought options on two exchange-traded funds: 4 million shares of iShares MSCI EAFE, which tracks stocks in developed countries excluding the U.S. and Canada, with a face value of $249.2 million; and 6.3 million shares of iShares MSCI Emerging Markets, with a face value of $248 million. The endowment also sold $91 million of the iShares MSCI Emerging Markets ETF in the first quarter. An option is a right to buy a security at a future date and can be profitable if prices rise. Asset managers who oversee more than $100 million in the U.S. must file a 13F within 45 days of the end of each quarter to list those stocks as well as options and convertible bonds. The filings don't include cash, holdings that aren't publicly traded or assets held indirectly by outside money managers.

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