Three holdings account for 78% of Harvard’s close to $1.6 billion of invested assets.
When it comes to college prestige, Ivy League schools often sit at or near the top of the pecking order. In exchange for a small fortune — as of the 2022-2023 academic year, annual tuition and fees were in the neighborhood of $60,000 for Ivy League schools — applicants are promised a top-notch education and the chance to land a well-paying job upon graduation.
While it’s debatable which Ivy League school is “best” based on education, what isn’t up for argument is which of these Ivy League universities has the biggest treasure chest.
As of the end of fiscal 2023 (June 30, 2023), Harvard University’s endowment stood at $50.7 billion. This endowment has been built up over the years through a combination of generous donations and various investments overseen by the independent Harvard Management Company (HMC).
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With a boatload of capital at its disposal, HMC has certainly spread Harvard’s wealth around. This leading endowment is invested in private equity, bonds, natural resources, real estate, hedge funds, and even individual stocks.
No later than 45 calendar days following the end to a quarter, institutional money managers with at least $100 million in assets under management are required to file Form 13F with the Securities and Exchange Commission. A 13F provides an under-the-hood snapshot of what Wall Street’s greatest investment minds bought and sold in the latest quarter. Since HMC is overseeing well over $100 million in invested assets, it’s required to show investors what equities it’s been buying, selling, and holding.
When the first quarter came to a close, Harvard Management Company was holding 12 securities for Harvard University’s endowment totaling nearly $1.6 billion. Artificial intelligence (AI) kingpin Nvidia is one of these 12 holdings, however it ranks a distant fifth at close to 3% of invested assets.
Meanwhile, the top three equities held by HMC account for 78.4% of invested assets in Harvard University’s portfolio.
Alphabet: 32.93% of invested assets
Harvard Management Company only made two purchases during the March-ended quarter. One was to add 750,800 shares of Alphabet (GOOGL -2.15%) (GOOG -2.17%) — specifically the Class A shares (GOOGL) — to an existing position. Alphabet is the parent company of internet search engine Google, streaming platform YouTube, and cloud infrastructure service platform Google Cloud.
The lure that’s attracted more than a half-billion dollars of Harvard’s endowment into Alphabet’s Class A stock is its seemingly impenetrable moat in internet search. Over the last nine years, Google has accounted for no less than a 90% monthly share of worldwide internet search. It’s highly unlikely to cede this share anytime soon, which makes Google the clear go-to for advertisers looking to target consumers with their message(s).
While Google is Alphabet’s foundational operating segment, and is capable of generating boatloads of cash flow during long periods of economic growth, HMC might also be intrigued by the meteoric rise of Google Cloud.
Enterprise cloud spending is still in its reasonably early stages of expansion. In the coming years, businesses are likely going to devote a higher percentage of their capital spending to cloud services, which should help global No. 3 cloud infrastructure service platform Google Cloud thrive. Since the margins associated with cloud services are considerably juicier than with advertising, Google Cloud is Alphabet’s ticket to rapidly expanding its operating cash flow.
Alphabet’s balance sheet can calm nerves, too. It closed out the March quarter with $108 billion in cash, cash equivalents, and marketable securities, and its board recently OK’d a $70 billion share repurchase program.
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Meta Platforms: 26.31% of invested assets
The second-largest holding in Harvard University’s nearly $1.6 billion equity portfolio is social media titan Meta Platforms (META -1.54%). Meta was HMC’s largest holding at the end of 2023, but investment managers dumped 428,000 shares (about a third of the prior stake) during the first quarter.
One of the beauties of Meta’s operating model is that it’s cyclical. Although recessions are normal and unavoidable, the economic cycle isn’t linear. Whereas a lot of recessions resolve in less than a year, most periods of growth last for multiple years. Since Meta generates close to 98% of its revenue from advertising, its operations are perfectly positioned to excel during these long-winded economic expansions.
Something else working in Meta’s favor is its top-tier social media “real estate.” It’s the owner of leading social site Facebook, as well as other popular social destinations, such as Instagram, WhatsApp, Facebook Messenger, and Threads. Collectively, the company’s family of apps attracted 3.24 billion daily active users during the March-ended quarter. No other social media platform offers advertisers access to more eyeballs than Meta.
Keeping with the theme here, Meta Platforms has an enviable balance sheet. As of the end of March, the company had in excess of $58 billion in cash, cash equivalents, and marketable securities, and was pacing $77 billion in net cash from operations this year, based on what it reported in net-cash generated from operations in the first quarter.
A healthy balance sheet is important for Meta given CEO Mark Zuckerberg’s desire to invest for the future. Meta’s Reality Labs segment is aggressively investing in AI-accelerated data centers, augment/virtual reality devices, and the metaverse. Zuckerberg’s innovations often take years to pan out before monetization begins, and Meta’s balance sheet gives its CEO the luxury of making these investments for the future.
Invesco QQQ Trust: 19.16% of invested assets
The third-largest holding in Harvard University’s portfolio that’s overseen by Harvard Management Company is the Invesco QQQ Trust (QQQ -1.07%).
The Invesco QQQ Trust is an index fund that attempts to mirror the performance of the Nasdaq-100, and it’s the second security, aside from Alphabet, HMC purchased during the first quarter. After having no stake in the Invesco QQQ Trust to end 2023, HMC acquired 686,000 shares in the quarter ended in March.
The attraction to the Invesco QQQ Trust probably has to do with obtaining exposure to all of the “Magnificent Seven” stocks, which includes Alphabet, Meta, and Nvidia, at the click of a button. Although the Nasdaq-100 is comprised of a handful of value stocks, many of its constituents are higher-growth tech and healthcare companies. Thus, it’s an index fund that gives Harvard University exposure to innovative, game-changing businesses.
Since index funds are passively managed (i.e., there’s not much in the way of turnover since the constituents to a tracked index rarely change), the Invesco QQQ Trust enjoys a relatively low net expense ratio of just 0.2%.
Furthermore, since the Invesco QQQ Trust is being powered by some of the most-influential businesses on Wall Street, it’s more than doubled the return of the benchmark S&P 500 on a trailing-10-year basis (405% vs. 176%, as of May 29, 2024). As long as the current bull market persists, there’s a good chance high-growth companies can sustainably outperform.