Harvard uses ETFs for geographical tilts

The Harvard Management Company is actively using ETF’s for geographical tilts, with exposure to China and Brazil through iShares investments its two largest holdings at the end of December 2010.

According to its 13F disclosure to the SEC, HMC had a large exposure to the Chinese stock market through an investment in iShares FTSE Xinhua ETF, which tracks the FTSE/Xinhua China 25 index, offering exposure to 25 of the largest and most liquid Chinese stocks listed and trading on the Stock Exchange of Hong Kong.

Of the total value of $1,123,761,000 on the form 13F information table, the iShares FTSE Xinhua accounted for $203,352,000 or about 18 per cent, making it HMC’s largest holding listed in the form.

A further $187,206,000, or 16 per cent, was invested in the iShares MSCI Brazil ETF.

At the end of March the largest holdings in the FTSE Xinhua were China Construction Bank followed by China Mobile.

About 50 per cent of HMC’s holdings are ETFs, according to the 13F filing, HMC has investments in 18 ETFs, with ETFs making half of the 10 largest holdings.

Other geographical tilts, through its ETF exposures were to Chile, South Korea, and emerging markets.

Section 13(f)(1) of the Securities Exchange Act dictates that any institutional investment manager that exercises discretion over $100 million or more must file form 13(f).

The HMC internal team is led by Stephen Blyth, who reports to chief executive, Jane Mendillo (pictured)

In September last year, Mendillo said HMC would increase manager concentration levels, look closely at commodities and real estate, and bring more assets in-house where appropriate, as it moved into fiscal year 2011 with an unchanged long-term asset allocation.

President and director, global head of ETFs at State Street, Jim Ross, said the ability to use ETFs to get very targeted exposure was one of the attractions to the vehicles for institutional investors.

“ETFs allow investors to alter asset allocation in a single trade by adding or adjusting exposure to existing asset classes within a portfolio. They are also used for sector or industry rotation and for tactical asset allocation by adding or overweighting specific markets, sectors or industries.”

He said the fact the SPDR Gold was now the second largest ETF in the world (behind the S&P500) was an example of ETFs giving investors something specific that they couldn’t access before.

Ross said ETFs are also used by institutions to hedge unwanted exposures, for cash equitisation and transition management.