Harvard Management Co., steward of the Harvard endowment fund, closed the books on another year, as of June 30, and the results are starting to come out. The full report hasn't been released, but according to

The Wall Street Journal

, the fund rose 8.6%, compared with a 14.8% loss for the

S&P 500


Harvard has posted a comparison of allocations from June 30 and a year earlier. The mix can be easily replicated with ETFs but not necessarily the exact holdings. The following is a breakdown.

Domestic equities:

iShares S&P 1500 Index Fund


is a broad-market product comprising large cap (S&P 500), mid-cap (S&P 400) and small-cap (S&P 600). For better or worse, ISI, or any similar fund, is the U.S. market. Over the last year or so, the U.S. has been in a bear market, so the fund has done poorly. When the next bull starts, the fund will rebound.

Developed foreign equities:

WisdomTree DEFA High Yielding Equity

(DTH) - Get Report

is a smaller fund than

iShares MSCI EAFE Index Fund

(EFA) - Get Report

but I think DTH is the better mousetrap. EFA has 20% in Japan vs. less than 1% for DTH. DTH is much heavier in financials, 43% vs. 24%, but over the past year, the two have performed about the same, which I believe sets the stage for meaningful outperformance whenever the financial crisis finally ends.

Emerging market equities:

SPDR Emerging Markets ETF


is heavy in all the things that did great on the way up and lousy on the way down, including Brazil, China, and energy and mining stocks. As with ISI, GMM is simply a proxy for the space. Most of the time you want to own these regions of the world but occasionally they go down a lot.

Private equity: This is the most difficult segment to replicate. There are a couple ETFs that I have been negative on from their inception. There are several other exchange-traded vehicles including

MVC Capital

(MVC) - Get Report


Gladstone Capital

(GLAD) - Get Report

, which at times provide the low correlation that is intended but at other times can be wildly volatile.

Domestic bonds:

iShares Lehman Aggregate Bond Fund

(AGG) - Get Report

for taxable or

Market Vectors Lehman Brothers AMT Free Intermediate Municipal Index ETF

(ITM) - Get Report

for tax-free. AGG has an average maturity of 6.63 years, an average rating of AA and a yield of 4.58% -- but the yield will be a moving target. ITM has an average maturity of 11.33 years, average credit rating of AA+ and a yield of 3.8%. These funds are in the middle of the yield curve, which means they are not the most volatile types of bonds but they will be more volatile than owning T-bills.

Foreign bonds:

SPDR Lehman International Treasury Bond ETF

(BWX) - Get Report

is the only developed market choice for now. The average maturity is 8.08 years, the average credit quality is AA2 and the yield is currently 3.97%. The yield would probably be higher if the fund had less than 24% in Japan.

High-yield bonds:

iShares iBoxx $ High Yield Corporate Bond Fund

(HYG) - Get Report

has an average maturity of 6.88 years, an average credit rating of B and currently yields 7.99%. State Street has a convertible bond ETF in the works that might be interesting, albeit different, for this part of the portfolio.


ELEMENTS Linked to the Rogers International Commodity Index Total Return Fund

(RJI) - Get Report

is far more diverse compared to the more popular

iPath DJ AIG Commodity Index Total Return ETN

(DJP) - Get Report


PowerShares DB Commodity Index Tracking Fund

(DBC) - Get Report

, but obviously all three capture the effect.

Real estate: Any exchange-traded vehicle will likely miss the mark as it seems unlikely that HMC is using broad-based funds like

iShares DJ US Real Estate Index Fund

(IYR) - Get Report

or even any of the narrow-based products. HMC more likely owns actual dirt and buildings.

Inflation-indexed bonds: Both

SPDR Barclays Capital TIPS ETF



iShares Lehman TIPS Bond Fund

(TIP) - Get Report

are fairly similar to each other but they are different from owning individual TIPS because the funds pay out as part of the dividend what would otherwise be the CPI adjustment to the par value.

Absolute return and special situations:

ELEMENTS Linked to the S&P Commodity Trends Indicator Total Return


is one absolute-return vehicle that goes long or short various commodities - or, in the case of oil, long or flat -- based on technical analysis.

PowerShares DB G-10 Currency Harvest Fund

(DBV) - Get Report

is another absolute return fund that goes long high-yielding currencies and short low-yielding currencies in what amounts to a carry trade. It's pretty much anything goes for special situations. There are funds for wind, solar, steel, single countries, frontier countries and so on.

Although recreating the allocation is easy to do, the more interesting question is whether individuals should even try. We do not know what changes were made during the year. If HMC was still heavy in commodities in recent months, the fund would have had a rough time. I doubt HMC took the full brunt of the commodity correction.

We do not have the benefit of being privy to moves made during the year. The fund could be 20% commodities one day and zeroed out the next, and we would never know. Additionally, HMC has access to investment managers, hedge funds and private equity funds that we do not.

It is more useful to look at allocation and try to understand why, for example, Harvard had almost the same weighting in emerging-market equities as in domestic stocks. What does that say about expectations for each asset class? What can you learn from that? Absolute strategies are very important to HMC. Do you have any? Can you learn from their bond weightings? They are different than most portfolios I have ever looked at.

Trying to mimic a portfolio we can't actually follow is a bad idea, but learning from people who are smarter than us is a good idea.

At the time of publication, Nusbaum or his clients were invested in TIP, DBV, MVC and BWX, although positions may change at any time. He is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback;

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