Who Invests Smarter Than Harvard? Quinnipiac, That's Who

 | Aug 05, 2018 | 10:00 AM EDT
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Harvard University and the rest of the Ivy League have reputations for braininess and high achievement. With attributes like that, you'd think that the endowment funds of those storied universities would have stellar performance.

Consequently, it was a bit surprising to see that the endowment fund of "small-cap" Quinnipiac University of Hamden, Connecticut, was able to kick the Ivies' collective returns by a wide margin in the fiscal year that ended June 30, 2017.

Quinnipiac's 20.9% one-year total return even managed to beat the S&P 500 ETF (SPY) by a bit more than 10%. To its chagrin, Harvard's performance was by far the worst of the eight Ivy League funds.

How did Quinnipiac manage to beat the big boys? it allowed its endowment fund managers the freedom to pick individual stocks rather than simply ETFs, index funds or other managed products. It also passed up hiring hedge fund managers along with their hefty fees, as well as illiquid and pricey-to-manage private equity investments.

Those prestigious schools certainly would note that Quinnipiac's endowment fund was only about $500 million while the Ivies ranged from $3.5 billion (Brown University) to $37.1 billion (Harvard). Even Warren Buffett says it's easier to attain great results when dealing with smaller principal amounts.

Quinnipiac proved that last year was no fluke by slightly edging out the SPY over the trailing 10 years through June 30, 2017. It earned 6.1% annualized over the decade versus 6.034% for the index.

The median return of all (reporting) American institutions of higher educations was a pitiful 4.38%. That figure trailed the index fund's results by almost 27.5%. Ouch.

How, then, can you and I be smarter than the men and women of Harvard?

To make better returns:

--Keep costs low (expense ratios matter)

--Simple, rather than complex, strategies tend to work best

--Maintain a 100% equity allocation through thick and thin

--Avoid market timing

--Shun cash and fixed income

What conclusions can we draw from the putrid performances of most college and university endowment plans? The "smartest guys in the room" often outthink themselves. Ibbotson's stocks, bonds, bills and inflation (SBBI) numbers are irrefutable over the long term.

Stocks make more than bonds. Bonds earn more than bills/cash. Inflation is the silent killer.

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