Harvard's endowment is the largest university endowment in the world with over $36.4 billion in assets (Photo: Harvard Management Company Inc.)

Harvard's endowment is the largest university endowment in the world with over $36.4 billion in assets (Photo: Harvard Management Company Inc.)

With $36.4 billion in assets, Harvard University's endowment fund is the largest in the world and has returned an average of over 12% annually over the past two decades.  In a recent regulatory filing, the Massachusetts-based fund picked up new positions in a dozen Texas-based oil and gas companies in the third quarter amid steeply declining global oil prices.

The fund bought stakes in a number of oil and gas companies worth $326.4 million in the quarter, including:

  • 566,000 shares of Anadarko Petroleum worth over $57 million
  • 841,675 shares of Dresser-Rand worth over $69 million
  • 1.05 million shares of Kinder Morgan Energy Partners and 1.25 million shares of Kinder Morgan Inc with a combined value of $146 million

Figures above are from the Form 13F which is a quarterly filing that money managers who oversee more than $100 million in equities in the U.S. must file that lists stock, options and coverts that they acquired in the quarter.

The price of oil declined from over $100 per barrel to under $95 in the third quarter.  However, since the end of September, oil has seen an even steeper decline with prices falling from over $90 per barrel to just over $75. Energy shares, as a group, were down 20% from June 30 to October 31 and accounted for roughly 2% of the 4.3% decline in S&P 500 over the period.

Although many shares have been decimated along with the price of oil, of the endowment's largest new oil positions, only shares in Anadarko were down (down 7%).  Kinder Morgan and Kinder Morgan Energy Partners were up 6% and 13.5%, respectively.  Dresser-Rand saw the biggest appreciation over the period, up 29%.

The fund is dramatically increasing its position in this down and out sector, clearly betting that the weakness in demand for oil will be short-lived.  Like any of the commodity-related stocks, the further down the food chain investors look the more leverage they will typically find (along with more risk).

The BMO Junior Oil Index fell 12.6% in the third quarter versus the 7% decline in the iShares Down Jones US Oil & Gas Exploration and Production ETF.

Harvard's endowment which has a long-term expected return of 7.4% is up 15% this year, partly due to their contrarian investment strategy.

The famous saying by Baron Rothschild "the time to buy is when there's blood in the streets (even if it's your own blood)" is more relevant now than perhaps it has ever been in the natural resources sector.

Those with cash and a l0ng-term investment horizon stand to make a pile of money by acquiring the market leaders' heavily discounted shares, both in oil/gas and metals.