4 Harbor ETFs to Invest in Through This Regime ChangeFebruary 07, 2023
Interest rates are up and glamour stocks are down, big; the era of cheap money has come to an end.
The regime change will mean that markets remain more complex and challenged than they have in the past decade, and security selection will continue to play a much bigger role in generating returns.
Advisors have the opportunity to tap the increasing role of technology and data in generating new insights and discovering sources of value with the Harbor Corporate Culture ETF (HAPI), the Harbor Corporate Culture Leaders ETF (HAPY), the Harbor Scientific Alpha High-Yield ETF (SIHY), and the Harbor Scientific Alpha Income ETF (SIFI).
SIFI and SIHY offer cost-aware solutions to gaining access to differentiated, actively managed, and scientifically driven fixed income exposure in the multi-sector and high yield bond categories. Active scientific investing offers investors a clearly differentiated alternative to passive and traditional active discretionary strategies by benefiting from significant breadth and applying insights that are otherwise difficult to capture.
SIFI is a multi-sector fixed income strategy that seeks total return to provide competitive total returns and income to investors. The fund employs a structured investment process that utilizes a proprietary model-based framework in the asset allocation and security selection of both investment-grade and below investment-grade (high yield) bonds. Additionally, SIFI employs a tactical derivative overlay that provides a potential added source of returns.
SIHY seeks total return to provide total returns in excess of its benchmark (ICE BofA US High Yield Index) through employing a structured investment process that utilizes a proprietary model-based framework in the security selection of below investment-grade (high yield) bonds.
Thematic equity funds HAPI and HAPY are built around the “Human Capital Factor,” a distinctive investment factor developed by subadvisor Irrational Capital. The Human Capital Factor enables a strong, systematic assessment of a company's corporate culture and its link to potential future equity performance. Irrational Capital’s full dataset includes both public and proprietary sources, covering over 2,200 public firms, and 10 million employee responses totaling 500 million data points, according to Harbor Capital.
HAPI's underlying index takes a more diversified, lower beta approach: HAPI will typically hold approximately 150 securities, while HAPY will typically hold between 70 and 100 securities. HAPI is generally sector-neutral to the selection universe, with a maximum of 35% or a 10% band. On the other hand, HAPY’s underlying index is unconstrained and may have larger sector over/underweights.
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Fixed income securities fluctuate in price in response to various factors, including changes in interest rates, changes in market conditions and issuer-specific events, and the value of your investment in the Fund may go down. Because the Fund may invest in securities of foreign issuers, an investment in the Fund is subject to special risks in addition to those of U.S. securities. The Fund's assets may be concentrated in a particular sector or industries to the extent the Index is concentrated and is subject to the risk that economic, political, or other market conditions that have a negative effect on that sector or industry will negatively impact the value of the Fund. The value of derivative instruments held by the Fund may not change in the manner expected by the Subadviser and/or Adviser, as applicable, which could result in disproportionately large losses to the Fund. Derivatives may also be more volatile than other instruments and may create a risk of loss greater than the amount invested. In addition, certain derivatives may be difficult to value and may be illiquid.
The Fund relies on the Index provider's methodology in assessing whether a company may be considered a corporate culture leader. There is no guarantee that the construction methodology will accurately assess a company to include or exclude it from the index which could have an adverse effect on the Fund's returns. Fixed income securities fluctuate in price in response to various factors, including changes in interest rates, changes in market conditions and issuer-specific events, and the value of your investment in the Fund may go down.
The ICE BofAML US High Yield Index (H0A0) is an unmanaged index that tracks the performance of below investment grade U.S. Dollar-denominated corporate bonds publicly issued in the U.S. domestic market. All bonds are U.S. Dollar-denominated and rated Split BBB and below. These unmanaged indices do not reflect fees and expenses and are not available for direct investment.
Beta is a measure of systematic risk, or the sensitivity of a fund to movements in the benchmark. A beta of 1 implies that the expected movement of a fund's return would match that of the benchmark used to measure beta.
Irrational Capital LLC is a third-party index provider to the Harbor Corporate Culture Leaders ETF. The Fund is managed by Harbor Capital Advisors, Inc.
CIBC is a third-party index provider to the Harbor Corporate Culture ETF. The Fund is managed by Harbor Capital Advisors, Inc.
BlueCove is a third-party subadvisor to the Harbor Scientific Alpha High-Yield ETF and the Harbor Scientific Alpha Income ETF.
This article was prepared as Harbor Funds paid sponsorship with VettaFI.