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Access the Human Capital Factor with HAPY and HAPI

February 23, 2023

Intangible assets have become increasingly important in the modern economy.

We believe valuations of businesses are now skewed to an increasing extent toward intangible versus tangible assets. Research and development investments and brand value are two well-known examples of intangibles that are now used to measure value. However, another intangible asset is emerging: human capital, which we believe now plays a larger role in delivering investment returns.

“Some business leaders say… the most important asset is our people. Yet if you think about how we account for people, we don't capitalize people on a balance sheet as an asset,” Kristof Gleich, president and CIO of Harbor Capital Advisors, told VettaFi at Exchange: An ETF Experience. “I consider this really important because motivation, engagement, and happiness of employees really matters in delivering outcomes.”

Irrational Capital, cofounded by behavioral scientist Dan Ariely, is an investment research and development firm that applies workplace behavioral science and data science to capture the powerful connection between human capital and value creation. The firm is a pioneer in measuring the value of human capital efficiently.

“With our partnership with Dan Ariely and Irrational Capital, we've worked to correct an accounting anomaly, and accounting anomalies equal inefficiencies. What do really good active managers do? They exploit inefficiencies,” Gleich said.

Investors now have the ability to invest in the human capital factor, a nontraditional investment factor unavailable to investors until last year. The nontraditional factor first became publicly investable through the Harbor Corporate Culture Leaders ETF (HAPY), which launched last February, and serves as the foundation for the Harbor Corporate Culture ETF (HAPI), which launched last November.

While HAPI and HAPY use the same methodology to identify and score companies based on the human capital factor, each fund provides different exposures.

HAPI’s underlying index has a minimum market capitalization of $11 billion and a 5% individual stock limit (leading it to have smaller mega-cap exposure versus the S&P 500 Index). HAPY’s underlying index has a minimum market capitalization of $1 billion, leading it to have some mid-capitalization exposure, according to Harbor.

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.

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.

For more news, information, and analysis, visit the Market Insights Channel.

For more information, please access our website at www.harborcapital.com or contact us at 1-866-313-5549.

Important Information

All investments involve risk including the possible loss of principal. Please refer to the Fund’s prospectus for additional risks associated with each Fund: HAPY, HAPI

There is no guarantee that the investment objective of the Fund will be achieved. Stock markets are volatile and equity values can decline significantly in response to adverse issuer, political, regulatory, market and economic conditions. The Fund may not exactly track the performance of the Index with perfect accuracy at all times. Tracking error may occur because of pricing differences, timing and costs incurred by the fund or during times of heightened market volatility. 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. Companies in the information technology sector can be significantly affected by short product cycles, obsolescence of existing technology, impairment or loss of intellectual property rights, falling prices and profits, competition from new market entrants, government regulation and other factors.

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.

The S&P 500 Index is an unmanaged index generally representative of the U.S. market for large capitalization equities. This unmanaged index does not reflect fees and expenses and is 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.

This article was prepared as Harbor Funds paid sponsorship with VettaFI.



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Investing involves risk and the potential loss of capital.

Investors should carefully consider the investment objectives, risks, charges and expenses of a fund before investing. To obtain a summary prospectus or prospectus for this and other information, click here or call 800-422-1050. Read it carefully before investing.

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