Counter Sticky Inflation with a Dividend Growth ETF
Inflation rose unexpectedly in January, highlighting the strength of the U.S. economy -- and that combatting sticky inflation may not be an easy nor quick feat.
Inflation increased in January as the Personal Consumption Expenditures Price Index—the Fed’s preferred measure of inflation— increased 5.4% from a year prior, up from 5.3% in December, the Commerce Department’s Bureau of Economic Analysis reported on February 24.
The recent news of inflation firming was the latest development in unfavorable metrics for the Fed’s effort to combat stubbornly high inflation. Employers added more than half a million jobs in January, U.S. housing markets began showing signs of stabilizing, and retail sales rose 3% in January from the prior month (6.4% year over year).
Inflation is poised to remain a key theme in investing for the second consecutive year, as January’s data suggests inflation will be stickier than initially anticipated by markets. Kristof Gleich, president and CIO of Harbor Capital Advisors, warned last month that as headline line numbers abate, investors should beware of the siren calls of victory over inflation too soon.
Stickier inflation suggests higher interest rates for longer, diminishing hope that the investments that worked in the 2010s will be back in favor soon. As advisors look for steady dividends with growth potential to counter inflation for clients, the Harbor Dividend Growth Leaders ETF (GDIV) is a fund worth consideration.
GDIV is actively managed and subadvised by Westfield Capital, offering focused exposure to 40 companies that are deemed to be sustainable and have growing dividend streams and growing payouts. GDIV stands out from peers as it plays a dual role, offering both income and growth potential, and helping counter inflation in portfolios.
Active managers have a compelling role in the current economic environment, as we believe markets will likely remain more complex and uncertain than they were in the past decade, and returns will likely depend more on elite stock picking. We feel active managers have the upper hand over passive index funds in capitalizing on market dislocations.
Notably, GDIV has had no dividend cuts since 2020, and nearly all its holdings have increased dividends during this period.
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All investments involve risk including the possible loss of principal. Please refer to the Fund’s prospectus for additional risks. For current performance, holdings, and important information: GDIV
Investments involve risk including the possible loss of principal. There is no guarantee the investment objective of the Fund will be achieved. The Fund's emphasis on dividend paying stocks involves the risk that such stocks may fall out of favor with investors and under-perform the market. There is no guarantee that a company will pay or continually increase its dividend. The Fund may invest in a limited number of companies or at times may be more heavily invested in particular sectors. As a result, the Fund's performance may be more volatile, and the value of its shares may be especially sensitive to factors that specifically effect those sectors. The Fund may invest in foreign securities which may be more volatile and less liquid due to currency fluctuation, political instability, government sanctions, social and economic risks. Foreign currencies can decline in value and can adversely affect the dollar value of the fund.
There is no guarantee the investment objective of the Fund will be achieved. The Fund's emphasis on dividend paying stocks involves the risk that such stocks may fall out of favor with investors and under-perform the market. There is no guarantee that a company will pay or continually increase its dividend.
The views expressed herein are those of Harbor Capital Advisors, Inc. investment professionals at the time the comments were made. They may not be reflective of their current opinions, are subject to change without prior notice, and should not be considered investment advice.
The Personal Consumption Expenditures Price Index is a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services. The index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior.
Westfield Capital is the subadvisor for the Harbor Growth Leaders (GDIV).
This article was prepared as Harbor Funds paid sponsorship with VettaFI.
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