GDIV Can be a Key Solution for Navigating Inflation and Volatility Through 2020s

Investors searched for equity income in the 2010s; however, the current decade will be characterized by funds offering steady dividends coupled with growth potential.

The current market environment is complicated by various factors: stubborn inflation, an interest rate environment like nothing seen in 40 or so years, an increase in geopolitical uncertainty and deglobalization, and a reintroduction of cost of capital.

We believe a key solution for outpacing inflation and navigating the current environment is dividend growth funds, such as the Harbor Dividend Growth Leaders ETF (GDIV).

As advisors check out the dividend ETFs on the market, it’s crucial to consider active management, as markets will remain more complex and uncertain than they were in the past decade, relying more on elite stock picking. Active managers have the upper hand over passive index funds in capitalizing on market dislocations, Kristof Gleich, President and CIO of Harbor Capital Advisors, said on January 25 during a recent webcast, “How to Find Opportunity in Chaotic Markets.”

GDIV is actively managed and subadvised by Westfield Capital, offering concentrated exposure to 40 companies that portfolio manager Will Muggia believes 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.

Over the coming cycle, investors need to especially wary of holding melting ice cubes -- meaning companies that are increasing dividends but only because value is declining, according to Gleich.

“I believe you want to be holding businesses that are highly free cash flow generative, with strong balance sheets and discipline, and commit to continue growing their dividend,” Gleich said.

The fund’s current dividend yield, coupled with its holdings’ growth potential, can help advisors navigate periods of volatility, such as the current environment.

“If you go back to 2020, GDIV has had zero dividend cuts,” Gleich said. “with close to 100% of businesses that were owned by this portfolio increased their dividends.”

GDIV has a historical track record of producing dividend growth above core CPI (Consumer Price Index) and has also outperformed the S&P 500 over several time periods, according to Gleich.

Gleich believes dividend growth is in a position to continue to perform well and become a crucial tool in the overall toolkit for building portfolios. “2010s was all about equity income; we think the 2020s are going to be about dividend growth,” Gleich added.

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

Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate and when redeemed may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborcapital.com or by calling 800-422-1050.

All investments involve risk including the possible loss of principal. Please refer to the Fund’s prospectus for additional risks. For current standardized performance and holdings: GDIV

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 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.

Free cash flow represents the cash a company can generate after accounting for capital expenditures needed to maintain or maximize its asset base.

Westfield Capital is the subadvisor for the Harbor Growth Leaders (GDIV)

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

Foreside Fund Services, LLC is the Distributor of the Harbor ETFs.

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