Harbor Capital: When Investing = Active ManagementApril 12, 2023
Harbor is an unapologetically strong proponent of active management, and we have index funds in our ETF lineup. Why? We consider our ETFs to be highly active thematic solutions.
We believe all investing is essentially active.
Our view is that it would be a mistake to conflate index investing and passive investing. In fact, we’d argue that only a small subset of index investing (e.g., traditional market cap betas) is truly passive – everything else is active – whether delivered in an index fund or discretionary product.
Why This Concept Matters When it Comes to Performance
To illustrate our point, in the Large Cap Growth category, only 8 out of 116 ETFs truly track broad asset class benchmarks as of March 2023. * The remaining take some sort of market stance by investing in a factor or theme. These types of ETFs often have portfolio characteristics (average market cap, sector weighting, style positioning, etc.) that vary – sometimes meaningfully – from their broad asset class benchmark.
Consequently, these ETFs will experience performance that differs from the broad benchmark. We suspect that some investors aren’t fully aware of this fact and may be disappointed when an ETF they own potentially underperforms competing passive ETFs.
To benefit over the long term from what these ETFs offer, investors need to have appropriate performance expectations by being aware of the market conditions that favor an ETF, as well as environments when the strategy might struggle. To illustrate, a low-volatility or low-beta ETF can help lower a portfolio’s overall risk profile, but investors who incorporate such a strategy should be aware that while these types of strategies may protect during downturns, they may also trail the broader market during strong rallies.
While we believe thematic and factor ETFs are active strategies – and that these types of ETFs can enhance investors’ portfolios – investors should be mindful that not all index ETFs deliver marketlike performance.
Investors should frame their expectations accordingly.
Ready to get active? Check out our growing suite of curated ETFs.
Harbor Capital Advisors
Harbor Capital Advisors is an asset manager known for curating an intentionally select suite of active ETFs from boutique managers. Advisors looking for distinct and differentiated investment options for their clients’ portfolios often connect with our passionate obsession to find what we believe to be the best – bold solutions that have the potential to produce compelling, risk-adjusted returns.
For more information, visit harborcapital.com.
Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call 800-422-1050 or visit our website at www.harborcapital.com. Read the prospectus or summary prospectus carefully before investing.
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 information provided in this presentation is for informational purposes only.
This material does not constitute investment advice and should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or to adopt any investment strategy.
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.
Investing entails risks and there can be no assurance that any investment will achieve profits or avoid incurring losses.
There is no guarantee that the investment objective of a fund will be achieved.
Funds that are passively managed attempt to mirror the composition and performance of an Index. The fund’s returns may differ due to expenses incurred by a fund or lack of precise correlation with the index.
Actively managed funds are subject to management risk. The adviser to a fund will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results.
Harbor Capital Advisors, Inc.
Foreside Fund Services, LLC is the Distributor of the Harbor ETFs.