HGER Aims to Navigate Sticky Inflation
Recent U.S. economic data releases are showing signs of sticky inflation, as headline numbers climbed unexpectedly higher in January.
Personal spending rose 1.8% in January, the Commerce Department’s Bureau of Economic Analysis reported on February 24. During the month, consumers splurged on both goods and services such as dining out or going to the movies -- the latest discouraging measure as the Fed continues its fight against inflation.
Attributable to continued job growth and rising wages, consumers should have money to spend. The most recent jobs report came in hotter than expected, as employers added more than half a million jobs in January. Retirees also saw an increase in income, as Social Security benefits rose by 8.7% in January, the largest cost-of-living increase in four decades.
As advisors look to add value to portfolios amid sticky inflation, the Harbor Commodity All-Weather Strategy ETF (HGER) is worth consideration. The fund aims to provide investors with an inflation hedge through exposure to the Quantix Commodities Index (QCI), which is made up of liquid commodity futures, weighted towards the goal of maximizing the correlation to inflation.
HGER has worked to accumulate a notable track record since its launch on February 9, 2022. The fund has increased 7.14% (NAV) since its inception through February 24, 2023, while the Bloomberg Commodity Index has declined 1.15% during the same period, each on a total return basis. Year-to-date, HGER has declined 2.39% (NAV) while the Bloomberg Commodity Index has declined 5.76%, each on a total return basis.
HGER’s underlying index — the QCI — is a dynamic commodity index with the objective of being a diversified inflation hedge for investors. The index places more weight on those commodities that have higher pass-through costs to inflation, such as gasoline, and a lower weighting to those with lower pass-through costs, such as cotton or cocoa.
The QCI also includes a scarcity debasement indicator to indicate what the source of inflation is; in a debasement regime, where inflation is coming from a weaker USD, the QCI tends to tilt toward gold, and in a scarcity regime, where inflation is coming from demand outstripping supply, the QCI will tilt toward consumable commodities such as oil.
HGER is designed to react to shifting environments, reducing the risk of being in a situation in which the futures price of a commodity is higher than the spot price. The fund charges 68 basis points.
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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 performance, fees, and important information: HGER
The Quantix Commodities Index is calculated on a total return basis, which combines the returns of the futures contracts with the returns on cash collateral invested in 13-week U.S. Treasury Bills. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Quantix Commodities Index was developed by Quantix Commodities LP and is owned by Quantix Commodities Indices LLC.
The Bloomberg Commodity Index is a broadly diversified commodity price index distributed by Bloomberg Index Services Limited. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
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. A non-diversified Fund may invest a greater percentage of its assets in securities of a single issuer, and/or invest in a relatively small number of issuers, it is more susceptible to risks associated with a single economic, political or regulatory occurrence than a more diversified portfolio. Commodity Risk: The Fund has exposure to commodities through its and/or the Subsidiary’s investments in commodity-linked derivative instruments. Authorized Participant Concentration/Trading Risk: Only authorized participants (“APs”) may engage in creation or redemption transactions directly with the Fund. Commodity-Linked Derivatives Risk: The Fund’s investments in commodity-linked derivative instruments (either directly or through the Subsidiary) and the tracking of an Index comprised of commodity futures may subject the Fund to significantly greater volatility than investments in traditional securities
Correlation is a statistic that measures the degree to which two variables move in relation to each other.
Debasement refers to lowering the value of a currency.
Spot price is the current price in the marketplace at which a given asset can be bought or sold for immediate delivery.
A basis point is one hundredth of 1 percentage point.
Quantix Commodities, LP is the subadvisor for the Harbor Commodity All-Weather Strategy ETF (HGER).
This article was prepared as Harbor Funds paid sponsorship with VettaFI.