Regime Shift Underscores Role of Active and Thematic Investing
The global regime shift taking place today has structural implications for markets.
Markets will remain more complex and challenged than they have been in the past decade, as significant changes in monetary and public policy have led to this global regime shift. The new environment will continue to challenge the balanced 60/40 set-it-and-forget-it portfolios that have become the cornerstone of the industry.
In more complex economic environments, security selection plays a much bigger role in generating returns, giving active management a significant advantage. In addition to active management, diversification and thematic investing will also play an increasingly critical role in providing returns in portfolios in this new regime, according to Kristof Gleich, president and CIO of Harbor Capital Advisors.
The active, fully transparent Harbor Health Care ETF (MEDI) provides advisors with a pure-play healthcare thematic strategy. MEDI can be a strong solution for investors seeking either complements or alternatives to passive healthcare exposure, as well as for investors that are structurally underweight to the sector. The fund fits as a thematic offering, enhancing diversification in a portfolio.
The healthcare sector has historically demonstrated defensive qualities relative to other economic sectors given its lower cyclicality, making MEDI an attractive thematic offering in the current environment, as outlooks are clouded by the likelihood of a recession.
MEDI is subadvised by Westfield Capital Management Company, which has an extensive history in healthcare investing across industries and the capitalization spectrum, making the firm uniquely capable of investing in this inefficient, alpha-rich market segment.
MEDI offers diversified, all-cap exposure to the healthcare sector across sub-industries, including biotech, life sciences, healthcare providers, and pharmaceuticals, among others. The firm maintains a high level of active share in a relatively concentrated strategy (34 holdings as of December 31) and attempts to capture the upside from the most innovative sub-sectors, while maintaining quality through secular winners and seeking to buffer the downside in high beta selloffs.
MEDI’s management team focuses on post-proof-of-concept companies, particularly those that have multiple assets in the pipeline and are well capitalized, to mitigate risk.
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For more information, please access our website at www.harborcapital.com or contact us at 1-866-313-5549.
All investments involve risk including the possible loss of principal. Please refer to the Fund’s prospectus for additional risks. For current holdings: MEDI
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. Since the Fund may hold foreign securities, it may be subject to greater risks than funds invested only in the U.S. These risks are more severe for securities of issuers in emerging market regions. Foreign currencies can decline in value and can adversely affect the dollar value of the fund. Since the Fund typically invests in a limited number of companies, an adverse event affecting a particular company may hurt the Fund's performance more than if it had invested in a larger number of companies. Health Care Industry Risk: Because the Fund seeks to invest all, or substantially all, of its assets in the health care industry, the value of its shares will depend on the general condition of the that industry. The health care industry may be affected by any number of factors, including, but not limited to, lapsing patent protection, industry innovation, extensive government regulation, restrictions on government reimbursement for medical expenses, research and development costs, limited product lines, product liability litigation, an increased emphasis on outpatient services, and competitive forces. Authorized Participant Concentration/Trading Risk: Only authorized participants ("APs") may engage in creation or redemption transactions directly with the Fund. The Fund is classified as non-diversified, 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. New Fund Risk: There can be no assurance that the Fund will grow to or maintain an economically viable size, in which case the Board of Trustees may determine to liquidate the Fund. Small and Mid Cap Risk: The Fund's performance may be more volatile because it may invest in issuers that are smaller companies.
Diversification in an individual portfolio does not assure a profit.
Alpha is a measure of risk (beta)-adjusted return.
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.
A “60/40 portfolio” is a guidepost portfolio for a moderate risk investor. Portfolio allocations of 60% allocation to equities to seek capital appreciation and 40% allocation to fixed income help mitigate risk and offer potential income.
Westfield Capital is the subadvisor for the Harbor Health Care ETF (MEDI).
This article was prepared as Harbor Funds paid sponsorship with VettaFI.
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