We believe that an increasing number of advisors are turning to active fixed income ETFs in 2023.
The Harbor Scientific Alpha High-Yield ETF (SIHY ) and the Harbor Scientific Alpha Income ETF (SIFI ) are active fixed income ETFs offering cost-aware solutions to gaining access to differentiated and scientifically driven fixed income exposure in the multi-sector and high-yield bond categories.
“With the Fed likely to pause their rate hiking program for a while, advisors are rethinking their fixed income allocations,” Todd Rosenbluth, head of research at VettaFi, said. “They might be willing to take on additional risk through high-yield to generate even higher than average income.”
SIHY and SIFI are actively managed by subadvisor BlueCove. BlueCove is a scientific asset management firm, founded with the specific goal of delivering strong investment outcomes for investors by researching, developing and implementing state-of-the-art scientific investment processes applicable to fixed income investment management.
Active scientific investing has the potential to offer investors a differentiated alternative to passive and traditional active discretionary strategies by benefiting from the significant breadth and applying insights that otherwise maybe difficult to capture, according to Harbor Capital Advisors.
As of May 4, 2023, SIHY and SIFI have a subsidized SEC yield of 8.01% and 6.79%, respectively, according to Harbor’s website, and SIHY has accreted $125 million in assets and SIFI has $32 million in assets under management. Both funds were launched in September 2021.
SIHY seeks to provide total returns through employing a structured investment process that utilizes a proprietary model-based framework in the security selection of high-yield bonds.
SIFI also employs a structured investment process and utilizes a proprietary framework the asset allocation and security selection of both investment-grade and below investment-grade (high-yield) bonds. As of March 31, 2023, over 60% of the portfolio was in high-yield bonds and over 35% of the portfolio was in investment grade corporate bonds.
SIHY was the focus of a milestone development for the industry earlier this year. The Harbor High-Yield Bond Fund (HYFAX), a mutual fund, was merged into SIHY in February 2023, adding $117 million to the ETF while allowing investors in the mutual fund to benefit from the liquidity and tax advantages of the ETF structure.
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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. For the most current standardized performance, holdings and current yields: SIHY, SIFI
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.
All investments involve risk including the possible loss of principal. Please refer to the Fund’s prospectus for additional risks associated with each Fund. For the most current standardized performance, holdings and current yields: SIHY, SIFI
SIHY and SIFI Risks: Fixed income securities fluctuate in price in response to various factors, including changes in interest rates, changes in market conditions and issuer-specific events, and the value of your investment in the Fund may go down. As interest rates rise, the values of fixed income securities held by the Fund are likely to decrease and reduce the value of the Fund’s portfolio. There is a greater risk that the Funds will lose money because they invest in below-investment grade fixed income securities and unrated securities of similar credit quality (commonly referred to as “high-yield securities” or “junk bonds”). These securities are considered speculative because they have a higher risk of issuer default, are subject to greater price volatility and may be illiquid. Because the Funds may invest in securities of foreign issuers, an investment in the Funds is subject to special risks in addition to those of U.S. securities. These risks include heightened political and economic risks, greater volatility, currency fluctuations, higher transaction costs, delayed settlement, possible foreign controls on investment, possible sanctions by government bodies of other countries and less stringent investor protection and disclosure standards of foreign markets.
Model Risk: The strategies and techniques employed in a quantitative model cannot fully match the complexity of the financial markets and therefore sudden unanticipated changes in underlying market conditions can significantly impact their performance. The effectiveness of the given strategy or technique may deteriorate in an unpredictable fashion for any number of reasons including, but not limited to, an increase in the amount of assets managed or the use of similar strategies or techniques by other market participants and/or market dynamic shifts over time.
Unlike mutual funds, ETFs may trade at a premium or discount to their net asset value. The ETF is new and has limited operating history to judge.
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 SEC yield is a standard yield calculation developed by the U.S. Securities and Exchange Commission (SEC) that allows for fairer comparisons of bond funds.
30‐Day SEC yield represents net investment income earned by a fund over a 30‐day period, expressed as an annual percentage rate based on the fund’s share price at the end of the 30‐day period.
The ICE BofA US High Yield Index (H0A0) Index is an unmanaged index that tracks the performance of below investment grade U.S. Dollar-denominated corporate bonds publicly issued in the U.S. domestic market. All bonds are U.S. dollar denominated and rated Split BBB and below. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
The Bloomberg US Aggregate Bond Index is an unmanaged index of investment-grade fixed-rate debt issues with maturities of at least one year. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
BlueCove is a third-party subadvisor to the Harbor Scientific Alpha High-Yield ETF and the Harbor Scientific Alpha Income ETF.
This article was prepared as Harbor Funds paid sponsorship with VettaFI.
Foreside Fund Services, LLC is the Distributor of the Harbor ETFs.