Investing in companies with strong corporate culture and social performance may enhance performance.
Inefficiencies create opportunities. At Harbor, the investment process of Harbor Corporate Culture ETF (HAPI) is built upon the motivation of an employee and the influence of positive corporate culture. These intrinsic motivators are difficult (but not impossible) to quantify. With the help of the Human Capital Factor (HCF), The HCF measures a company’s ability to create economic value derived from its workforce’s habits, knowledge, talent, motivation, experience, and attributes.
The Fund introduces a new way to measure and distinguish between companies with a great corporate culture from those with a toxic or dysfunctional one. HAPI seeks to quantify these intangibles that are otherwise missed in a traditional calculation of a company’s value. This aims to offer distinct access for its investment in a previously undefinable alpha opportunity.
As socially aware investing is top of mind for many investors, it shouldn’t come as a surprise that healthy corporate culture could lead to better returns. HAPI is one of the first ETFs available designed to offer exposure to the human capital factor.
The human capital factor is a systematic measure of corporate culture. Furthermore, it seeks to understand the importance and value created between human capital and potential equity performance. In other words, the nontraditional investment factor is based on the premise that happy and motivated employees can generate better outcomes for companies and investors, according to Harbor Capital.
Healthy Corporate Culture Benefits
“While it is hard for an ETF to outperform the S&P 500 Index, strong security selection can make a difference,” Todd Rosenbluth, head of research at VettaFi, said. “It is easy to understand that employees that are more satisfied in their job are going to be more productive.”
HAPI is notably outpacing the S&P 500 over various periods, suggesting there is value in investing in companies with strong corporate culture and the strategy could strengthen returns.
Year to date as of August 1, HAPI has climbed 23.7% at NAV. Meanwhile, the benchmark has gained 20.3%, each on a total return basis. Since HAPI’s launch in October 2022, the Harbor fund has increased 31.3% at NAV compared to its benchmark’s 28.4% rise.
For the most current standardized performance, holdings and current yields: HAPI
What’s Inside HAPI?
HAPI quickly gained attention with investors after the fund’s launch. Since October 2022, the fund has accreted $262 million in assets under management as of August 3.
HAPI offers exposure to around 150 large cap companies with strong human capital factor scores. Additionally, the fund is sector constrained to enhance overall diversification.
The human capital factor is derived from Irrational Capital’s proprietary research and survey data along with other publicly available sources.
Irrational Capital calculates human capital factor scores based on a proprietary, rules-based scoring methodology. Furthermore, the methodology was developed by leveraging research in behavioral science, data science, and human capital, according to Harbor Capital.
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Canadian Imperial Bank of Commerce (CIBC) is the index provider for the Harbor Corporate Culture ETF.
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.
Shares are bought and sold at market price not net asset value (NAV). Market price returns are based upon the closing composite market price and do not represent the returns you would receive if you traded shares at other times.
The Fund relies on the Index provider’s methodology in assessing whether a company may be considered a corporate culture leader. There is no guarantee that the construction methodology will accurately assess a company to include or exclude it from the index which could have an adverse effect on the Fund’s returns.
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. The Fund may not exactly track the performance of the Index with perfect accuracy at all times. Tracking error may occur because of pricing differences, timing and costs incurred by the fund or during times of heightened market volatility. The Fund relies on the Index provider’s methodology in assessing whether a company may be considered a corporate culture leader.
There is no guarantee that the construction methodology will accurately assess a company to include or exclude it from the index which could have an adverse effect on the Fund’s returns. The Fund’s assets may be concentrated in a particular sector or industries to the extent the Index is concentrated and is subject to the risk that economic, political, or other market conditions that have a negative effect on that sector or industry will negatively impact the value of the Fund.
Companies in the information technology sector can be significantly affected by short product cycles, obsolescence of existing technology, impairment or loss of intellectual property rights, falling prices and profits, competition from new market entrants, government regulation and other factors.
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.
Alpha is a measure of risk (beta)-adjusted return. Earnings per Share (EPS) is the portion of a company’s profit allocated to each outstanding share.
CIBC is a third-party index provider to the Harbor Corporate Culture ETF. The Fund is managed by Harbor Capital Advisors, Inc.
This article was prepared as Harbor Funds paid sponsorship with VettaFI.
Foreside Fund Services, LLC is the Distributor of the Harbor ETFs.