According to Harbor and BlueCove in a recent webcast, Harbor’s high-yield bond ETF showcases the potential strength in active management.
The Harbor Scientific Alpha High-Yield ETF (SIHY ) is an active ETF offering distinct exposure to the high-yield bond market. The fund seeks to provide total returns by employing a structured investment process that utilizes a proprietary model-based framework in the security selection of high-yield bonds.
Notably, investors don’t have to pay more for active management. SIHY charges a total expense ratio of 48 basis points. That is one basis point less than its largest high-yield bond ETF Morningstar category peer.
BlueCove, SIHY’s subadvisor, is a scientific asset management firm that focuses on active management. The firm was founded with the specific goal of seeking to deliver compelling investment outcomes for investors by researching, developing, and implementing scientific investment processes applicable to fixed income investment management.
“Scientific investing is the implementation of an evidence-based investment process, that is data-driven, economically intuitive, and grounded in the scientific method,” according to Heather DeGarmo, head of product strategy at BlueCove.
“The scientific method for reference here is really around this idea to have a hypothesis, test it, implement it. See how I did, and rinse, refine, repeat,” DeGarmo added.
Why Go Active for High-Yield ETF Exposure
Many investors are underexposed to bonds as they haven’t looked particularly attractive in years past. However, high-yield bond strategies are currently seeing a resurgence in interest, and for good reason. According to DeGarmo, for many asset management professionals, it’s the first time in their careers that she believes it’s possible to generate high single-digit or low double-digit returns from liquidly traded public assets.
“If you have historically had a non-active or a lower allocation to active fixed income, that’s not surprising,” DeGarmo said.
In addition to SIHY’s recent outperformance, Harbor Capital’s internal data science team has studied active management’s performance by decades.
Paul Herbert, a managing director on Harbor Capital’s investment research team, said the team looked at rolling one-year excess returns of active managers versus their Morningstar category benchmarks from the 2000s, the 2010s, and the 2020s.
According to Herbert, the results of the study suggest active management results have improved in the 2020s versus the 2010s. “We expect this to persist given macro uncertainty and elevated volatility,” Herbert added.
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