Harbor Capital Advisors offers three ETFs that provide exposure to the human capital factor, a distinctive investment factor measuring corporate culture and its connection to future equity performance.
The Harbor Corporate Culture Small Cap ETF (HAPS ) is the newest fund in Harbor’s growing HAP- series. The human capital factor first became publicly investable in February 2022 via the Harbor Corporate Culture Leaders ETF (HAPY ), followed by the Harbor Corporate Culture ETF (HAPI ), which launched in October 2022.
“The suite of ETFs offered by Harbor stand out in a crowded market because they focus on corporate culture,” Todd Rosenbuth, head of research at VettaFi, said. “It is easy to understand how companies with an employee base eager to be part of the team are likely to play better together to drive revenues higher and boost the share price.”
The three ETFs are based on indexes from Irrational Capital, the firm that seeks to uncover what they believe to be a direct systematic link between company culture and resulting company equity performance.
HAPY, HAPI, and HAPS all utilize the same methodology to score companies on human capital. The primary differences between the sister strategies relate to index construction and resulting market capitalization. The three ETFs all strive for security representation within sectors based on the highest HCF scores.
HAPS will typically hold approximately 200 U.S. securities, HAPI will typically hold 150 securities, while HAPY will typically hold between 70 and 100 securities. HAPI is generally sector-neutral to the selection universe, with a maximum of 35% or a 10% band. On the other hand, HAPY’s underlying index is unconstrained and may have larger sector over or underweights.
As of the end of February, there is no portfolio overlap between HAPS and HAPI. HAPS and HAPY have five common names.
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Important Information
All investments involve risk including the possible loss of principal. Please refer to the Fund’s prospectus for additional risks associated with each Fund: HAPY, HAPI, HAPS.
HAPI Risk: 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.
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. The Board of Trustees may liquidate the Fund at any time in accordance with the Declaration of Trust and governing law. As a result, the timing of the Fund’s liquidation may not be favorable.
HAPY Risk: 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 proprietary scoring methodology in assessing whether a company may be considered a to have a strong corporate culture. 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. Since the Fund may hold foreign securities, it may be subject to greater risks than funds invested only in the U.S.
HAPS Risk: 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. Stocks of small cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. 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. The Fund’s assets may be concentrated in a particular sector, industry or group of industries to the extent the Index is so concentrated and could subject the Fund to the risk that economic, political or other conditions that have a negative effect on the Fund.
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. The Board of Trustees may liquidate the Fund at any time in accordance with the Declaration of Trust and governing law. As a result, the timing of the Fund’s liquidation may not be favorable.
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.
Irrational Capital LLC is a third-party index provider to the Harbor Corporate Culture Leaders ETF. The Fund is managed by Harbor Capital Advisors, Inc.
CIBC is a third-party index provider to the Harbor Corporate Culture ETF and the Harbor Small Cap 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.
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