Harbor Completes Industry's First Mutual Fund Into an Existing ETF Merger | ETF Trends

Harbor Capital Advisors recently completed the industry’s first mutual fund into an existing ETF merger.

Harbor merged the Harbor High-Yield Bond Fund (HYFAX), a mutual fund, into the Harbor Scientific Alpha High-Yield ETF (SIHY), an ETF, effective February 24, 2023. The move allows investors in the Harbor High-Yield Bond Fund the liquidity and tax advantages of an ETF while infusing the ETF with $117 million in new assets.

“Harbor is a well-established provider of active mutual funds with a long history of adding value to advisors’ efforts through securities selection. But it is clear they are committed to being an innovative leader in the ETF space as well,” Todd Rosenbluth, head of research at VettaFi, said. “They remain a firm to watch as active ETFs gain market share.”

For investors that were in the Harbor High Yield Bond Fund, the gross expense ratios have decreased from 65 basis points to 48 basis points in SIHY.

Subadvised and actively managed by BlueCove, SIHY was launched in September 2021 and has accreted $150 million in assets under management as of February 27th, 2023. BlueCove is a scientific asset management firm, founded with the specific goal of delivering strong investment outcomes for investors by researching and developing state-of-the-art scientific investment processes applicable to fixed income investment management.

“Most high yield ETF assets are tracking indexes, but advisors are increasingly turning to actively managed ETFs in 2023,” Rosenbluth said.

SIHY and the Harbor Scientific Alpha Income ETF (SIFI) offer cost-aware solutions to gaining access to differentiated, actively managed, and scientifically driven fixed income exposure in the multi-sector and high-yield bond categories. We believe active scientific investing offers investors a differentiated alternative to passive and traditional active discretionary strategies by benefiting from the significant breadth and applying insights that are otherwise difficult to capture.

SIHY seeks to provide total returns through employing a structured investment process that utilizes a proprietary model-based framework in the security selection of below investment-grade (high yield) bonds. We believe SIHY offers an attractive current 30-day subsidized SEC yield, according to the fund’s website.

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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 and current yields: SIHY, SIFI

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. 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.

ETFs are subject to capital gains tax and taxation of dividend income. However, ETFs are structured in such a manner that taxes are generally minimized for the holder of the ETF. An ETF manager accommodates investment inflows and outflows by creating or redeeming “creation units,” which are baskets of assets. As a result, the investor usually is not exposed to capital gains on any individual security in the underlying portfolio. However, capital gains tax may be incurred by the investor after the ETF is sold.

A basis point is one hundredth of 1 percentage point.

Current 30 Day Yields the average daily dividends for 30 days, annualized by 365 days and divided by the net assets per share of the end of the period.  Does not reflect reimbursements or fee waivers currently in effect.

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.