Harbor has launched a small-cap ETF, expanding its human capital investing suite.
The Harbor Corporate Culture Small Cap ETF (HAPS), listed on the NYSE Arca on April 13, offers exposure to small-cap companies with strong Human Capital Factor scores while constraining sectors to enhance overall diversification benefits.
The Human Capital Factor is a distinctive investment factor measuring corporate culture and its connection to future equity performance. The nontraditional factor was derived from Irrational Capital’s proprietary research and employee survey data along with other publicly available, grassroots sources such as employee reviews, Harbor said.
Quantifying (and ranking) human capital as an (intangible) asset (versus a cost/liability) on a company’s balance sheet has proven to lead to a large informational advantage in investing and be relatively distinct or orthogonal to existing, traditional investment factors such as quality, size, etc, according to Harbor.
“At Harbor, we believe culture matters. It is often claimed that people are a company’s most important asset, yet tangible measures of corporate culture and employee well-being are not captured on companies’ balance sheets,” Harbor said. “Utilizing the latest behavioral economic research, Irrational Capital has uncovered what they believe to be a direct systematic link between company culture and resulting company equity performance – The Human Capital Factor.”
HAPS is a part of Harbor’s growing HAP- series. The Human Capital Factor first became publicly investable through the Harbor Corporate Culture Leaders ETF (HAPY), which launched in February 2022, followed by the Harbor Corporate Culture ETF (HAPI), which launched in November 2022.
HAPY, HAPI, and HAPS use the same methodology to score companies on human capital – notably by combining systematic research to generate returns through statistical correlations between specific cultural characteristics and equity performance.
The primary differences between HAPS and its sister strategies relate to index construction and resulting market capitalization. HAPS strives for a beta of 1 to the Russell 2000 Index (while HAPI aims for a beta of 1 to the Russell 1000 Index), offers a sector-neutral approach (versus unconstrained for HAPY), and security representation within sectors being based on the highest HCF scores (all three), Harbor said.
HAPS seeks to provide investment results that correspond, before fees and expenses, to the performance of the CIBC Human Capital Factor Small Cap Index. The index consists of a modified cap-weighted portfolio of equity securities of approximately 200 U.S. companies identified by Irrational Capital as those it believes to possess strong corporate culture based on its proprietary scoring methodology. The index was developed by the Canadian Imperial Bank of Commerce (CIBC).
HAPS can be used in portfolios in several ways, including as a core small-cap U.S. equity holding enhanced by the Human Capital Factor. HAPS can also serve as a portfolio diversifier, offering uncorrelated to other investment styles. The fund also fits as a socially conscious strategy for accessing companies with strong corporate cultures.
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All investments involve risk including the possible loss of principal. Please refer to the Fund’s prospectus for additional risks associated with the Fund. For the Fund’s prospectus and most current performance and holdings, please click: HAPI, HAPY
Invest in the S (social) in Environmental, social, and corporate governance (ESG) factors which may be incorporated into the investment process of the Fund which we believe tends to be underrepresented in sustainable investing. An ESG assessment represenst only one of many considerations when making an investment decision. Investors should be aware ESG criteria, characteristics and/or assessments are often subjective in nature and may cause a portfolio to forgo other potentially attractive investment opportunities. Because of the subjective nature of ESG assessments, there can be no guarantee that ESG criteria, characteristics or factors used in any investment process will contribute to performance of the Fund. All investments, including ESG investing, are subject to risk and there is no guarantee that the investment objectives of the portfolio will be achieved, or the portfolio will be profitable. Please refer to each Funds prospectus, or summary prospectus if available, for further information on each Funds investment guidelines, and if applicable, ESG guidelines.
Correlation is a statistic that measures the degree to which two variables move in relation to each other.
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.
The Russell 1000® Index is an unmanaged index generally representative of the U.S. market for larger capitalization stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 1000® Index and Russell® are trademarks of Frank Russell Company.
Alpha is a measure of risk (beta)-adjusted return.
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.
All investments involve risk including the possible loss of principal. There is no guarantee that the 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 CIBC Human Capital Index consists of a modified market-weighted portfolio of the equity securities of U.S. companies identified by Irrational Capital LLC (“Irrational Capital”) as those it believes to possess strong corporate culture based on its proprietary scoring methodology. The Index is developed by CIBC World Markets, Inc. (the “Index Provider”), Irrational Capital evaluates companies based on a proprietary, rules-based scoring methodology it developed by leveraging its research in behavioral science, data science and human capital. Constituents of the Solactive GBS United States 500 Index (the “index universe”) at the time of Index reconstitution are eligible for inclusion in the Index. Each company in the index universe that is also identified by Irrational Capital on its list of high-scoring companies (based on the most current scores as of each reconstitution) will be included in the Index. Index constituents in the same sector are weighted based on their float-adjusted market capitalizations. On reconstitution dates, the Index will target the same sector weights as the index universe. If after the Index’s weighting and capping rules are applied, a sector’s weight in the Index would be less than its weight in the index universe, the Index will hold exchange-traded funds that invest specifically in the stocks and securities of the corresponding sector (known as sector ETFs), or such other sector proxy as the Index Provider may determine, to fill the remaining weight and ensure sector neutrality as compared with the index universe. The index listed is unmanaged and does not reflect fees and expenses and is not available for direct investment.
Diversification does not assure a profit or protect against loss in a declining market.
The Harbor Corporate Culture ETF, the Harbor Corporate Culture Leaders ETF, and the Harbor Corporate Culture Small Cap ETF are not ESG dedicated Funds.
Investing involves risk, principal loss is possible. 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. They may not be reflective of current opinions, are subject to change without prior notice, and should not be considered investment advice.
Irrational Capital LLC is a third-party index provider to the Harbor Corporate Culture suite of ETFs. The Fund is managed by Harbor Capital Advisors, Inc.
Foreside Fund Services, LLC is the Distributor of the Harbor ETFs