Harbor's CIO on Navigating the Changing Investment Landscape

Most advisors are cognizant of the changing investment landscape, recognizing that the allocations that generated standout performance in the past decade will need to be adjusted to produce future returns for clients.

“It’s hard to overstate, if not impossible to overstate, how different the world and the investment environment is today than it has been over the past 10 or 15 years,” Kristof Gleich, president and CIO of Harbor Capital Advisors, told VettaFi at Exchange: An ETF Experience.

While so many economic conditions are rapidly changing, Gleich believes that the most important is the notion of cost of capital and the significant interest rate rise seen last year.

“We at Harbor believe that we are likely going to be in a higher-for-longer regime, that interest rates are not going to go back to zero, and the Fed is not going to start cutting,” Gleich said. “We feel that this move back to cost of capital is real, and that can have all sorts of profound investment implications.”

We believe the consequences and implications of this changing investment landscape include more volatility and lower returns going forward. Thus, the industry default 60/40 “set it and forget it” portfolio that generated solid returns in the 2010s is poised to underwhelm investors in the 2020s.

“At the same time, we do see a lot of opportunities out there for active managers to add value,” Gleich said. “We want to focus our offerings and refocus our portfolios around cherry picking a few different managers that we think can help our clients navigate market volatility in this new investment environment that we’re in.”

Active managers work to add value by seeking to provide more resilience to portfolios in this changing investment landscape.

Gleich said one of the themes that Harbor currently likes is dividend growth. The actively managed Harbor Dividend Growth Leaders ETF (GDIV) plays a dual role in portfolios, seeking current income as well as the potential for income growth and capital appreciation.

GDIV is designed to play defense and offense at the same time and aims to be positioned to generate attractive risk-adjusted returns.

“I suspect if the 2010s were all about the emergence of equity income, then the 2020s are going to be more about dividend growth and focusing on those consistent dividend growers that are high quality, free cash flow generative,” Gleich said.

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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. For current performance and holdings:  GDIV

There is no guarantee the investment objective of the Fund will be achieved. The Fund’s emphasis on dividend paying stocks involves the risk that such stocks may fall out of favor with investors and under-perform the market. There is no guarantee that a company will pay or continually increase its dividend.

The views expressed herein are those of Harbor Capital Advisors, Inc. investment professionals at the time the comments were made. They may not be reflective of their current opinions, are subject to change without prior notice, and should not be considered investment advice.

A “60/40 portfolio” is guidepost portfolio for a moderate risk investor. Portfolio allocations of 60% to equities to seek capital appreciation and 40% allocation to fixed income help mitigate risk and offer potential income.

Free cash flow represents the cash a company can generate after accounting for capital expenditures needed to maintain or maximize its asset base.

Westfield Capital is the subadvisor for the Harbor Growth Leaders (GDIV)

This article was prepared as Harbor Funds paid sponsorship with VettaFI.

Foreside Fund Services, LLC is the Distributor of the Harbor ETFs.