Regime Shift Underscores Role of Active and Thematic Investing

The global regime shift taking place today has structural implications for markets.

Markets will remain more complex and challenged than they have been in the past decade, as significant changes in monetary and public policy have led to this global regime shift. The new environment will continue to challenge the balanced 60/40 set-it-and-forget-it portfolios that have become the cornerstone of the industry.

In more complex economic environments, security selection plays a much bigger role in generating returns, giving active management a significant advantage. In addition to active management, diversification and thematic investing will also play an increasingly critical role in providing returns in portfolios in this new regime, according to Kristof Gleich, president and CIO of Harbor Capital Advisors.

The active, fully transparent Harbor Health Care ETF (MEDI) provides advisors with a pure-play healthcare thematic strategy. MEDI can be a strong solution for investors seeking either complements or alternatives to passive healthcare exposure, as well as for investors that are structurally underweight to the sector. The fund fits as a thematic offering, enhancing diversification in a portfolio.

The healthcare sector has historically demonstrated defensive qualities relative to other economic sectors, given its lower cyclicality, making MEDI an attractive thematic offering in the current environment, as outlooks are clouded by the likelihood of a recession.

MEDI is subadvised by Westfield Capital Management Company, which has an extensive history in healthcare investing across industries and the capitalization spectrum, making the firm uniquely capable of investing in this inefficient, alpha-rich market segment.

MEDI offers diversified, all-cap exposure to the healthcare sector across sub-industries, including biotech, life sciences, healthcare providers, and pharmaceuticals, among others. The firm maintains a high level of active share in a relatively concentrated strategy (34 holdings as of December 31) and attempts to capture the upside from the most innovative sub-sectors while maintaining quality through secular winners and seeking to buffer the downside in high beta selloffs.

MEDI’s management team focuses on post-proof-of-concept companies, particularly those that have multiple assets in the pipeline and are well capitalized, to mitigate risk.

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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 holdings:  MEDI

Diversification in an individual portfolio does not assure a profit.

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.

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

Westfield Capital is the subadvisor for the Harbor Health Care ETF (MEDI)

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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