In the last few years, many well-established asset managers joined the ETF market, and VettaFi has recently focused on learning about their new products and what is to come. This time, VettaFi connected with Kristof Gleich, president and CIO of Harbor Capital Advisors. Harbor’s first two ETFs, the Harbor Scientific Alpha High-Yield ETF (SIHY) and the Harbor Scientific Alpha Income ETF (SIFI), came to market in September 2021. The firm now has nine ETFs, including the Harbor Dividend Growth Leaders ETF (GDIV) and the Harbor Corporate Culture Leaders ETF (HAPY).
VettaFi: Harbor launched ETFs approximately a year ago. How has the first year gone, and what has you excited about the ETF market?
Gleich: We’re very proud of our start to life in the ETF market. This time last year, our business was basically a mutual fund business with traditional actively managed funds. Now we also have nine distinctive and differentiated ETFs to complement our lineup. We’re getting close to $400 million AUM in our ETFs. The ETF market is more entrepreneurial and innovative; that’s exciting.
VettaFi: The first ETF products Harbor launched were active fixed income ETFs. One of them, SIHY, is focused on the high yield market. What makes this ETF different from the more established index-based ETFs like the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the SPDR Bloomberg High Yield Bond ETF (JNK)?
Gleich: Firstly, it’s actively managed. Secondly, the way we tackle the bond selection is 100% systematic, using a scientific investment process. We partnered with BlueCove, a leading boutique in London where a number of their investors cut their teeth at BGI/BlackRock, but they wanted to hang their own shingle and dedicate themselves to disrupting traditional discretionary or passive fixed income approaches through scientific active management.
VettaFi: Despite being the first ETFs, neither SIHY nor SIFI are the Harbor ETF with the longest track record. You converted a mutual fund with more than a decade-long record into GDIV. Why did you make the conversion, and what are some distinct attributes of GDIV?
Gleich: We’re very excited about GDIV. One of our longest-standing manager partners, Westfield Capital, had this great strategy tucked away in the background as a mutual fund. Most of the money in the product was from their founder, Will Muggia, which from an alignment perspective is a great starting point. The numerous advantages of ETFs vs. mutual funds made this conversion a no-brainer. It’s actively managed, and the discipline of investing in companies that Will and team believe will pay a sustainable growing dividend stream to shareholders make it a great option for this volatile environment. It just won the best actively managed dividend ETF from the WSJ, about which we’re very proud.
VettaFi: One of the more interesting thematic ETFs to launch in 2022 was HAPY, which focuses on human capital. How is this incorporated into the investment strategy, and what are some examples of the ETF’s holdings.
Gleich: Every leader in every industry worldwide says their most important asset is what?… Drumroll… their people! Why? Because it’s true. We passionately believe that if you can systematically measure corporate culture and employee engagement, there is potential alpha in that signal. That’s what our research suggests. We partnered with behavioral economist Dan Ariely of Duke University to create it, and he’s probably the only person in the world with the skillset to do it. Doing the right thing by your people pays back in shareholder returns, it’s so intuitive and frankly obvious, and now we’ve made it investable. The holdings comprise companies whose employees love working there. Lululemon Athletica is in there, which we love — they are all about being active and so are we.
VettaFi: In a short period of time, Harbor has rolled out a broad suite of products, but I’m sure advisors are wondering what plans you have for year two. What can you share with us?
Gleich: We think we’re in the early stages of an investor movement into ETFs. It began with passive, but the wave we’re in now is all about active and thematics. Expect Harbor to continue to lead with innovative and differentiated solutions that will help clients get the investment returns they need to help them compound their wealth over the long run.
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