Harbor Capital Advisors, Inc is an asset manager that leverages the expertise of boutique managers in building out their product shelf of active ETFs. The intentionality behind the managers they choose and the mandates they bring to market has resulted in a curated offering of both traditional and thematic investment solutions.
Most recently, the firm launched two new investment offerings, the Harbor Corporate Culture Small Cap ETF (Ticker: HAPS) and Harbor Small Cap Explorer ETF (Ticker: QWST), each with distinct value propositions that can be utilized by investors.
Harbor Corporate Culture Small Cap ETF
If you’ve ever wondered about the degree to which corporate culture impacts the bottom line of a company, this new ETF, which tracks a proprietary index methodology developed by the Canadian Imperial Bank of Commerce (CIBC (TSX:CM)) and Irrational Capital, provides diversified access to U.S. small cap companies with strong corporate cultures to help investors capture the connection between human capital and performance.
Irrational Capital, a Pennsylvania-based investment research firm, developed the Human Capital Factor (HCF), a strategy that quantifies corporate culture by studying employee behaviors and motivations, rather than by simply looking at more easily quantifiable statistics, such as compensation packages or the number of diverse members on the board. Dubbed as ‘a new entrant in the landscape of factor investing’, HCF is already the underlying thesis for two existing Harbor Capital Advisors solutions, Harbor Corporate Culture Leaders ETF (Ticker: HAPY) and Harbor Corporate Culture ETF (Ticker: HAPI), highlighting the firm’s belief in this investment strategy.
For individuals with skeptical minds that may question the efficacy of HCF, as reported in Institutional Investor and publicly disclosed on Irrational Capital’s website, JP Morgan (NYSE:JPM) has analyzed HCF’s performance, back-testing data from 2015, and found its methodology to be additive to overall portfolio performance. So, what does this mean for interested investors? For individuals that may be divergent in their investment approach or are looking for exposure to small-cap companies that may reflect good governance, HAPS may be a solution that aligns with your personal investment ethos.
Harbor Small Cap Explorer ETF
Small Cap stocks provide investors with the opportunity to attain early ownership in the burgeoning companies that may grow to become industry leaders of the future. QWST aims to provide long-term growth of capital by investing in small cap companies, defined as those having market capitalization in the range of the Russell 2500® Index.
In achieving this objective, Harbor’s Multi-Asset Solutions Team (MAST), the manager of the ETF, will employ an actively managed, multi-strategy approach that will leverage the expertise of five sub-advisors, namely:
- Connacht Asset Management: A New York-based small and mid-cap focused equity investment firm. Connacht’s investment approach is conviction driven, with a focus on quality and bottom-up fundamental analysis.
- Copeland Capital Management: The firm specializes in dividend growth investing. Copeland Capital believes that stocks with sustainable dividend growth consistently have the potential to outperform the market with less risk.
- Granahan Investment Management: Specializing in U.S. small cap equity investment management services, Granahan classifies companies by LifeCycle: Pioneer, Core Growth, or Special Situation. The LifeCycle categories have distinct performance drivers and attract different types of investors, which may provide important diversification.
- Huber Capital Management: Based in El Segundo, CA, the firm focuses on disciplined value-based investing; while utilizing best practices of both fundamental research and behavioral psychology to create a distinctive investment approach. This approach attempts to exploit equity market inefficiencies created by irrational investor behavior.
- Reinhart Partners: Based in Mequon, WI, the firm specializes in managing high-quality equity portfolios and seeks to invest in high-quality, durable business models at discounts to current valuations.
As the lead manager of the mandate, MAST is responsible for allocating the Fund’s assets among each subadvisor's strategy. In turn, each subadvisor has its own process for identifying and evaluating companies and will act independently from the other subadvisors. For investors, the top-of-mind benefit is the broad and diversified small cap exposure embedded within a single-ticket solution, as the underlying strategy of the ETF is tailored to seek alpha across varying market conditions given the diverse nature of QWST’s underlying managers and MAST’s portfolio construction and risk management process.
This content was originally published by our partners at ETF Central.