Advisors may look to the Harbor Small Cap Explorer ETF (QWST) as a distinct substitute for current small-cap ETF holdings.
An allocation to U.S. small-cap equities may have the potential to provide attractive returns for clients. Small-cap stocks have strong long-term growth and performance capability given the earlier lifecycle nature of investments across the space, according to Harbor Capital.
U.S. small-cap strategies may exhibit higher levels of volatility, in addition to generally being more capacity constrained. Harbor believes QWST stands out in a sea of small-cap ETFs as it offers enough capacity to potentially meet market demands; the fund has $4 billion in total capacity.
See more: “Harbor Launches Firm’s 1st Multi-Manager Small-Cap ETF: QWST”
QWST may fit best in a client’s small-cap equity allocation benchmarked to the Russell 2000 Index. Since the fund’s launch on April 27, QWST is up 1.28% (NAV) while the Russell 2000 has declined 1.1% (NAV). The figures look at total return level (using the closing price of the security that has been adjusted to include price appreciation, dividend, distribution, and expense ratio).
Adding a Multi-Strategy Approach to a Small-Cap ETF
QWST utilizes an exclusive multi-strategy approach. A multi-strategy approach seeks to provide diversification benefits and greater risk management potential relative to single-strategy offerings.
The QWST investment process allocates across five active managers with distinct investment styles. Harbor’s Multi-asset Solutions team seeks to optimize the diversification benefits of the underlying managers. It also minimizes factor risks, and enables idiosyncratic risk. This drives portfolio returns, according to Harbor Capital.
The Harbor Multi-asset Solutions team’s approach focuses on three key tenets: optimization scenarios, cross-sectional risk exposures, and qualitative review, according to the firm.
QWST’s subadvisors include Connacht Asset Management, Copeland Capital Management, Granahan Investment Management, Huber Capital Management, and Reinhart Partners. Notably, each subadvisor has its own specific investment style and will act independently from the other subadvisors.
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Disclosure Information
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 associated with the Fund. For the Fund’s prospectus, holdings, and most current standardized performance, please click: QWST
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate and when redeemed may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborcapital.com or by calling 800-422-1050.
There is no guarantee that the investment 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’s performance may be more volatile because it may invest in issuers that are smaller companies. Because the Fund is managed pursuant to model portfolios provided by nondiscretionary Subadvisors that construct the model portfolios but have no authority to effect trades for the Fund’s portfolio, it is expected that the Advisor will effect trades on a periodic basis as the Advisor receives the model portfolios, and therefore less frequently than would typically be the case if the Fund employed discretionary subadvisors that effected trades for the Fund’s portfolio directly, which could affect the performance of the Fund.
The Subadvisors’ investment styles and security recommendations may not always be complementary, and the Subadvisors’ judgment about the attractiveness, value and growth potential of a particular security may be incorrect, which could affect the performance of the Fund. Since the Fund may hold foreign securities, it may be subject to greater risks than funds invested only in the U.S. These risks are more severe for securities of issuers in emerging market regions. There can be no assurance that the Fund will grow to or maintain an economically viable size, in which case the Board of Trustees may determine to liquidate the Fund. REITs may decline in value as a result of factors affecting the real estate sector including the risk that REITs are unable to generate cash flow to make distributions to unitholders and fail to qualify for favorable tax treatment.
Additional Information
The Russell 2000® Index measures the performance of the small-cap segment of the US equity universe. It is a subset of the Russell 3000® and includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000® Index and Russell® are trademarks of Frank Russell Company.
Diversification in an individual portfolio does not assure a profit.
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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