According to Harbor and BlueCove in a recent webcast, Harbor’s high-yield bond ETF showcases the potential strength in active management.
The Harbor Scientific Alpha High-Yield ETF (SIHY) is an active ETF offering distinct exposure to the high-yield bond market. The fund seeks to provide total returns by employing a structured investment process that utilizes a proprietary model-based framework in the security selection of high-yield bonds.
Notably, investors don’t have to pay more for active management. SIHY charges a total expense ratio of 48 basis points. That is one basis point less than its largest high-yield bond ETF Morningstar category peer.
BlueCove, SIHY’s subadvisor, is a scientific asset management firm that focuses on active management. The firm was founded with the specific goal of seeking to deliver compelling investment outcomes for investors by researching, developing, and implementing scientific investment processes applicable to fixed income investment management.
“Scientific investing is the implementation of an evidence-based investment process, that is data-driven, economically intuitive, and grounded in the scientific method,” according to Heather DeGarmo, head of product strategy at BlueCove.
“The scientific method for reference here is really around this idea to have a hypothesis, test it, implement it. See how I did, and rinse, refine, repeat,” DeGarmo added.
Why Go Active for High-Yield ETF Exposure
Many investors are underexposed to bonds as they haven’t looked particularly attractive in years past. However, high-yield bond strategies are currently seeing a resurgence in interest, and for good reason. According to DeGarmo, for many asset management professionals, it’s the first time in their careers that she believes it’s possible to generate high single-digit or low double-digit returns from liquidly traded public assets.
“If you have historically had a non-active or a lower allocation to active fixed income, that’s not surprising,” DeGarmo said.
In addition to SIHY’s recent outperformance, Harbor Capital’s internal data science team has studied active management’s performance by decades.
Paul Herbert, a managing director on Harbor Capital’s investment research team, said the team looked at rolling one-year excess returns of active managers versus their Morningstar category benchmarks from the 2000s, the 2010s, and the 2020s.
According to Herbert, the results of the study suggest active management results have improved in the 2020s versus the 2010s. “We expect this to persist given macro uncertainty and elevated volatility,” Herbert added.
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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.
The views expressed herein may not be reflective of current opinions, are subject to change without prior notice. They should not be considered investment advice.
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: SIHY
Investing involves risk, principal loss is possible. Unlike mutual funds, ETFs may trade at a premium or discount to their net asset value. Harbor ETFs are new and have limited operating history to judge.
Shares are bought and sold at market price not net asset value (NAV). Market price returns are based upon the closing composite market price and do not represent the returns you would receive if you traded shares at other times.
Fixed income securities fluctuate in price in response to various factors, including changes in interest rates, changes in market conditions and issuer-specific events, and the value of your investment in the Fund may go down. There is a greater risk that the Fund will lose money because they invest in below- investment grade fixed income securities and unrated securities of similar credit quality (commonly referred to as “high-yield securities” or “junk bonds”). These securities are considered speculative because they have a higher risk of issuer default, are subject to greater price volatility and may be illiquid.
Because the Fund may invest in securities of foreign issuers, an investment in the Fund is subject to special risks in addition to those of U.S. securities. These risks include heightened political and economic risks, greater volatility, currency fluctuations, higher transaction costs, delayed settlement, possible foreign controls on investment, possible sanctions by government bodies of other countries and less stringent investor protection and disclosure standards of foreign markets.
A basis point is one-hundredth of 1 percentage point.
This article was prepared as Harbor Funds paid sponsorship with VettaFI.
Foreside Fund Services, LLC is the Distributor of the Harbor Scientific Alpha High-Yield ETF.
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