U.S. markets closed
  • S&P Futures

    4,568.00
    +10.00 (+0.22%)
     
  • Dow Futures

    35,666.00
    +46.00 (+0.13%)
     
  • Nasdaq Futures

    15,553.75
    +58.00 (+0.37%)
     
  • Russell 2000 Futures

    2,315.90
    +5.60 (+0.24%)
     
  • Crude Oil

    83.80
    +0.04 (+0.05%)
     
  • Gold

    1,808.40
    +1.60 (+0.09%)
     
  • Silver

    24.63
    +0.04 (+0.15%)
     
  • EUR/USD

    1.1606
    -0.0008 (-0.07%)
     
  • 10-Yr Bond

    1.6350
    -0.0200 (-1.21%)
     
  • Vix

    15.24
    -0.19 (-1.23%)
     
  • GBP/USD

    1.3765
    -0.0003 (-0.02%)
     
  • USD/JPY

    113.7790
    +0.0800 (+0.07%)
     
  • BTC-USD

    62,967.95
    +1,955.53 (+3.21%)
     
  • CMC Crypto 200

    1,509.14
    +1,266.46 (+521.87%)
     
  • FTSE 100

    7,222.82
    +18.27 (+0.25%)
     
  • Nikkei 225

    28,913.83
    +313.42 (+1.10%)
     

Harbor Capital Advisors Q&A Regarding SIFI & SIHY

·5 min read

This article was originally published on ETFTrends.com.

Accompanying the news regarding the launch of Harbor Capital Advisors' first ETFs, the Harbor Scientific Alpha Income ETF (NYSE: SIFI) and the Harbor Scientific Alpha High-Yield ETF (NYSE: SIHY), ETF Trends was able to speak with the teams at Harbor and BlueCove about the funds, their potential, and more.

ETF Trends: With the Harbor Scientific Alpha High-Yield and Harbor Scientific Alpha Income funds, what makes it a good time to launch these funds?

Harbor/BlueCove: Fixed income investors have historically had two choices: traditional active discretionary investing or passive investing. We believe that scientific active fixed income investing provides a necessary third choice to investors looking to achieve superior investment returns, a particularly welcome choice in today’s low-yield environment.

Scientific active investing is arguably the first innovation in the fixed income investment process since passive investing was introduced in the 1980s. Today, science and technology are only in the early stages of disrupting the active fixed income asset management industry. Fixed income markets now boast the availability of data, the market structure, the breadth of securities, and the depth of research necessary to fully implement a scientific investment approach. That said, the barriers to entry remain high, and the medium-term alpha opportunity available to scientific fixed income managers in an uncrowded space should be meaningful as a result.

The great majority of active managers still operate a traditional, discretionary business model in which the exercise of subjective judgment dominates every phase of the (generally team-siloed and star manager-dominated) investment process. Passive investing, on the other hand, though lower-cost, does not offer the potential to capture additional returns in excess of a stated benchmark. In addition, passive investing may tilt portfolios to higher exposures in highly indebted issuers. By contrast, a scientific approach can objectively cover a broad investment universe, utilizing state-of-the-art technology to achieve active, process-driven investment decisions.

The Harbor Scientific Alpha High-Yield fund is designed to outperform a broad USD high-yield index. The Harbor Scientific Alpha Income fund is designed to provide income and total return to investors with lower volatility than investing solely in the high-yield market. Both are active strategies that generally have a place in investor and allocator portfolios in all market conditions. We believe investors will welcome the potential for diversifying these core allocations with new sources of high-quality returns versus similarly themed traditionally active or passively managed products.

ETF Trends: How will the SIFI and SIHY funds benefit investors and advisors looking to contend with the current trends in the market?

Harbor/BlueCove: Scientific investing seeks to generate alpha by decomposing a traditional discretionary investment process into its component parts, building an intellectual framework for each part, and reassembling the parts into a transparent, data-driven investment process that seeks to emphasize continuous improvement. The approach is evidence-based, driven by economic intuition, and grounded in the scientific method.

In BlueCove’s scientific investment process, people and technology are assigned the roles to which they are best suited. Human discretion undertaken by domain specialists remains central to the process but is focused on objective analysis by researchers (developing insights and processes), engineers (building the investment platform), and portfolio managers (oversight and execution, taking fixed income idiosyncrasies into account). Technology is tasked with processing vast quantities of diverse investment data and assessing risk, return, and liquidity trade-offs in portfolio construction.

Scientific investing is characterized by higher instrument liquidity, broad portfolio diversification, and a transparent portfolio construction framework taking into account transaction costs, risk, and liquidity considerations. Investors benefit from a firm-level investment process in which human discretion is steered away from areas in which is it is historically weak, such as subjective forecasting, and towards those in which it is stronger, such as objective analysis and process design.

In summary, the benefits of a scientific investment process for investors include:

  • The potential to generate returns with a low correlation to those of traditional managers, making them complementary to, and competitive with, their traditional counterparts,

  • An increased probability of repeatable outcomes given the redeployment of human discretion to minimize cognitive and emotional bias,

  • A technology-enabled increase in investment breadth,

  • Transparency in decision-making allowing for granular decision and performance attribution and continuous improvement of the investment process,

  • A firm-level scientific investment process that minimizes key person risk, improving knowledge management at the firm level.

ETF Trends: What risks do these funds look to be going after and dealing with?

Harbor/BlueCove: Both funds will rely on research insights that are proprietary to BlueCove. The Harbor Scientific Alpha High-Yield fund will emphasize company and bond-specific risks across the broad USD high-yield investment universe while maintaining a similar market exposure to the fund’s benchmark. The Harbor Scientific Alpha Income fund will tilt the fund's market exposure between high-quality versus lower-quality credit over time through exposure to market, company, and bond-specific risks, as well as directional interest rate duration risk.

BlueCove’s proprietary research insights may be broadly classified across fundamentals, sentiment, carry, and valuation. In addition to achieving a high level of diversification in the funds by investing across many positions, BlueCove also seeks breadth in the types and number of research insights that will be applied to the funds.

Market risk in both funds will be closely managed to ensure that unwanted exposures are minimized.

ETF Trends: What is the long-term goal for SIFI and SIHY?

Harbor/BlueCove: The long-term goal for both ETFs is to deliver strong investment performance for investors. Through these initial products, we seek to offer investors a differentiated return stream compared to traditionally managed active or passive strategies. We aim for the ETFs to achieve low correlations to the active returns of traditionally managed portfolios and higher returns than passive strategies.

We hope to bring more select scientific fixed income products to market to empower investors to make the best-informed decisions and construct optimal portfolios.

For more information, visit HarborFunds.com.

Disclaimer

BlueCove and the BlueCove logo are registered trademarks of BlueCove Limited (“BlueCove”), a private company registered in England and Wales with number 11269446 and having its registered office at 10 New Burlington Street, London W1S 3BE. BlueCove is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

This overview is provided for information purposes only. It is provided in confidence, strictly for the internal use of the immediate recipient, and it is not an offer to, or solicitation of, any potential clients or investors for the provision by BlueCove of investment management, advisory or any other comparable or related services. No statement in this overview is or should be construed as investment, legal, or tax advice, nor is any statement an offer to sell, or a solicitation of an offer to buy, any security or other instrument, or an offer to arrange any transaction, or to enter into legal relations. This document expresses no views as to the suitability of the investments described herein to the individual circumstances of any recipient. If an offer to sell investments is made in the future, it will be subject to information circulated by BlueCove at the time in a formal prospectus or equivalent document and not on the basis of the information contained in this document.

This document has been prepared by BlueCove for persons reasonably believed by BlueCove to be of the kind to whom BlueCove is permitted to communicate financial promotions pursuant to the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 as amended (the “PCISO”). Such persons include: (a) persons having professional experience of participating in unregulated collective investment schemes and (b) high net worth bodies corporate, partnerships, unincorporated associations, trusts, etc. falling within Article 22 of the PCISO. Investment in the Fund is only available to such persons and persons not falling within those PCISO exemptions may not rely or act upon this document.

No representation is made as to the accuracy or completeness of any information contained herein, and the recipient accepts all risk in relying on this information for any purpose whatsoever. Without prejudice to the foregoing, any views expressed herein are the opinions of BlueCove as of the date on which this document has been prepared and are subject to change at any time without notice. BlueCove does not undertake to update this information. Any forward-looking statements herein are inherently subject to material business, economic and competitive risks and uncertainties, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. The processes, protocols, policies, and engagements with, and services provided (or to be provided) by, third parties referred to herein are subject to change without notice. BlueCove does not undertake to provide the recipient of this overview with notice of any update of or change to the information contained therein for any reason.

There can be no assurance that an investment strategy or approach will be successful. Historic market trends and behaviours are not a reliable indicator of future market behaviour or performance, nor can they be used to reliably infer the future performance of any investment strategy or approach. There is no assurance that any circumstances, events, or objectives referred to herein will be achieved. The information contained herein regarding portfolio construction and the investment strategies to be pursued are for illustrative purposes only. The details given are not exhaustive and implementation of any such investment strategy will be at the sole discretion of BlueCove.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

This document is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. It is the responsibility of every person reading this document to satisfy himself as to the full observance of the laws of any relevant country, including obtaining any government or other consent which may be required or observing any other formality which needs to be observed in that country. This document is written for the benefit of the category of persons described above and should be treated as strictly confidential. It is not addressed to any other person and may not be used by them for any purpose whatsoever. It expresses no views as to the suitability of the investments described herein to the individual circumstances of any recipient.

This document remains the property of BlueCove and BlueCove reserves the right to require the return of this document at any time. Some of the names and/or other material used herein may be protected by copyright and/or trademark. If so, such copyrights and/or trademarks are most likely owned by the entity that created the material and are used purely for identification and comment as fair use under international copyright and/or trademark laws. Use of any such materials does not imply any association with (or endorsement of) such organisation by BlueCove, or vice versa. In relation to any ICE indices and index data, please note the following:

Source ICE Data Indices, LLC (“ICE DATA”), is used with permission. ICE DATA, ITS AFFILIATES AND THEIR RESPECTIVE THIRD PARTY SUPPLIERS DISCLAIM ANY AND ALL WARRANTIES AND REPRESENTATIONS, EXPRESS AND/OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, INCLUDING THE INDICES, INDEX DATA AND ANY DATA INCLUDED IN, RELATED TO, OR DERIVED THEREFROM. NEITHER ICE DATA, ITS AFFILIATES NOR THEIR RESPECTIVE THIRD PARTY SUPPLIERS SHALL BE SUBJECT TO ANY DAMAGES OR LIABILITY WITH RESPECT TO THE ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE INDICES OR THE INDEX DATA OR ANY COMPONENT THEREOF, AND THE INDICES AND INDEX DATA AND ALL COMPONENTS THEREOF ARE PROVIDED ON AN “AS IS” BASIS AND YOUR USE IS AT YOUR OWN RISK. ICE DATA, ITS AFFILIATES AND THEIR RESPECTIVE THIRD PARTY SUPPLIERS DO NOT SPONSOR, ENDORSE, OR RECOMMEND BLUECOVE, OR ANY OF ITS PRODUCTS OR SERVICES.

This document is dated as of 14 September 2021.

© 2021 BlueCove Limited. All rights reserved.

POPULAR ARTICLES AND RESOURCES FROM ETFTRENDS.COM

READ MORE AT ETFTRENDS.COM >