Hello! This week’s ETF wrap looks at the so-called human capital factor and how one firm is approaching it as a measure of corporate culture that influences equity performance. Meanwhile, actively-managed exchange-traded funds have been attracting a higher percentage of overall ETF flows than usual, according to CFRA Research.
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Human capital is a factor that can be scored to potentially drive gains in the stock market, according to Harbor Capital Advisors.
People are the most important assets at companies, said Kristof Gleich, president and chief investment officer of Harbor Capital Advisors, in a phone interview. “Ultimately it’s the quality of the people” and how they work together that “delivers value for clients and for the firm.”
The Harbor Corporate Culture ETF
HAPI,
which launched in October, has gained 3.7% this year through Wednesday, according to FactSet data. That surpasses the S&P 500’s rise, with shares of the SPDR S&P 500 ETF Trust
SPY
up 3.2% over the same period.
Harbor, which also has a Harbor Corporate Culture Leaders ETF
HAPY,
plans to launch additional ETFs around the “human-capital” factor, according to Gleich.
Harbor has partnered with Irrational Capital, co-founded by behavioral economist Dan Ariely, to design ETFs that invest in stocks based on the ranking of their human-capital factor. The idea is that “businesses that do the best job of investing in their people and creating the best cultures with the most motivated employees deliver attractive returns over the long run,” said Gleich.
He likened the scoring system to an “MRI scan of corporate culture,” saying it uses millions of different data points to put together an image of how employees feel about where they work.
For example, he said that the Harbor Corporate Culture ETF and Harbor Corporate Culture Leaders ETF consider how engaged or motivated employees are, with subfactors such as compensation fairness and “psychological safety” informing companies’ overall score.
Psychological safety plays a role in how comfortable people feel about “speaking up” or suggesting new ideas that may be “breaking the mold,” according to Gleich. “If you work somewhere with a culture of fear,” he said, “you’re much less likely to suggest new ways of doing things” or to provide “honest and candid feedback.”
The Harbor Corporate Culture ETF is more popular among the firm’s clients than the Harbor Corporate Culture Leaders ETF, which launched in February 2022, Gleich said.
Both funds invest in U.S. large-cap stocks, tracking indexes tied to the human-capital factor.
But the Harbor Corporate Culture ETF is designed to “pick the best-scoring companies within each sector,” he said. The Harbor Corporate Culture Leaders ETF’s portfolio is more concentrated, holding companies that score highest on the human-capital factor regardless of sector, according to Gleich.
As it turns out, that more concentrated portfolio is tilted toward technology-oriented companies, he explained. The Harbor Corporate Culture Leaders ETF was up 7.7% this year through Wednesday, beating the Harbor Corporate Culture ETF so far this year, FactSet data show. But on Wednesday, it was down about 14% over the past 12 months, according to FactSet data.
The firm’s Corporate Culture Leaders ETF had just $10 million of assets under management on Wednesday, while the more popular Harbor Corporate Culture ETF had around $224 million, FactSet data show. Meanwhile, the firm has plans to launch the Harbor Corporate Culture Small Cap ETF, according to a prospectus filed in January with the Securities and Exchange Commission.
Gleich declined to comment on the small-cap ETF.
‘Paradigm shift’
The U.S. exchange-traded fund industry began 30 years ago with a passive fund tracking the market-cap weighted S&P 500 index. Since the launch of the SPDR S&P 500 ETF Trust in 1993, the industry has been dominated by passive assets.
While the Harbor Corporate Culture ETF and Harbor Corporate Culture Leaders ETF track indexes, Gleich said in emailed comments that “we would consider these highly active solutions delivered to the market through a thematic index ETF.” In his view, “only a small subset of index investing,” which includes traditional market-cap indexes, is passive, and “everything else is active.”
Gleich said by phone that he expects the ETF industry’s next phase of growth to be geared toward more “sophisticated” active and thematic strategies. Harbor, which also has mutual funds, is focused on developing exchange-traded funds as the market is in the early stages of “a paradigm shift from mutual funds to ETFs,” he said.
Active ETF flows swell
Capital flowing into actively-managed ETFs in the U.S. has picked up this year as a portion of broader inflows into exchange-traded funds, according to Aniket Ullal, head of ETF data and analytics at CFRA Research.
For the first two months of 2023, he tallied $19.2 billion of inflows into active ETFs that are not linked to an index, or 42% of the overall $45.7 billion that U.S.-listed exchange-traded funds attracted over that same stretch. That percentage of flows is “way higher” than seen in the past, and stands in stark contrast with the small slice of assets under management for active ETFs.
Actively-managed exchange-traded funds represented around 5% of the U.S. ETF industry’s roughly $6.5 trillion of assets under management at the end of last year, Ullal estimated.
Read: Active vs. passive? Why active ETFs face competition from ‘quasi-active’ smart beta funds in U.S. stock market
As usual, here’s your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.
The good…
Top Performers | %Performance |
United States Natural Gas Fund LP UNG |
15.2 |
SPDR S&P Oil & Gas Equipment & Services ETF XES |
7.4 |
SPDR S&P Metals & Mining ETF XME |
5.6 |
VanEck Oil Services ETF OIH |
5.2 |
Global X Copper Miners ETF COPX |
4.5 |
Source: FactSet data through Wednesday, March 1, excluding ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater |
…and the bad
Bottom Performers | %Performance |
iShares Mortgage Real Estate ETF REM |
-4.4 |
Utilities Select Sector SPDR Fund XLU |
-4.0 |
Fidelity MSCI Utilities Index ETF FUTY |
-4.0 |
Vanguard Utilities ETF VPU |
-3.8 |
iShares U.S. Utilities ETF IDU |
-3.8 |
Source: FactSet |
New ETFs
The Inverse Cramer Tracker ETF
SJIM
and the Long Cramer Tracker ETF
LJIM
began trading Thursday, according to an announcement from Tuttle Capital Management. The new funds are designed to help investors profit from “a decline or rise in the public recommendations of Jim Cramer” on CNBC or Twitter, Tuttle Capital said. Cramer is the host of CNBC’s Mad Money show. “Love him or hate him, Jim Cramer is a polarizing figure,” said Tuttle Capital’s chief executive officer and chief investment officer Matthew Tuttle, who serves as the adviser to the ETFs, in the announcement.
Weekly ETF reads
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