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Annual Report

HARBOR ETF TRUST

October 31, 2022

 

Harbor All-Weather Inflation Focus ETF

Harbor Corporate Culture ETF

Harbor Corporate Culture Leaders ETF

Harbor Disruptive Innovation ETF

Harbor Dividend Growth Leaders ETF

Harbor Energy Transition Strategy ETF

Harbor International Compounders ETF

Harbor Long-Term Growers ETF

Harbor Scientific Alpha High-Yield ETF

Harbor Scientific Alpha Income ETF

 

 

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Table of Contents

Table of Contents

 

 

 

Harbor ETFTrust

  

HARBOR ALL-WEATHER INFLATION FOCUS ETF

  

Manager’s Commentary

     3  

Consolidated Portfolio of Investments

     5  

HARBOR CORPORATE CULTURE ETF

  

Manager’s Commentary

     7  

Portfolio of Investments

     9  

HARBOR CORPORATE CULTURE LEADERS ETF

  

Manager’s Commentary

     12  

Portfolio of Investments

     14  

HARBOR DISRUPTIVE INNOVATION ETF

  

Manager’s Commentary

     16  

Portfolio of Investments

     18  

HARBOR DIVIDEND GROWTH LEADERS ETF

  

Manager’s Commentary

     20  

Portfolio of Investments

     23  

HARBOR ENERGYTRANSITION STRATEGY ETF

  

Manager’s Commentary

     25  

Consolidated Portfolio of Investments

     27  

HARBOR INTERNATIONAL COMPOUNDERS ETF

  

Manager’s Commentary

     29  

Portfolio of Investments

     31  

HARBOR LONG-TERM GROWERS ETF

  

Manager’s Commentary

     33  

Portfolio of Investments

     35  

HARBOR SCIENTIFIC ALPHA HIGH-YIELD ETF

  

Manager’s Commentary

     37  

Portfolio of Investments

     39  

HARBOR SCIENTIFIC ALPHA INCOME ETF

  

Manager’s Commentary

     43  

Portfolio of Investments

     45  

Financial Statements

  

STATEMENTS OF ASSETS AND LIABILITIES

     51  

STATEMENTS OF OPERATIONS

     53  

STATEMENTS OF CHANGES IN NET ASSETS

     55  

FINANCIAL HIGHLIGHTS

     57  

Notes to Financial Statements

     61  

Report of Independent Registered Public Accounting Firm

     74  

Fees and Expenses Example

     76  

This material is intended for the Funds’ shareholders. It may be distributed to prospective investors only if it is preceded or accompanied by the current prospectus. Prospective investors should carefully consider the investment objectives, risks, charges and expenses of a Harbor ETF 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.

Foreside Fund Services, LLC is the Distributor of the Harbor ETF Trust.


Table of Contents

Table of Contents

 

 

 

Additional Information

     78  

ADDITIONALTAX INFORMATION

     78  

CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     78  

PROXY VOTING

     79  

QUARTERLY PORTFOLIO DISCLOSURES

     79  

ADVISORY AGREEMENT APPROVALS

     79  

TRUSTEES AND OFFICERS

     87  

Harbor’s Privacy Statement

     90  


Table of Contents

Harbor All-Weather Inflation Focus ETF

MANAGER’S COMMENTARY (Unaudited)

 

 

SUBADVISER

 

        Quantix Commodities

LP

 

 

    

 

  

 

Management’s Discussion of

Fund Performance

 

   
     

 

MARKET REVIEW

 

Commodity markets have experienced significant volatility so far in 2022 with extreme, opposing forces pulling the market in different directions. We believe that supply/demand fundamentals and geopolitical events have generally been pushing prices up while tightening monetary policy in the US and macro fears of a recession have generally been pulling prices down.

 

On a fundamental basis, almost every commodity has remained in tight supply for most of the year as we believe is evidenced by the unusually backwardated futures curves (where commodities for delivery in the short term cost more than those for delivery further out). On a geopolitical basis, Russia’s invasion of Ukraine has particularly disrupted energy and agricultural markets, both from a first order effect (Russia is a large energy exporter as is Ukraine in both Corn and Wheat) and with second order effects, triggering an energy crisis in Europe and raising costs downstream in items such as fertilizer and aluminum.

 

The historic pace of tightening in U.S. monetary policy so far in 2022 has provided a headwind for almost all financial markets as the risk-free rate gets repriced. While commodities have held up better than other asset classes with decently positive returns, we believe investors have remained on the sidelines due to fears that the Federal Reserve’s actions will cause a recession, impacting commodity demand. This is currently demonstrated in positioning data showing historically low levels of speculator interest across almost all commodities, despite the portfolio rationale for a commodities allocation in an inflationary environment.

 

PERFORMANCE

 

Harbor All-Weather Inflation Focus ETF returned 4.60% for the period ended October 31, 2022. The Fund tracked the performance of the Quantix Inflation Index (the “Index”), which returned 5.94%, after accounting for fees, fund expenses, and differences in cash management between the Fund and the Index.

 

This difference in cash management arise from the fact that the methodology in the Index is not able to be fully replicated. This puts the Fund at a disadvantage relative to the Index in a period of rapid interest rate rises, such as so far in 2022, and conversely helps the fund relative to the Index in a period of rapid interest rate decreases.

 

On a sector basis, Petroleum is the Fund’s largest sector and contributed all of the gains, over 13.0%. Within the sector, positive contributions came from Gasoil, Heating Oil and Brent Crude Oil, from a mixture of price appreciation and positive roll yield. The sector has persistently seen higher demand and less supply so far in 2022, even with the historic Strategic Petroleum Reserve release. These gains were offset by negative contributions from Industrial Metals and Precious Metals, both detracting -3.90%. The Industrial Metals, particularly Aluminum and Copper, were affected by the lockdown in China. Precious Metals, and particularly Gold, were negatively impacted by interest rate rises in the U.S. which caused real rates to rise.

 

While there were no significant asset allocation changes for the first three quarters in 2022, there was one that was reflected in the Fund in October. The Index rebalances once a quarter and, at each rebalance, updates the weighting between scarcity and debasement within the Index. In the most recent rebalance, calculated in September 2022 and implemented in October 2022, the Index shifted more weight to the debasement theme, resulting in an increase in

 

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Harbor All-Weather Inflation Focus ETF

MANAGER’S COMMENTARY—Continued

 

 

CHANGE IN A $10,000 INVESTMENT

For the period 02/09/2022 through 10/31/2022

 

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The graph compares a $10,000 investment in shares of the Fund with the performance of the Quantix Inflation Index and Bloomberg Commodity Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions. Past performance is no guarantee of future results.

 

TOTAL RETURNS

For the periods ended 10/31/2022

 

 

 

 

 

 

 

      

the Gold weight relative to the previous quarter. This was a result of a change in the macroeconomic indicators that the Index takes into account, including the shape of the U.S. Treasury curve, relative performance of Copper and Gold, and the shape of the futures curves of commodities within the Index.

 

the Gold weight relative to the previous quarter. This was a result of a change in the macroeconomic indicators that the Index takes into account, including the shape of the U.S. Treasury curve, relative performance of Copper and Gold, and the shape of the futures curves of commodities within the Index.

 

OUTLOOK & STRATEGY

 

We believe that the outlook for commodity markets remains bright, especially relative to other asset classes. In the short term, we believe that the opposing forces referenced above will continue to pull markets in opposite directions, keeping volatility elevated.

 

We believe that fundamentals may remain supportive, with supply not keeping up with demand due to lead times in physically extracting or growing commodities. If this is the case, the futures curve may remain in backwardation, supporting overall returns from the asset class.

 

In addition, if some of the macroeconomic headwinds (such as the recent rapidly rising U.S. interest rates or the current economic lockdown in China) abate or even turn into tailwinds, then we believe that investors will reallocate to the asset class. However, if inflation remains elevated in the U.S. and central banks continue to raise interest rates or keep them higher for longer than the market expects, this may provide headwinds to certain commodities through demand destruction in the short to medium term.

 

On a strategy level, there are no changes anticipated to the Fund or the processes that underpin the underlying index.

                Unannualized        
    1 Year     5 Years     Life of Fund        

Harbor All-Weather Inflation Focus ETF
(Based on Net Asset Value)1

    N/A       N/A       4.60%      

Harbor All-Weather Inflation Focus ETF
(At Market Price)1

    N/A       N/A       4.65%      

Comparative Index

         

Quantix Inflation Index 1

    N/A       N/A       5.94%      

Bloomberg Commodity Index1

    N/A       N/A       4.66%      

 

As stated in the Fund’s prospectus dated March 1, 2022, the expense ratio was 0.68%. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).

 

The Quantix Inflation Index is calculated on a total return basis, which combines the returns of the futures contracts with the returns on cash collateral invested in 13-week U.S. Treasury Bills. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Quantix Inflation Index was developed by Quantix Commodities LP and is owned by Quantix Commodities Indices LLC. The Bloomberg Commodity Index measures the performance of future contracts on physical commodities which traded on US exchanges and London Metal Exchange. The commodity weightings are based on production and liquidity, subject to weighting restrictions applied annually.

 

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.

 

 

 

   
                                                                                                                       

 

1 The “Life of Fund” return as shown reflects the period 02/09/2022 (commencement of operations) through 10/31/2022. The first day of secondary market trading was a few days after the date on which the Fund commenced investment operations; therefore, the Net Asset Value of the Fund is used as a proxy for the period from inception of investment operations to the first day of secondary market trading to calculate the Market Price returns.

This report contains the current opinions of Quantix Commodities LP as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.

There is no guarantee that the investment objective of the Fund will be achieved. Commodities and commodity-linked derivative instruments can be significantly more volatile than other securities, such as stocks or bonds. The Fund is non-diversified and may have significant exposure to a particular sector of the commodities market (such as metal, gas or emissions products). As a result, the Fund may be more susceptible to risks associated with a single issuer or sector than a more diversified portfolio.

 

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Harbor All-Weather Inflation Focus ETF

CONSOLIDATED PORTFOLIO OF INVESTMENTS—October 31, 2022

 

 

RISK ALLOCATION* (% of Net Assets) - Unaudited

     
Asset Class    Sector        
COMMODITIES            
  

Precious Metals

     39.8
  

Petroleum

     33.8
  

Industrial Metals

     14.4
  

Grains and Soybean Products

     10.0
  

Softs

     2.0

*Based on notional value and represents the sector allocation of the Quantix EnergyTransition Index.

 

PORTFOLIO OF INVESTMENTS

Principal Amounts, Value and Cost in Thousands

 

  SHORT-TERM INVESTMENTS—77.2%  
Principal
Amount
        Value  

 

U.S. TREASURY BILLS—77.2%

 

 

                           U.S. Treasury Bill

  
$        26,647   2.384%—11/03/2022    $ 26,644  
          22,772   3.226%—12/29/2022      22,631  
    

 

 

 

TOTAL SHORT-TERM INVESTMENTS

 
    (Cost $49,297)      49,275  
    

 

 

 

TOTAL INVESTMENTS—77.2%

 
    (Cost $49,297)      49,275  
    

 

 

 

CASH AND OTHER ASSETS, LESS LIABILITIES—22.8%

     14,532  
    

 

 

 

TOTAL NET ASSETS—100%

   $         63,807  
    

 

 

 

    

    

 

 

SWAP AGREEMENTS

OVER-THE-COUNTER (OTC) EXCESS RETURN SWAPS ON INDICES

 

Counterparty

  Fixed
Rate
  Pay/Receive
Fixed Rate
 

Reference Index1

  Expiration
Date
  Payment
Frequency
  Notional
Amount
(000s)
  Value
(000s)
  Upfront
Premiums
(Received)/
Paid
(000s)
   Unrealized
Appreciation/
(Depreciation)
(000s)

Macquarie Bank Limited

  0.120%   Pay   Quantix Inflation Index   11/30/2022   Monthly   $63,809   $—   $—            $—        
                     

 

  

 

FAIR VALUE MEASUREMENTS

All investments as of October 31, 2022 (as disclosed in the preceding Portfolio of Investments and Swap Agreements schedule) were classified as Level 2. There were no Level 3 investments as of October 31, 2022 or February 9, 2022 (commencement of operations).

For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.

 

The accompanying notes are an integral part of the Financial Statements.

 

 

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Harbor All-Weather Inflation Focus ETF

CONSOLIDATED PORTFOLIO OF INVESTMENTS—Continued

 

 

    

 

 

Coupon represents yield to maturity

 

1 

The reference index components are published daily on Harbor’s website at harborcapital.com. The index is comprised of publicly traded futures contracts on physical commodities.The table below represents the reference index components as of the period ended October 31, 2022.

 

   

Commodity

    

Weight

               Gold      37.768%
  Brent Crude Oil      13.162    
  GasOil      6.680   
  RBOB Gasoline      6.058   
  Heating Oil      5.798   
  Aluminum      4.563   
  Copper      4.344   
  Corn      3.568   
  Zinc      3.409   
  Soybean Oil      2.487   
  Nickel      2.155   
  WTI Crude Oil      2.102   
  Silver      2.000   
  Sugar      1.977   
  KC Wheat      1.975   
  Soybeans      1.954   

The accompanying notes are an integral part of the Financial Statements.

 

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Harbor Corporate Culture ETF

MANAGER’S COMMENTARY (Unaudited)

 

 

ADVISER

 

        Harbor Capital

Advisors, Inc.

 

 

    

 

  

 

Management’s Discussion of

Fund Performance

 

   
     

 

MARKET REVIEW

 

Throughout the year ended October 31, 2022, investor concerns pertaining to elevated inflation, monetary policy tightening, increased geopolitical risk, and slowing global growth pressured U.S. equities. The S&P 500 Index delivered -17.70% on a year-to-date basis ended October 31, 2022, while the Russell 1000® Index, returned -18.54%.

 

Markets were off balance as investors digested surging energy and food prices, which continued to demand a larger portion of consumers’ wallets. In addition, negative real wage growth and tightened financial conditions weighed on investor and consumer sentiment alike. Growth in all its forms came under pressure during the period, with high growth tech and other risk-on investments trailing value stocks and more defensive pockets of the market. Indeed, the Russell 1000® Value Index returned on a year-to-date basis ended October 31, 2022, -9.32% compared to the -26.61% returned by its counterpart, Russell 1000® Growth Index. Overall, this period constituted a challenging environment for risk and long duration assets.

 

PERFORMANCE

 

The Fund seeks to provide investment results that correspond, before fees and expenses, to the performance of the CIBC Human Capital Index (the “Index”). The Fund employs an indexing investment approach designed to track the performance of the Index. The Index is reconstituted on an annual basis, based on scores produced by Irrational Capital LLC. At times, however, the Index may experience corporate actions; during the reporting period, Twitter was eliminated from the Index as the company was purchased by Elon Musk.

 

For the since inception period ended October 31, 2022, the Fund returned 9.12% compared to 9.14% returned by the Index.

 

OUTLOOK & STRATEGY

 

As stated, 2022 has been a tough year for growth stocks, and the headwinds of interest rate hikes, inflation and geo-political risk are not set to dissipate anytime soon. This continued uncertainty presents further challenges to the growth sector. That said, should the Federal Reserve be successful in its attempt to thread the needle and achieve a “soft” landing while tightening monetary policy, relief in the form of a strong second half rally for 2023 is certainly a possibility. Our base case view for 2023 however is that a recession is likely as a result of further rate hikes driving up unemployment. Although anticipated to be mild, investors should be prepared for another tough year in general for equities.

 

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Harbor Corporate Culture ETF

MANAGER’S COMMENTARY—Continued

 

 

CHANGE IN A $10,000 INVESTMENT

For the period 10/12/2022 through 10/31/2022

 

LOGO

 

The graph compares a $10,000 investment in shares of the Fund with the performance of the CIBC Human Capital Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions. Past performance is no guarantee of future results.

 

TOTAL RETURNS

For the periods ended 10/31/2022

 

                                                                                                         
            Unannualized           
 
    1 Year   5 Years   Life of Fund           

Harbor Corporate Culture ETF
(Based on Net Asset Value)1

  N/A   N/A   9.12%       

Harbor Corporate Culture ETF
(At Market Price)1

  N/A   N/A   9.12%       
 

Comparative Index

            

CIBC Human Capital Index1

  N/A   N/A   9.14%       

 

As stated in the Fund’s prospectus dated September 28, 2022, the expense ratio was 0.36%. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).

 

The CIBC Human Capital Index consists of a modified market-weighted portfolio of the equity securities of U.S. companies identified by Irrational Capital LLC as those it believes to possess strong corporate culture based on its proprietary scoring methodology. Constituents eligible are chosen from Solactive GBS United States 500 Index (the “index universe”) at the time of Index reconstitution. The Solactive GBS United States 500 Index intends to track the performance of the largest 500 companies from the US stock market. The index listed is unmanaged and does not reflect fees and expenses and is not available for direct investment.

 

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.

      

1 The “Life of Fund” return as shown reflects the period 10/12/2022 (commencement of operations) through 10/31/2022. The first day of secondary market trading was a few days after the date on which the Fund commenced investment operations; therefore, the Net Asset Value of the Fund is used as a proxy for the period from inception of investment operations to the first day of secondary market trading to calculate the Market Price returns.

This report contains the current opinions of Harbor Capital Advisors, Inc. as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.

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 may not exactly track the performance of the Index with perfect accuracy at all times. Tracking error may occur because of pricing differences, timing and costs incurred by the fund or during times of heightened market volatility. The Fund relies on the Index provider’s methodology in assessing whether a company may be considered to have strong corporate culture. There is no guarantee that the construction methodology will accurately assess a company to include or exclude it from the index which could have an adverse effect on the Fund’s returns. The Fund’s assets may be concentrated in a particular sector or industries to the extent the Index is concentrated and is subject to the risk that economic, political, or other market conditions that have a negative effect on that sector or industry will negatively impact the value of the Fund.

Companies in the information technology sector can be significantly affected by short product cycles, obsolescence of existing technology, impairment or loss of intellectual property rights, falling prices and profits, competition from new market entrants, government regulation and other factors.

 

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Harbor Corporate Culture ETF

PORTFOLIO OF INVESTMENTS—October 31, 2022

 

 

SECTOR ALLOCATION (% of investments) - Unaudited

 

 

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PORTFOLIO OF INVESTMENTS

Value and Cost in Thousands

 

COMMON STOCKS—94.7%

  
    Shares    Value  

AEROSPACE & DEFENSE—2.3%

  

             6,384

   Lockheed Martin Corp.    $ 3,107  

3,591

   Northrop Grumman Corp.      1,971  
     

 

 

 
        5,078  
     

 

 

 

AIRLINES—0.6%

  

15,960

   Delta Air Lines, Inc. *      541  

15,162

   Southwest Airlines Co. *      551  

7,581

   United Airlines Holdings, Inc. *      327  
     

 

 

 
        1,419  
     

 

 

 

AUTOMOBILES—0.3%

  

53,860

   Ford Motor Co.      720  
     

 

 

 

BANKS—3.8%

  

88,364

   Bank of America Corp.                 3,185  

2,394

   First Republic Bank      288  

35,903

   JPMorgan Chase & Co.      4,519  

798

   SVB Financial Group *      184  
     

 

 

 
        8,176  
     

 

 

 

BEVERAGES—2.9%

  

45,597

   Coca-Cola Co.      2,729  

4,788

   Monster Beverage Corp. *      449  

16,758

   PepsiCo, Inc.      3,043  
     

 

 

 
        6,221  
     

 

 

 

BIOTECHNOLOGY—2.9%

  

8,111

   Amgen, Inc.      2,193  

2,394

   Biogen, Inc. *      678  

5,985

   Moderna, Inc. *      900  

1,596

   Regeneron Pharmaceuticals, Inc. *      1,195  

3,990

   Vertex Pharmaceuticals, Inc. *      1,245  
     

 

 

 
        6,211  
     

 

 

 

BUILDING PRODUCTS—0.5%

  

7,182

   Trane Technologies PLC      1,146  
     

 

 

 

CAPITAL MARKETS—3.6%

  

1,995

   BlackRock, Inc.      1,289  

9,208

   Blackstone, Inc.      839  

4,043

   Goldman Sachs Group, Inc.      1,393  

399

   MarketAxess Holdings, Inc.      97  

1,995

   Moody’s Corp.      528  

COMMON STOCKS—Continued

  
    Shares    Value  

CAPITAL MARKETS—Continued

  

             17,556

   Morgan Stanley    $ 1,443  

1,086

   MSCI, Inc.      509  

4,389

   Nasdaq, Inc.      273  

4,473

   S&P Global, Inc.      1,437  
     

 

 

 
        7,808  
     

 

 

 

CHEMICALS—1.3%

  

17,760

   Corteva, Inc.                 1,160  

18,763

   Dow, Inc.      877  

13,141

   DuPont de Nemours, Inc.      752  
     

 

 

 
        2,789  
     

 

 

 

COMMUNICATIONS EQUIPMENT—1.2%

  

2,823

   Arista Networks, Inc. *      341  

49,875

   Cisco Systems, Inc.      2,266  
     

 

 

 
        2,607  
     

 

 

 

CONSUMER FINANCE—0.6%

  

6,788

   American Express Co.      1,008  

6,783

   Synchrony Financial      241  
     

 

 

 
        1,249  
     

 

 

 

ELECTRIC UTILITIES—1.4%

  

10,086

   Duke Energy Corp.      940  

5,187

   Edison International      311  

4,788

   Eversource Energy      365  

13,965

   The Southern Co.      915  

7,182

   Xcel Energy, Inc.      468  
     

 

 

 
        2,999  
     

 

 

 

ELECTRICAL EQUIPMENT—0.4%

  

3,217

   Rockwell Automation, Inc.      821  
     

 

 

 

ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—0.4%

 

1,699

   CDW Corp.      294  

2,394

   Keysight Technologies, Inc. *      417  

3,192

   Trimble, Inc. *      192  
     

 

 

 
        903  
     

 

 

 

ENTERTAINMENT—3.4%

  

3,192

   Electronic Arts, Inc.      402  

4,389

   Live Nation Entertainment, Inc. *      349  

5,586

   Netflix, Inc. *      1,631  

 

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Harbor Corporate Culture ETF

PORTFOLIO OF INVESTMENTS—Continued

 

 

Value and Cost in Thousands

 

COMMON STOCKS—Continued

 

Shares          Value  
ENTERTAINMENT—Continued

 

             1,197

   Take-Two Interactive Software, Inc. *    $              142  

45,333

   Walt Disney Co. *      4,830  
     

 

 

 
        7,354  
     

 

 

 
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITS)—2.1%

 

2,503

   AvalonBay Communities, Inc.      438  

5,686

   Digital Realty Trust, Inc.      570  

1,668

   Equinix, Inc.      945  

1,231

   Essex Property Trust, Inc.      274  

14,364

   ProLogis, Inc.      1,591  

1,995

   SBA Communications Corp.      538  

7,581

   Ventas, Inc.      297  
     

 

 

 
        4,653  
     

 

 

 
FOOD & STAPLES RETAILING—3.2%

 

13,974

   Costco Wholesale Corp.      7,008  
     

 

 

 
FOOD PRODUCTS—1.6%

 

14,538

   Archer-Daniels-Midland Co.      1,410  

7,182

   General Mills, Inc.      586  

1,635

   Hershey Co.      390  

16,359

   Mondelez International, Inc. Class A      1,006  
     

 

 

 
        3,392  
     

 

 

 
HEALTH CARE EQUIPMENT & SUPPLIES—2.3%   

1,197

   Align Technology *      233  

20,349

   Boston Scientific Corp. *      877  

3,591

   Hologic, Inc. *      244  

5,187

   Intuitive Surgical, Inc. *      1,278  

19,551

   Medtronic PLC      1,708  

1,995

   ResMed, Inc.      446  

798

   Teleflex, Inc.      171  
     

 

 

 
        4,957  
     

 

 

 
HOTELS, RESTAURANTS & LEISURE—0.8%

 

4,418

   Expedia Group, Inc. *      413  

7,980

   Marriott International, Inc. Class A      1,278  
     

 

 

 
        1,691  
     

 

 

 
HOUSEHOLD DURABLES—0.1%

 

1,995

   Garmin Ltd.      175  

24

   NVR, Inc. *      102  
     

 

 

 
        277  
     

 

 

 
HOUSEHOLD PRODUCTS—2.5%

 

1,596

   Clorox Co.      233  

10,374

   Colgate-Palmolive Co.      766  

3,990

   Kimberly-Clark Corp.      496  

28,839

   Procter & Gamble Co.      3,884  
     

 

 

 
        5,379  
     

 

 

 
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS—0.1%

 

8,511

   AES Corp.      223  
     

 

 

 
INDUSTRIAL CONGLOMERATES—1.9%

 

15,960

   3M Co.      2,008  

27,930

   General Electric Co.      2,173  
     

 

 

 
        4,181  
     

 

 

 
INSURANCE—1.4%

 

1,995

   Cincinnati Financial Corp.      206  

6,384

   Marsh & McLennan Cos., Inc.      1,031  

COMMON STOCKS—Continued

 

Shares          Value  
INSURANCE—Continued

 

               3,192

   Principal Financial Group, Inc.    $              282  

7,182

   Progressive Corp.      922  

2,793

   Travelers Cos., Inc.      515  
     

 

 

 
        2,956  
     

 

 

 
INTERACTIVE MEDIA & SERVICES—4.7%

 

67,608

   Alphabet, Inc. Class C *      6,400  

41,986

   Meta Platforms, Inc. Class A*      3,911  
     

 

 

 
        10,311  
     

 

 

 
INTERNET & DIRECT MARKETING RETAIL—0.6%

 

20,748

   eBay, Inc.      826  

4,576

   Etsy, Inc. *      430  
     

 

 

 
        1,256  
     

 

 

 
IT SERVICES—6.1%

 

2,027

   Akamai Technologies, Inc. *      179  

5,215

   Automatic Data Processing, Inc.      1,260  

2,793

   Cloudflare, Inc. Class A *      157  

798

   EPAM Systems, Inc. *      279  

11,172

   IBM Corp.      1,545  

10,773

   Mastercard, Inc. Class A      3,536  

21,546

   PayPal Holdings, Inc. *      1,801  

1,197

   VeriSign, Inc. *      240  

20,460

   Visa, Inc. Class A      4,239  
     

 

 

 
        13,236  
     

 

 

 
LIFE SCIENCES TOOLS & SERVICES—0.5%

 

4,448

   Agilent Technologies, Inc.      615  

2,394

   Illumina, Inc. *      548  
     

 

 

 
        1,163  
     

 

 

 
MACHINERY—3.2%

 

14,372

   Caterpillar, Inc.      3,111  

3,690

   Cummins, Inc.      902  

7,237

   Deere & Co.      2,865  
     

 

 

 
        6,878  
     

 

 

 
METALS & MINING—0.4%

 

19,152

   Newmont Corp.      810  
     

 

 

 
MULTI-UTILITIES—1.1%

 

3,289

   Ameren Corp.      268  

4,788

   Consolidated Edison, Inc.      421  

10,374

   Dominion Energy, Inc.      726  

2,461

   DTE Energy Co.      276  

3,990

   Sempra Energy      602  
     

 

 

 
        2,293  
     

 

 

 
OIL, GAS & CONSUMABLE FUELS—4.7%

 

29,032

   Chevron Corp.      5,252  

20,588

   ConocoPhillips      2,596  

4,466

   Hess Corp.      630  

12,768

   Occidental Petroleum Corp.      927  

5,985

   Valero Energy Corp.      751  
     

 

 

 
        10,156  
     

 

 

 
PHARMACEUTICALS—10.0%

 

30,324

   Bristol-Myers Squibb Co.      2,349  

12,814

   Eli Lilly & Co.      4,640  

39,354

   Johnson & Johnson      6,847  

38,304

   Merck & Co., Inc.      3,876  

 

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10


Table of Contents

Harbor Corporate Culture ETF

PORTFOLIO OF INVESTMENTS—Continued

 

 

Value and Cost in Thousands

 

COMMON STOCKS—Continued

 

Shares          Value  

 

PHARMACEUTICALS—Continued

 

             84,699

   Pfizer, Inc.    $ 3,943  
     

 

 

 
        21,655  
     

 

 

 

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—5.6%

 

19,950

   Advanced Micro Devices, Inc. *      1,198  

1,596

   Enphase Energy, Inc. *      490  

50,673

   Intel Corp.      1,441  

1,995

   Lam Research Corp.      808  

7,182

   Microchip Technology, Inc.      443  

29,526

   NVIDIA Corp.      3,985  

14,763

   QUALCOMM, Inc.      1,737  

1,995

   Teradyne, Inc.      162  

12,369

   Texas Instruments, Inc.      1,987  
     

 

 

 
            12,251  
     

 

 

 

SOFTWARE—9.0%

  

6,470

   Adobe, Inc. *      2,061  

1,197

   ANSYS, Inc. *      265  

2,881

   Autodesk, Inc. *      617  

3,591

   Cadence Design Systems, Inc. *      544  

7,980

   Fortinet, Inc. *      456  

3,591

   Intuit, Inc.      1,535  

42,294

   Microsoft Corp.      9,818  

1,197

   Roper Technologies, Inc.      496  

13,167

   Salesforce, Inc. *      2,141  

2,394

   ServiceNow, Inc. *      1,007  

1,995

   Synopsys, Inc. *      583  
     

 

 

 
        19,523  
     

 

 

 

SPECIALTY RETAIL—0.1%

  

5,187

   CarMax, Inc. *      327  
     

 

 

 

TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—5.5%

 

73,416

   Apple, Inc.              11,258  

15,561

   Hewlett Packard Enterprise Co.      222  

COMMON STOCKS—Continued

 

Shares          Value  

 

TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—Continued

 

             14,253

   HP, Inc.    $ 394  

2,793

   NetApp, Inc.      193  
     

 

 

 
        12,067  
     

 

 

 

TEXTILES, APPAREL & LUXURY GOODS—0.7%

  

15,561

   NIKE, Inc. Class B      1,442  

4,389

   VF Corp.      124  
     

 

 

 
        1,566  
     

 

 

 

TOBACCO—0.7%

  

17,157

   Philip Morris International, Inc.      1,576  
     

 

 

 

WATER UTILITIES—0.2%

  

2,455

   American Water Works Co., Inc.      357  
     

 

 

 

TOTAL COMMON STOCKS

  

    (Cost $204,495)

     205,643  
     

 

 

 
     

EXCHANGE-TRADED FUNDS—5.5%

 

 

    (Cost $12,009)

  

CAPITAL MARKETS—5.5%

  

83,185

  

Consumer Discretionary Select Sector SPDR Fund

     11,981  
     

 

 

 

TOTAL INVESTMENTS—100.2%

  

    (Cost $216,504)

     217,624  
     

 

 

 

CASH AND OTHER ASSETS, LESS LIABILITIES—(0.2)%

     (378
     

 

 

 

TOTAL NET ASSETS—100%

   $         217,246  
     

 

 

 

 

FAIR VALUE MEASUREMENTS

All investments as of October 31, 2022 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments as of October 31, 2022 or October 12, 2022 (commencement of operations).

For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.

 

 

*

Non-income producing security

The accompanying notes are an integral part of the Financial Statements.

 

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11


Table of Contents

Harbor Corporate Culture Leaders ETF

MANAGER’S COMMENTARY (Unaudited)

 

 

ADVISER

 

        Harbor Capital

Advisors, Inc.

             

Management’s Discussion of

Fund Performance

     

 

MARKET REVIEW

 

Throughout the year ended October 31, 2022, investor concerns pertaining to elevated inflation, monetary policy tightening, increased geopolitical risk, and slowing global growth pressured U.S. equities. The S&P 500 Index delivered -17.70% on a year-to-date basis ended October 31, 2022, while the Russell 1000® Index, returned -18.54%.

 

Markets were off balance as investors digested surging energy and food prices, which continued to demand a larger portion of consumers’ wallets. In addition, negative real wage growth and tightened financial conditions weighed on investor and consumer sentiment alike. Growth in all its forms came under pressure during the period, with high growth tech and other risk-on investments trailing value stocks and more defensive pockets of the market. Indeed, the Russell 1000® Value Index returned on a year-to-date basis ended October 31, 2022, -9.32% compared to the -26.61% returned by its counterpart, Russell 1000® Growth Index. Overall, this period constituted a challenging environment for risk and long duration assets.

 

PERFORMANCE

 

The Fund seeks to provide investment results that correspond, before fees and expenses, to the performance of the Human Capital Factor Unconstrained Index (the “Index”). The Fund employs an indexing investment approach designed to track the performance of the Index. The Index rebalances quarterly and is reconstituted on an annual basis, based on scores produced by Irrational Capital LLC. At times, however, the Index may experience corporate actions; during the reporting period, IHS Markit and Zendesk were eliminated from the Index.

 

For the period ended October 31, 2022, the Fund returned -17.04% compared to -16.46% returned by the Human Capital Factor Unconstrained Index. The Fund faced both allocation and stock selection headwinds. While Healthcare contributed from a selection standpoint, Information Technology was a laggard from both an allocation and selection standpoint. The higher growth nature of the sector was pressured by rising interest rates. Within the sector, investments within the IT services and software segments experienced declines as investor preference shifted away from companies with duration growth towards those with lower volatility and more defensive profiles.

 

The two largest contributors to the portfolio were Alnylam Pharmaceuticals and Biogen. Alnylam Pharmaceuticals contributed 42 bps and Biogen contributed 41 bps. Contrarily, the largest portfolio detractors comprise Peloton and Royal Caribbean Group. Peloton detracted 112 bps and Royal Caribbean detracted 81 bps.

 

OUTLOOK & STRATEGY

 

As stated, 2022 has been a tough year for growth stocks, and the headwinds of interest rate hikes, inflation and geo-political risk are not set to dissipate anytime soon. This continued uncertainty presents further challenges to the growth sector. That said, should the Federal Reserve be successful in its attempt to thread the needle and achieve a “soft” landing while tightening monetary policy, relief in the form of a strong second half rally for 2023 is certainly a possibility. Our base case view for 2023 however is that a recession is likely as a result of further rate hikes driving up unemployment. Although anticipated to be mild, investors should be prepared for another tough year in general for equities.

 

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Table of Contents

Harbor Corporate Culture Leaders ETF

MANAGER’S COMMENTARY—Continued

 

 

CHANGE IN A $10,000 INVESTMENT

For the period 02/23/2022 through 10/31/2022

 

LOGO

 

The graph compares a $10,000 investment in shares of the Fund with the performance of the Human Capital Factor Unconstrained Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions. Past performance is no guarantee of future results.

 

TOTAL RETURNS

For the periods ended 10/31/2022

 

                                                                                                         
            Unannualized      
    1 Year   5 Years   Life of Fund      

Harbor Corporate Culture Leaders ETF
(Based on Net Asset Value)1

  N/A   N/A   -17.04%    

Harbor Corporate Culture Leaders ETF
(At Market Price)1

  N/A   N/A   -16.99%    

Comparative Index

         

Human Capital Factor Unconstrained Index1

  N/A   N/A   -16.46%    

 

As stated in the Fund’s prospectus dated February 22, 2022, the expense ratio was 0.50%. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).

 

The Human Capital Factor Unconstrained Index is designed to deliver exposure to equity securities of large cap U.S. companies that demonstrate high employee engagement, based on scores produced by Irrational Capital LLC. This unmanaged index does not reflect fees and expenses and is not available for direct investment.

 

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.

   

 

1 The “Life of Fund” return as shown reflects the period 02/23/2022 (commencement of operations) through 10/31/2022. The first day of secondary market trading was a few days after the date on which the Fund commenced investment operations; therefore, the Net Asset Value of the Fund is used as a proxy for the period from inception of investment operations to the first day of secondary market trading to calculate the Market Price returns.

This report contains the current opinions of Harbor Capital Advisors, Inc. as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.

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 may not exactly track the performance of the Index with perfect accuracy at all times. Tracking error may occur because of pricing differences, timing and costs incurred by the fund or during times of heightened market volatility.

The Fund relies on the Index provider’s proprietary scoring methodology in assessing whether a company may be considered a to have a strong corporate culture. There is no guarantee that the construction methodology will accurately assess a company to include or exclude it from the index which could have an adverse effect on the Fund’s returns. The Fund’s assets may be concentrated in a particular sector or industries to the extent the Index is concentrated and is subject to the risk that economic, political, or other market conditions that have a negative effect on that sector or industry will negatively impact the value 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.

 

 

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Table of Contents

Harbor Corporate Culture Leaders ETF

PORTFOLIO OF INVESTMENTS—October 31, 2022

 

 

SECTOR ALLOCATION (% of investments) - Unaudited

 

LOGO

 

PORTFOLIO OF INVESTMENTS

Value and Cost in Thousands

 

 COMMON STOCKS—100.0%       
    Shares    Value  
 

AIRLINES—4.0%

  
               1,229      Copa Holdings SA Class A (Panama)*    $                 92  
  2,691      Delta Air Lines, Inc. *      91  
  2,352      Southwest Airlines Co. *      86  
     

 

 

 
        269  
     

 

 

 
 

AUTOMOBILES—1.1%

  
  5,747      Ford Motor Co.      77  
     

 

 

 
 

BANKS—1.3%

  
  1,084      Pinnacle Financial Partners, Inc.      90  
     

 

 

 
 

BIOTECHNOLOGY—6.6%

  
  397      Alnylam Pharmaceuticals, Inc. *      82  
  420      Biogen, Inc. *      119  
  1,679      Natera, Inc. *      79  
  1,795      Ultragenyx Pharmaceutical, Inc. *      73  
  427      United Therapeutics Corp. *      98  
     

 

 

 
        451  
     

 

 

 
 

CAPITAL MARKETS—4.7%

  
  343      MarketAxess Holdings, Inc.      84  
  359      Morningstar, Inc.      83  
  183      MSCI, Inc.      86  
  1,267      Tradeweb Markets, Inc. Class A      70  
     

 

 

 
        323  
     

 

 

 
 

CHEMICALS—1.2%

  
  1,659      Dow, Inc.      78  
     

 

 

 
 

COMMUNICATIONS EQUIPMENT—3.6%

  
  732      Arista Networks, Inc. *      89  
  1,696      Ciena Corp. *      81  
  538      F5, Inc. *      77  
     

 

 

 
        247  
     

 

 

 
 

CONSUMER FINANCE—2.5%

  
  168      Credit Acceptance Corp. *      78  
  2,569      Synchrony Financial      92  
     

 

 

 
        170  
     

 

 

 
 

DIVERSIFIED CONSUMER SERVICES—1.2%

  
  1,377      Service Corp. International      83  
     

 

 

 
 COMMON STOCKS—Continued       
    Shares    Value  
 

ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—1.9%

 
               3,157      Plug Power, Inc. *    $                 50  
  1,295      Trimble, Inc. *      78  
     

 

 

 
        128  
     

 

 

 
 

ENTERTAINMENT—3.0%

  
  1,365      Liberty Media Corp. Class C *      79  
  1,112      Roku, Inc. *      62  
  753      Spotify Technology SA (Sweden)*      60  
     

 

 

 
        201  
     

 

 

 
 

EQUITY REAL ESTATE INVESTMENT TRUSTS (REITS)—6.4%

  
  637      Camden Property Trust      74  
  312      Essex Property Trust, Inc.      69  
  2,344      Invitation Homes, Inc.      74  
  3,795      JBG SMITH Properties      75  
  676      ProLogis, Inc.      75  
  265      SBA Communications Corp.      71  
     

 

 

 
        438  
     

 

 

 
 

GAS UTILITIES—1.2%

  
  792      Atmos Energy Corp.      84  
     

 

 

 
 

HEALTH CARE EQUIPMENT & SUPPLIES—1.4%

  
  2,189      Boston Scientific Corp. *      94  
     

 

 

 
 

HOTELS, RESTAURANTS & LEISURE—3.1%

  
  1,002      Hyatt Hotels Corp. Class A *      94  
  2,204      Royal Caribbean Cruises Ltd. (Liberia)*      118  
     

 

 

 
        212  
     

 

 

 
 

HOUSEHOLD DURABLES—1.2%

  
  2,066      PulteGroup, Inc.      83  
     

 

 

 
 

HOUSEHOLD PRODUCTS—2.5%

  
  684      Kimberly-Clark Corp.      85  
  632      Procter & Gamble Co.      85  
     

 

 

 
        170  
     

 

 

 
 

INTERACTIVE MEDIA & SERVICES—3.2%

  
  758      Alphabet, Inc. Class C *      72  
  515      Meta Platforms, Inc. Class A*      48  
  3,976      Pinterest, Inc. Class A *      98  
     

 

 

 
        218  
     

 

 

 

 

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Table of Contents

Harbor Corporate Culture Leaders ETF

PORTFOLIO OF INVESTMENTS—Continued

 

 

Value and Cost in Thousands

 

 COMMON STOCKS—Continued       
    Shares    Value  
 

INTERNET & DIRECT MARKETING RETAIL—1.1%

  
  777      Etsy, Inc. *    $              73  
     

 

 

 
 

IT SERVICES—7.4%

  
  209      EPAM Systems, Inc. *      73  
  408      Globant SA (Luxembourg)*      77  
  262      Mastercard, Inc. Class A      86  
  245      MongoDB, Inc. *      45  
  552      Snowflake, Inc. Class A*      89  
  5,655      Thoughtworks Holding, Inc. *      54  
  1,073      Twilio, Inc. Class A*      80  
     

 

 

 
        504  
     

 

 

 
 

LEISURE PRODUCTS—1.8%

  
               6,929      Peloton Interactive, Inc. Class A *      58  
  2,038      YETI Holdings, Inc. *      66  
     

 

 

 
        124  
     

 

 

 
 

MACHINERY—1.4%

  
  1,331      Graco, Inc.      93  
     

 

 

 
 

MULTI-UTILITIES—1.1%

  
  687      DTE Energy Co.      77  
     

 

 

 
 

PERSONAL PRODUCTS—1.0%

  
  3,185      Herbalife Nutrition Ltd. *      68  
     

 

 

 
 

PHARMACEUTICALS—2.8%

  
  1,019      Merck & Co., Inc.      103  
  1,850      Pfizer, Inc.      86  
     

 

 

 
        189  
     

 

 

 
 

REAL ESTATE MANAGEMENT & DEVELOPMENT—1.1%

  
  2,348      Zillow Group, Inc. Class C*      72  
     

 

 

 
  SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—3.9%   
  921      Advanced Micro Devices, Inc. *      55  
  180      Lam Research Corp.      73  
  498      NVIDIA Corp.      67  
  891      Teradyne, Inc.      73  
     

 

 

 
        268  
     

 

 

 
 

SOFTWARE—24.3%

  
  209      Adobe, Inc. *      66  
 COMMON STOCKS—Continued       
    Shares    Value  
 

SOFTWARE—Continued

  
  326      ANSYS, Inc. *    $ 72  
  329      Atlassian Corp. PLC Class A*      67  
  492      Cadence Design Systems, Inc. *      74  
  1,252      DocuSign, Inc. *      60  
  3,734      Dropbox, Inc. *      81  
  2,146      Dynatrace, Inc. *      76  
  1,134      Guidewire Software, Inc. *      67  
  191      Intuit, Inc.      82  
  3,448      Jamf Holding Corp. *      82  
  318      Microsoft Corp.      74  
  2,503      nCino, Inc. *      79  
  1,337      New Relic, Inc. *      79  
  9,387      Palantir Technologies, Inc. Class A *      82  
  350      Paylocity Holding Corp. *      81  
               1,479      Procore Technologies, Inc. *      81  
  212      Roper Technologies, Inc.      88  
  183      ServiceNow, Inc. *      77  
  1,596      Unity Software, Inc. *      47  
  763      VMware, Inc. Class A      86  
  851      Zoom Video Communications, Inc. Class A *      71  
  510      Zscaler, Inc. *      79  
     

 

 

 
                   1,651  
     

 

 

 
  TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—2.6%   
  539      Apple, Inc.      83  
  3,057      Pure Storage, Inc. Class A *      94  
     

 

 

 
        177  
     

 

 

 
 

TEXTILES, APPAREL & LUXURY GOODS—1.4%

  
  289      Lululemon Athletica, Inc. (Canada)*      95  
     

 

 

 
 

TOTAL COMMON STOCKS

  
 

    (Cost $7,990)

     6,807  
     

 

 

 
 

TOTAL INVESTMENTS—100%

  
 

    (Cost $7,990)

     6,807  
     

 

 

 
 

CASH AND OTHER ASSETS, LESS LIABILITIES—0.0%

      
     

 

 

 
 

TOTAL NET ASSETS—100%

   $ 6,807  
     

 

 

 

 

 

FAIR VALUE MEASUREMENTS

All investments as of October 31, 2022 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments as of October 31, 2022 or February 23, 2022 (commencement of operations).

For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.

 

*

Non-income producing security

The accompanying notes are an integral part of the Financial Statements.

 

LOGO

15


Table of Contents

Harbor Disruptive Innovation ETF

MANAGER’S COMMENTARY (Unaudited)

 

 

ADVISER

 

        Harbor Capital

Advisors, Inc.

             

Management’s Discussion of

Fund Performance

     

 

MARKET REVIEW

 

Throughout the year, investor concerns pertaining to elevated inflation, monetary policy tightening, increased geopolitical risk and slowing global growth pressured U.S. equities. Markets were off balance as investors digested surging energy and food prices, which continued to demand a larger portion of consumers’ wallets. In addition, negative real wage growth and tightened financial conditions weighed on investor and consumer sentiment alike. Growth in all its forms came under pressure during the period, with high growth tech and other risk-on investments trailing value stocks and more defensive pockets of the market. This resulted in a challenging environment for risk and long-duration assets, weighing on Fund returns versus the broad market during the period.

 

PERFORMANCE

 

Harbor Disruptive Innovation ETF returned -42.85% while the S&P 500 Index returned -12.99% during the period ended October 31, 2022. The Fund lagged the S&P 500 Index during the period and faced notable headwinds from both a stock specific and factor perspective. The higher growth nature of the Fund proved a meaningful headwind during the period given larger exposure to growth-oriented sectors, particularly information technology, a sector which lagged the overall benchmark in terms of performance.

 

Within information technology, investments within the IT services and software segments experienced declines as investor preference shifted away from companies with duration growth towards those with lower volatility and higher liquidity profiles. Shares of Shopify sold off during the year as investors reacted negatively to management announcing a material increase in investment in 2022, reducing operating margins. Given the market’s prevailing short-term focus and low appetite for increased investment at the expense of margin gains, the stock reacted negatively during the period. In addition, the Fund’s investment in Block traded lower on growing fears that an economic slowdown would adversely impact the revenues of the company’s suite of financial services. Lightspeed Commerce shares were also pressured amidst a broader rotation out of fintech stocks across both scaled providers and digital new entrants.

 

Within Consumer Discretionary, challenging stock selection within the internet & direct marketing retail and specialty retail industries posed pressure on the Fund’s excess returns relative to the broad market. The Fund’s investment in Carvana weighed on returns versus the Index as inflationary pressures in used cars, as well as other factors resulted in the stock’s repricing during the period. Also, shares of Peloton fell on poor results and subsequent concerns that its customer growth would slow as gyms and health clubs reopened in the post COVID-19 environment.

 

In addition, biotechnology investments within the Health Care sector pressured excess returns during the period. The Fund’s investment in Cabaletta Bio sold off as investors reacted negatively to top line data from its mucosal Pemphigus Vulgaris (mPV) trial results during the period. In addition, shares of LogicBio Therapeutics fell on the back of the news that its clinical trial for its treatment of methylmalonic acidemia (MMA) has been placed on clinical hold by the FDA.

 

The Fund’s lack of exposure to the value-oriented Energy and Consumer Staples sectors also posed performance challenges as both groups outperformed the broad market during the period.

 

Despite overall headwinds facing the Fund’s investment strategy, stock specific investments generated strong results, helping modestly offset relative underperformance during the period. For instance, two of the Fund’s largest contributors to performance were SailPoint Technologies and T-Mobile. SailPoint received a buyout offer, boosting the stock price. T-Mobile continued to show improvements in line with the investment team’s thesis on cash generation and business rationalization. In addition, Dicerna Pharmaceuticals shares rose over 80% as the company

 

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Harbor Disruptive Innovation ETF

MANAGER’S COMMENTARY—Continued

 

 

CHANGE IN A $10,000 INVESTMENT

For the period 12/01/2021 through 10/31/2022

 

LOGO

 

 

The graph compares a $10,000 investment in shares of the Fund with the performance of the S&P 500 Index and Russell 3000® Growth Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions. Past performance is no guarantee of future results.

 

TOTAL RETURNS

For the periods ended 10/31/2022

 

 

 

 

 

 

 

      

was acquired by Novo Nordisk at a premium during the period. Also, the Fund’s investment in Akouos surged as the company received FDA clearance of its IND Application for AK-OTOF, a gene therapy intended for the treatment of OTOF-mediated hearing loss. The IND for AK-OTOF is the first to receive FDA clearance for a genetic form of hearing loss and the first for an AAV vector therapy with the potential to treat an inner ear condition.

 

 

OUTLOOK & STRATEGY

 

The shift in market leadership during the year illustrates how unpredictable markets can be over shorter-term periods. Exogenous factors and sentiment can have an outsized influence on short-term price movements. Despite these shorter-term impacts, enterprises remain early in their digital transformation efforts, new technological offerings are enabling access to commerce and financial services, and life sciences innovations continue to change how we define, diagnose, and treat disease. Over the long-term, we believe we will be successful in identifying businesses that will extract most of the value created by these trends, as well as others.

 

Overall, the market’s disfavor for companies investing today for future growth proved a particularly damaging factor to performance. The positive outcome for the Fund’s approach, however, is that in many cases, we believe today’s valuations do not reflect the broad range of positive outcomes for many of the Fund’s holdings. While volatility adds market risk, the Fund’s underlying investment managers do not see a corresponding increase in the business risks across Fund holdings.

                Unannualized        
    1 Year     5 Years     Life of Fund        

Harbor Disruptive Innovation ETF
(Based on Net Asset Value)1

    N/A       N/A       -42.85%      

Harbor Disruptive Innovation ETF
(At Market Price)1

    N/A       N/A       -42.85%      

Comparative Index

         

S&P 500 Index1

    N/A       N/A       -12.99%      

Russell 3000® Growth Index1

    N/A       N/A       -23.48%      

 

As stated in the Fund’s prospectus dated March 1, 2022, the expense ratio was 0.75%. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).

 

The Russell 3000® Growth Index measures the performance of the broad growth segment of the US equity universe. It includes Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth values. It is market-capitalization weighted. The Standard & Poor’s 500 Index is an unmanaged index generally representative of the U.S. market for large capitalization equities. These unmanaged indices do not reflect fees and expenses and are not available for direct investment. The Russell 3000® Growth Index and Russell® are trademarks of Frank Russell Company.

 

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.

 

 

 

   
                                                                                                                       

1 The “Life of Fund” return as shown reflects the period 12/01/2021 (commencement of operations) through 10/31/2022. The first day of secondary market trading was a few days after the date on which the Fund commenced investment operations; therefore, the Net Asset Value of the Fund is used as a proxy for the period from inception of investment operations to the first day of secondary market trading to calculate the Market Price returns.

This report contains the current opinions of Harbor Capital Advisors, Inc. as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.

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. 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 issuers in emerging market regions. Investing in REITs will subject the Fund to additional risk.

 

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Harbor Disruptive Innovation ETF

PORTFOLIO OF INVESTMENTS—October 31, 2022

 

 

SECTOR ALLOCATION (% of investments) - Unaudited

 

 

LOGO

 

PORTFOLIO OF INVESTMENTS

Value and Cost in Thousands

 

 COMMON STOCKS—96.6%       
    Shares    Value  

AUTOMOBILES—2.5%

  

             770

   Tesla, Inc. *    $              175  
     

 

 

 

BIOTECHNOLOGY—10.0%

  

801

   Alkermes PLC (Ireland)*      18  

2,906

   Allogene Therapeutics, Inc. *      30  

1,176

   Arrowhead Pharmaceuticals, Inc. *      41  

848

   Ascendis Pharma AS ADR (Denmark)*,1      98  

9,009

  

Autolus Therapeutics PLC ADR (United Kingdom)*,1

     26  

2,728

   Avidity Biosciences, Inc. *      39  

1,555

  

Bicycle Therapeutics PLC ADR (United Kingdom)*,1

     38  

274

   Blueprint Medicines Corp. *      14  

1,600

   C4 Therapeutics, Inc. *      15  

833

   Fate Therapeutics, Inc. *      17  

8,083

  

Freeline Therapeutics Holdings PLC ADR (United Kingdom)*,1

     6  

2,731

   Iovance Biotherapeutics, Inc. *      25  

676

   Krystal Biotech, Inc. *      52  

943

   Kymera Therapeutics, Inc. *      29  

11,465

   Magenta Therapeutics, Inc. *      15  

7,649

   Precision BioSciences, Inc. *      11  

1,770

   REGENXBIO, Inc. *      42  

2,317

   Repare Therapeutics, Inc. (Canada)*      35  

1,727

   Replimune Group, Inc. *      32  

4,184

   Rocket Pharmaceuticals, Inc. *      78  

18,581

   Synlogic, Inc. *      16  

5,114

   TCR² Therapeutics, Inc. *      8  

1,744

   UniQure NV (Netherlands)*      32  
     

 

 

 
        717  
     

 

 

 

CAPITAL MARKETS—0.2%

  

238

   Coinbase Global, Inc. Class A *      16  
     

 

 

 

CONTAINERS & PACKAGING—2.2%

  

3,217

   Ball Corp      159  
     

 

 

 

ELECTRIC UTILITIES—0.5%

  

417

   NextEra Energy, Inc.      32  
     

 

 

 

ENTERTAINMENT—0.7%

  

1,043

   Sea Ltd. ADR (Singapore)*,1      52  
     

 

 

 

HEALTH CARE EQUIPMENT & SUPPLIES—3.7%

  

567

   Dexcom, Inc. *      68  
 COMMON STOCKS—Continued       
    Shares    Value  

HEALTH CARE EQUIPMENT & SUPPLIES—Continued

  

              120

   IDEXX Laboratories, Inc. *    $             43  

232

   Insulet Corp. *      60  

718

   Lantheus Holdings, Inc. *      53  

141

   The Cooper Companies, Inc.      39  
     

 

 

 
        263  
     

 

 

 

HEALTH CARE PROVIDERS & SERVICES—1.6%

  

406

   Amedisys, Inc. *      40  

99

   Humana, Inc.      55  

7,966

   Invitae Corp. *      20  
     

 

 

 
        115  
     

 

 

 

HOTELS, RESTAURANTS & LEISURE—1.3%

  

62

   Chipotle Mexican Grill, Inc. *      93  
     

 

 

 

INTERACTIVE MEDIA & SERVICES—4.7%

  

1,365

   Alphabet, Inc. Class A*      129  

1,319

   Alphabet, Inc. Class C *      125  

173

   Meta Platforms, Inc. Class A*      16  

1,416

   ZoomInfo Technologies, Inc. *      63  
     

 

 

 
        333  
     

 

 

 

INTERNET & DIRECT MARKETING RETAIL—7.3%

  

2,381

   Amazon.com, Inc. *      244  

19,444

   Deliveroo PLC (United Kingdom)*,2      19  

1,342

   DoorDash, Inc. Class A *      58  

226

   MercadoLibre, Inc. (Argentina)*      204  
     

 

 

 
        525  
     

 

 

 

IT SERVICES—14.4%

  

172

   Adyen NV (Netherlands)*,2      247  

1,445

   Block, Inc. *      87  

2,409

   Cloudflare, Inc. Class A *      136  

1,024

   Datadog, Inc. *      82  

259

   MongoDB, Inc. *      47  

2,840

   Okta, Inc. *      159  

904

   PayPal Holdings, Inc. *      76  

1,732

   Shopify, Inc. Class A (Canada)*      59  

858

   Snowflake, Inc. Class A*      138  
     

 

 

 
        1,031  
     

 

 

 

LEISURE PRODUCTS—0.2%

  

2,009

   Peloton Interactive, Inc. Class A *      17  
     

 

 

 

 

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Table of Contents

Harbor Disruptive Innovation ETF

PORTFOLIO OF INVESTMENTS—Continued

 

 

Value and Cost in Thousands

 

 COMMON STOCKS—Continued

 
    Shares   Value  

LIFE SCIENCES TOOLS & SERVICES—5.4%

 

            84

   Bio-Rad Laboratories, Inc. Class A *   $            29  

571

   Danaher Corp.     144  

490

   ICON PLC (Ireland)*     97  

73

   Lonza Group AG (Switzerland)     38  

31

   Mettler-Toledo International, Inc. *     39  

73

   Thermo Fisher Scientific, Inc.     37  
    

 

 

 
       384  
    

 

 

 

MEDIA—1.1%

 

4,153

   Paramount Global Class B     76  
    

 

 

 

PHARMACEUTICALS—1.6%

 

891

   Arvinas, Inc. *     44  

360

   Catalent, Inc. *     24  

126

   Eli Lilly & Co.     46  
    

 

 

 
       114  
    

 

 

 

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—13.5%

 

851

   Advanced Micro Devices, Inc. *     51  

659

   Applied Materials, Inc.     58  

198

   ASML Holding NV (Netherlands)     94  

641

   Lam Research Corp.     259  

3,664

   Microchip Technology, Inc.     226  

331

   NVIDIA Corp.     45  

970

   Texas Instruments, Inc.     156  

976

   Wolfspeed, Inc. *     77  
    

 

 

 
       966  
    

 

 

 

SOFTWARE—22.9%

 

953

   Atlassian Corp. PLC Class A*     193  

1,073

   Cadence Design Systems, Inc. *     162  

198

   CrowdStrike Holdings, Inc. Class A*     32  

 COMMON STOCKS—Continued

 
    Shares   Value  

SOFTWARE—Continued

 

              378

   CyberArk Software Ltd. (Israel)*   $ 59  

1,115

   Fortinet, Inc. *     64  

211

   HubSpot, Inc. *     63  

508

   Microsoft Corp.     118  

845

   Procore Technologies, Inc. *     46  

1,467

   Salesforce, Inc. *     239  

6,272

   Samsara, Inc. Class A *     77  

583

   ServiceNow, Inc. *     245  

1,334

   Smartsheet, Inc. Class A *     47  

1,440

   Workday, Inc. Class A *     224  

281

   Zoom Video Communications, Inc. Class A *     23  

282

   Zscaler, Inc. *     44  
    

 

 

 
                  1,636  
    

 

 

 

SPECIALTY RETAIL—0.3%

 

1,952

   AUTO1 Group SE (Germany)*,2     13  

628

   Carvana Co. *     9  
    

 

 

 
       22  
    

 

 

 

WIRELESS TELECOMMUNICATION SERVICES—2.5%

 

1,154

   T-Mobile US, Inc. *     175  
    

 

 

 

TOTAL COMMON STOCKS

 

    (Cost $8,954)

    6,901  
    

 

 

 

TOTAL INVESTMENTS—96.6%

 

    (Cost $8,954)

    6,901  
    

 

 

 

CASH AND OTHER ASSETS, LESS LIABILITIES—3.4%

    245  
    

 

 

 

TOTAL NET ASSETS—100%

  $ 7,146  
    

 

 

 
 

 

FAIR VALUE MEASUREMENTS

All investments as of October 31, 2022 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments as of October 31, 2022 or December 1, 2021 (commencement of operations).

For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.

 

*

Non-income producing security

1

Depositary receipts such as American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs) and other country specific depositary receipts are certificates evidencing ownership of shares of a foreign issuer. These certificates are issued by depositary banks and generally trade on an established market in the U.S. or elsewhere.

2

Securities purchased in a transaction exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. The Fund has no right to demand registration of these securities. As of October 31, 2022, the aggregate value of these securities was $279 or 4% of net assets.

The accompanying notes are an integral part of the Financial Statements.

 

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Table of Contents

Harbor Dividend Growth Leaders ETF

MANAGER’S COMMENTARY (Unaudited)

 

 

SUBADVISER

 

Westfield Capital

Management Company,

L.P.

  

    

  

    

 

Management’s Discussion of

Fund Performance

 

       

MARKET REVIEW

 

U.S. equities finished the third quarter of calendar year 2022 on the lows of the year, marking the largest decline during the first nine months of any year since 2002. Indexes turned sharply negative on the heels of higher-than-expected inflation data in August and a stern commitment by the Federal Reserve (the “Fed”) in Jackson Hole to tamp down inflation, even if it means inflicting some ‘pain’ and job losses on the U.S. economy. The steep trajectory of rate hikes by the U.S. roiled already unsettled markets and forced other central banks across the globe to follow suit or risk having their currencies devalued. Once again, we witnessed most asset classes falling in tandem with one exception being commodities, and even that was largely driven by strong returns in the energy markets. This unusual correlation further strained financial markets and even drove some policy makers to intervene to prevent more widespread disruptions.

 

PERFORMANCE

 

Harbor Dividend Growth Leaders ETF returned -8.48% during the year ended October 31, 2022, while the Fund’s primary benchmark, S&P 500 Index (the “Index”), returned -14.61%, and the NASDAQ Dividend Achievers Select Total Return Index returned -8.27%. The returns of the Fund prior to May 20, 2022 are those of the Westfield Capital Dividend Growth Fund (the “Predecessor Fund”)1. Given this is not a benchmark-driven strategy, there can be periods where the performance looks materially different. From a sector standpoint, relative weakness within Information Technology and Materials offset relative strength within Communication Services and Energy.

 

Information Technology was the largest source of relative weakness, costing 130 basis points (“bps”). Within the sector, semiconductor company Silicon Motion Technology Corporation Sponsored ADR was the largest detractor from relative results. It was announced in May that the company was being acquired by MaxLinear, Inc. in 2023. Following this announcement, shares traded lower due to the lack of upcoming catalysts since the acquisition doesn’t close for a year. The company pays a healthy dividend and has a 12.00% shareholder yield which contributed to our decision to continue to hold the security following the announcement, but we decided to exit the position in October as a source of funds for other ideas which we believe have more near-term upside.

 

Materials also detracted from relative results, costing 108 bps of relative performance. Newmont Corporation, a goldminer, was the biggest relative underperformer within the sector. Shares traded lower as gold prices are inversely correlated with real interest rates, which have been rising as the Fed has been increasing interest rates over the last few months. Additionally, the company had some operational weakness which further weighed on sentiment. Given this backdrop, we sold the position in early September.

 

Communications Services was the largest contributor to relative performance, adding 130 bps of relative returns to the Fund. The majority of this relative performance stemmed from not owning the mega-cap benchmark names which do not meet our capital return thresholds.

 

The Fund’s investments within Energy also contributed to relative performance, adding 33 bps. Energy exploration and production companies ConocoPhillips and Devon Energy Corporation were the top relative contributors. The Fund’s Energy positioning is focused on having exposure to E&Ps and not investing in Coal, Services, Midstream and Refining,

 

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Table of Contents

Harbor Dividend Growth Leaders ETF

MANAGER’S COMMENTARY—Continued

 

 

CHANGE IN A $10,000 INVESTMENT

For the period 11/01/12 through 10/31/2022

 

 

LOGO

 

The graph compares a $10,000 investment in shares of the Fund with the performance of the S&P 500 Index and NASDAQ U.S. Dividend Achievers Select Total Return Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions. Past performance is no guarantee of future results.

 

TOTAL RETURNS

For the periods ended 10/31/2022

 

 

 

 

 

 

 

     

which was rewarded during the period. Despite a pull-back in oil, ConocoPhillips and Devon Energy Corporation held in better than peers, showcasing their attractiveness as best-in-class operators with strong free cash flow and capital returns.

 

OUTLOOK & STRATEGY

 

Following yet another volatile quarter, we remain confident in our positioning in high quality companies with durable business models that we believe can reliably maintain and raise their dividends while also weathering the market turbulence. As we have witnessed in the market, there is no shortage of companies re-rating substantially lower amidst sharply rising interest rates and broader macro-economic uncertainty. With the Fed reiterating their singular focus on curbing inflation, we think now more than ever it is important to own companies that not only provide competitive yields which are increasing, but those that can also create equity value over time. Often times yield-focused alternatives lack the quality desired in a turbulent market when investors flock to relative safety at the expense of riskier segments of the market. Stocks owned today must also compete with higher yielding Treasuries and provide a reasonable return above those yields to account for the greater risk. We believe that is hard to justify in high yielding stocks in many cases and prefer the quality and equity value creation potential of dividend growth stocks.

          Annualized     Annualized        
    1 Year     5 Years     10 Years        

Harbor Dividend Growth Leaders ETF
(Based on Net Asset Value)

    -8.48%       11.21%       11.49%      

Harbor Dividend Growth Leaders ETF (At
Market Price)

    -8.40%       11.23%       11.49%      

Comparative Index

         

S&P 500 Index

    -14.61%       10.44%       12.79%      

NASDAQ U.S. Dividend Achievers Select
Total Return Index

    -8.27%       11.06%       11.99%      

 

As stated in the Fund’s prospectus dated April 13, 2022, the expense ratio was 0.50%. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).

 

The S&P 500 Index is an unmanaged index generally representative of the U.S. market for large capitalization equities. The NASDAQ U.S. Dividend Achievers Select Total Return Index is a modified market capitalization weighted index. The NASDAQ U.S. Dividend Achievers Select Total Return Index is comprised of a select group of securities with at least ten consecutive years of increasing annual regular dividend payments. The indices are unmanaged and do not reflect fees and expenses and are not available for direct investment.

 

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.

 

 

 

   
                                                                                                                    

 

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Harbor Dividend Growth Leaders ETF

MANAGER’S COMMENTARY (Unaudited)

 

 

 

1 The Fund acquired the assets and assumed the then existing known liabilities of the Predecessor Fund on May 20, 2022 (the “Reorganization Date”). The Fund is the performance successor of the reorganization. This means that the Predecessor Fund’s performance and financial history will be used by the Fund going forward from the Reorganization Date. Accordingly, the performance of the Fund for periods prior to the reorganization is the performance of the Predecessor Fund. The performance of the Predecessor Fund has not been restated to reflect the annual operating expenses of the Fund, which are lower than those of the Predecessor Fund. Because the Fund has different fees and expenses than the Predecessor Fund, the Fund would also have had different performance results.

This report contains the current opinions of Westfield Capital Management Company, L.P. as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.

There is no guarantee 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 emphasis on dividend paying stocks involves the risk that such stocks may fall out of favor with investors and under-perform the market. There is no guarantee that a company will pay or continually increase its dividend. The Fund may invest in a limited number of companies or at times may be more heavily invested in particular sectors. As a result, the Fund’s performance may be more volatile, and the value of its shares may be especially sensitive to factors that specifically effect those sectors. The Fund may invest in foreign securities which may be more volatile and less liquid due to currency fluctuation, political instability, government sanctions, social and economic risks. Foreign currencies can decline in value and can adversely affect the dollar value of the fund.

 

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Harbor Dividend Growth Leaders ETF

PORTFOLIO OF INVESTMENTS—October 31, 2022

 

 

 

  SECTOR ALLOCATION (% of investments) - Unaudited

 

 

LOGO

 

 

  PORTFOLIO OF INVESTMENTS

 

Value and Cost in Thousands

 

 

  COMMON STOCKS—95.8%

 

 

 

    Shares

 

       

Value

 

 

BANKS—5.4%

  

83,469

  Bank of America Corp.    $           3,008  

17,549

  Cullen/Frost Bankers, Inc.      2,721  

26,686

  East West Bancorp, Inc.      1,910  
    

 

 

 
       7,639  
    

 

 

 

BEVERAGES—4.8%

  

52,735

  Coca-Cola Co.      3,156  

19,747

  PepsiCo, Inc.      3,586  
    

 

 

 
       6,742  
    

 

 

 

BIOTECHNOLOGY—4.6%

  

23,274

  AbbVie, Inc.      3,407  

39,291

  Gilead Sciences, Inc.      3,083  
    

 

 

 
       6,490  
    

 

 

 

BUILDING PRODUCTS—1.9%

  

16,566

  Trane Technologies PLC (Ireland)      2,644  
    

 

 

 

CAPITAL MARKETS—1.2%

  

29,172

  Hamilton Lane, Inc. Class A      1,745  
    

 

 

 

COMMUNICATIONS EQUIPMENT—2.3%

  

70,921

  Cisco Systems, Inc.      3,222  
    

 

 

 

CONTAINERS & PACKAGING—1.5%

  

17,231

  Packaging Corp. of America      2,071  
    

 

 

 

DIVERSIFIED TELECOMMUNICATION SERVICES—1.3%

  

34,376

  Cogent Communications Holdings, Inc.      1,805  
    

 

 

 

EQUITY REAL ESTATE INVESTMENT TRUSTS (REITS)—6.3%

  

35,533

  Equity LifeStyle Properties, Inc.      2,273  

13,487

  Innovative Industrial Properties, Inc.      1,458  

47,618

  National Health Investors, Inc.      2,700  

18,475

  Sun Communities, Inc.      2,491  
    

 

 

 
       8,922  
    

 

 

 

FOOD PRODUCTS—3.7%

  

32,034

  Bunge Ltd. (Bermuda)      3,162  

8,963

  Hershey Co.      2,140  
    

 

 

 
       5,302  
    

 

 

 

HEALTH CARE PROVIDERS & SERVICES—3.8%

  

22,580

  Quest Diagnostics, Inc.      3,244  

 

  COMMON STOCKS—Continued

 

 

 

    Shares

 

       

Value

 

 

HEALTH CARE PROVIDERS & SERVICES—Continued

  

3,932

  UnitedHealth Group, Inc.    $           2,183  
    

 

 

 
       5,427  
    

 

 

 

HOTELS, RESTAURANTS & LEISURE—1.7%

  

66,960

  Cheesecake Factory, Inc.      2,398  
    

 

 

 

INSURANCE—9.0%

  

15,497

  Allstate Corp.      1,957  

20,961

  American Financial Group, Inc.      3,042  

62,970

  American International Group, Inc.      3,589  

22,291

  Arthur J. Gallagher & Co.      4,170  
    

 

 

 
       12,758  
    

 

 

 

IT SERVICES—3.1%

 

31,977

  IBM Corp.      4,422  
    

 

 

 

MACHINERY—3.9%

  

8,736

  Cummins, Inc.      2,136  

15,497

  IDEX Corp.      3,445  
    

 

 

 
       5,581  
    

 

 

 

MEDIA—1.6%

    

13,299

  Nexstar Media Group, Inc.      2,278  
    

 

 

 

MULTILINE RETAIL—2.4%

  

20,441

  Target Corp.      3,358  
    

 

 

 

OIL, GAS & CONSUMABLE FUELS—7.1%

  

42,587

  ConocoPhillips      5,370  

60,252

  Devon Energy Corp.      4,660  
    

 

 

 
       10,030  
    

 

 

 

PHARMACEUTICALS—4.1%

  

8,413

  Eli Lilly & Co.      3,046  

27,842

  Merck & Co., Inc.      2,818  
    

 

 

 
       5,864  
    

 

 

 

ROAD & RAIL—2.9%

  

21,135

  Union Pacific Corp.      4,167  
    

 

 

 

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—6.5%

  

13,444

  Broadcom, Inc.      6,320  

 

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Table of Contents

Harbor Dividend Growth Leaders ETF

PORTFOLIO OF INVESTMENTS—Continued

 

 

Value and Cost in Thousands

 

 

  COMMON STOCKS—Continued

 

 

 

    Shares

 

       

Value

 

 

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—Continued

 

47,329

  Microchip Technology, Inc.    $           2,922  
    

 

 

 
       9,242  
    

 

 

 

SOFTWARE—3.9%

  

23,852

  Microsoft Corp.      5,537  
    

 

 

 

SPECIALTY RETAIL—4.1%

  

19,718

  Home Depot, Inc.      5,839  
    

 

 

 

TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—4.9%

 

45,363

  Apple, Inc.      6,956  
    

 

 

 

TEXTILES, APPAREL & LUXURY GOODS—3.8%

  

26,310

  NIKE, Inc. Class B      2,438  

 

  COMMON STOCKS—Continued

 

 

 

    Shares

 

       

Value

 

 

TEXTILES, APPAREL & LUXURY GOODS—Continued

 

91,188

  Tapestry, Inc.    $           2,889  
    

 

 

 
       5,327  
    

 

 

 

TOTAL COMMON STOCKS

  

(Cost $112,342)

       135,766  
    

 

 

 

TOTAL INVESTMENTS—95.8%

  

(Cost $112,342)

       135,766  
    

 

 

 

CASH AND OTHER ASSETS, LESS LIABILITIES—4.2%

     5,909  
    

 

 

 

TOTAL NET ASSETS—100%

   $ 141,675  
    

 

 

 

 

 

  FAIR VALUE MEASUREMENTS

 

All investments as of October 31, 2022 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments as of October 31, 2022 or 2021.

For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.

 

The accompanying notes are an integral part of the Financial Statements.

 

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Table of Contents

Harbor Energy Transition Strategy ETF

MANAGER’S COMMENTARY (Unaudited)

 

 

SUBADVISER

 

Quantix Commodities

LP

                  

Management’s Discussion of

Fund Performance

 

        

MARKET REVIEW

 

Commodity markets have experienced significant volatility so far in 2022 with extreme, opposing forces pulling the market in different directions. We believe that supply/demand fundamentals and geopolitical events have generally been pushing prices up while tightening monetary policy in the US and macro fears of a recession have generally been pulling prices down.

 

On a fundamental basis, almost every commodity has remained in tight supply for most of the year as we believe is evidenced by the unusually backwardated futures curves (where commodities for delivery in the short term cost more than those for delivery further out). On a geopolitical basis, Russia’s invasion of Ukraine has particularly disrupted energy and agricultural markets, both from a first order effect (Russia is a large energy exporter as is Ukraine in both Corn and Wheat) and with second order effects, triggering an energy crisis in Europe and raising costs downstream in items such as fertilizer and aluminum.

 

The historic pace of tightening in U.S. monetary policy so far in 2022 has provided a headwind for almost all financial markets as the risk-free rate gets repriced. While commodities have held up better than other asset classes with decently positive returns, we believe investors have remained on the sidelines due to fears that the Federal Reserve’s actions will cause a recession, impacting commodity demand. This is currently demonstrated in positioning data showing historically low levels of speculator interest across almost all commodities, despite the portfolio rationale for a commodities allocation in an inflationary environment.

 

PERFORMANCE

 

Harbor Energy Transition Strategy ETF returned -5.10% for the period ended October 31, 2022. The Fund tracked the performance of the Quantix Energy Transition Index (the “Index”), which returned -4.00%, after accounting for fees, fund expenses, and differences in cash management between the Fund and the Index.

 

This difference in cash management arises from the fact that the methodology in the Index is not able to be fully replicated. This puts the Fund at a disadvantage relative to the Index in a period of rapid interest rate rises, such as so far in 2022, and conversely helps the Fund relative to the index in a period of rapid interest rate decreases.

 

On a sector basis, Natural Gas was the biggest detractor from performance, with a -6.80% contribution, entirely due to equal falls in UK Natural Gas and European Natural Gas. These commodities had extreme increases in price in the first half of 2022 as Russia’s invasion of Ukraine disrupted European gas supplies but a greater-than-expected build in inventories over the summer and a warmer start to the winter caused those prices to revert.

 

The Grains sector was a positive contributor adding 1.50% to returns. Soybean Oil, the only commodity that the Fund holds in that sector, rallied in tandem with energy prices more broadly. There were no significant asset allocation changes since the inception of the Fund. The weights within Index are primarily driven by the relative open interest of each commodity, which does not tend to change very much from month to month.

 

OUTLOOK & STRATEGY

 

We believe that the outlook for commodity markets remains bright, especially relative to other asset classes. In the short term, we believe that the opposing forces referenced above will continue to pull markets in opposite directions, keeping volatility elevated.

 

We believe that fundamentals may remain supportive, with supply not keeping up with demand due to lead times in physically extracting or growing commodities. If this is the case, the futures curve may remain in backwardation, supporting overall returns from the asset class.

 

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Table of Contents

Harbor Energy Transition Strategy ETF

MANAGER’S COMMENTARY—Continued

 

 

CHANGE IN A $10,000 INVESTMENT

For the period 07/13/2022 through 10/31/2022

 

 

LOGO

 

The graph compares a $10,000 investment in shares of the Fund with the performance of the Quantix Energy Transition Index and Bloomberg Commodity Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions. Past performance is no guarantee of future results.

 

TOTAL RETURNS

For the periods ended 10/31/2022

 

     

In addition, if some of the macroeconomic headwinds (such as the recent rapidly rising U.S. interest rates or the current economic lockdown in China) abate or even turn into tailwinds, then we believe that investors will reallocate to the asset class. However, if inflation remains elevated in the U.S. and central banks continue to raise interest rates or keep them higher for longer than the market expects, this may provide headwinds to certain commodities through demand destruction in the short to medium term.

 

On a strategy level, there are no changes anticipated to the Fund or the processes that underpin the underlying index.

            Unannualized      
    1 Year   5 Years   Life of Fund      

Harbor Energy Transition Strategy ETF (Based on Net Asset Value)1

  N/A   N/A   -5.10%    

Harbor Energy Transition Strategy ETF (At Market Price)1

  N/A   N/A   -4.55%    

Comparative Index

         

Quantix Energy Transition Index1

  N/A   N/A   -4.00%    

Bloomberg Commodity Index1

  N/A   N/A   0.64%    

 

As stated in the Fund’s prospectus dated June 10, 2022, the expense ratio was 0.80%. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).

 

The Quantix Energy Transition Index (“QET”) is a dynamic commodity index with the objective of providing diversified exposure to the building blocks of the accelerating transition from carbon-intensive energy sources to less carbon intensive sources of energy using commodity futures. This index is unmanaged and does not reflect fees and expenses and is not available for direct investment. The Bloomberg Commodity Index measures the performance of future contracts on physical commodities which traded on US exchanges and London Metal Exchange. The commodity weightings are based on production and liquidity, subject to weighting restrictions applied annually.

 

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.

   
                                                                                                              

 

1 The “Life of Fund” return as shown reflects the period 07/13/2022 (commencement of operations) through 10/31/2022. The first day of secondary market trading was a few days after the date on which the Fund commenced investment operations; therefore, the Net Asset Value of the Fund is used as a proxy for the period from inception of investment operations to the first day of secondary market trading to calculate the Market Price returns.

This report contains the current opinions of Quantix Commodities LP as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.

There is no guarantee that the investment objective of the Fund will be achieved. Commodities and commodity-linked derivative instruments can be significantly more volatile than other securities, such as stocks or bonds. The Fund is non-diversified and may have significant exposure to a particular sector of the commodities market (such as metal, gas or emissions products). As a result, the Fund may be more susceptible to risks associated with a single issuer or sector than a more diversified portfolio.

 

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26


Table of Contents

Harbor Energy Transition Strategy ETF

CONSOLIDATED PORTFOLIO OF INVESTMENTS—October 31, 2022

 

 

RISK ALLOCATION* (% of Net Assets) - Unaudited

     
Asset Class    Sector        
COMMODITIES            
   Industrial Metals      31.5
   Emissions      22.4
   Natural Gas      18.8
   Precious Metals      15.2
   Oilseeds      12.1

*Based on notional value and represents the sector allocation of the Quantix EnergyTransition Index.

 

PORTFOLIO OF INVESTMENTS

Principal Amounts, Value and Cost in Thousands

 

    SHORT-TERM INVESTMENTS—75.3%  
Principal
Amount
          Value  

 

 

 

U.S. TREASURY BILLS—75.3%

 

 

 

U.S. Treasury Bill

  
  $        8,551     2.388%—11/03/2022    $ 8,550  
            7,554     2.820%—12/01/2022      7,532  
    

 

 

 
 

TOTAL SHORT-TERM INVESTMENTS

 
      (Cost $16,086)      16,082  
    

 

 

 
 

TOTAL INVESTMENTS—75.3%

 
      (Cost $16,086)      16,082  
    

 

 

 
 

CASH AND OTHER ASSETS, LESS LIABILITIES—24.7%

     5,272  
    

 

 

 
 

TOTAL NET ASSETS—100%.

   $         21,354  
    

 

 

 

 

SWAP AGREEMENTS

OVER-THE-COUNTER (OTC) EXCESS RETURN SWAPS ON INDICES

 

Counterparty

  Fixed
Rate
  Pay/Receive
Fixed Rate
 

Reference Index1

  Expiration
Date
  Payment
Frequency
  Notional
Amount
(000s)
  Value
(000s)
  Upfront
Premiums
(Received)/
Paid
(000s)
   Unrealized
Appreciation/
(Depreciation)
(000s)

Goldman Sachs International

  0.750%   Pay   Quantix Energy Transition Index   11/30/2022   Monthly   $21,353   $—   $—            $—        
                     

 

  

 

FAIR VALUE MEASUREMENTS

All investments as of October 31, 2022 (as disclosed in the preceding Portfolio of Investments and Swap Agreements schedule) were classified as Level 2. There were no Level 3 investments as of October 31, 2022 or July 13, 2022 (commencement of operations).

For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.

The accompanying notes are an integral part of the Financial Statements.

 

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Table of Contents

Harbor Energy Transition Strategy ETF

CONSOLIDATED PORTFOLIO OF INVESTMENTS—Continued

 

 

 

 

Coupon represents yield to maturity

 

1 

The reference index components are published daily on Harbor’s website at harborcapital.com. The index is comprised of publicly traded futures contracts on physical commodities. The table below represents the reference index components as of the period ended October 31, 2022.

 

   

Commodity

    

Weight

  Emissions (Europe)      18.790%
               Aluminum      11.087    
  Natural Gas (United States)      9.776   
  Silver      9.125   
  Soybean Oil      8.561   
  Copper      7.692   
  Natural Gas (Europe)      6.201   
  Nickel      5.994   
  Zinc      4.453   
  Ethanol      3.577   
  Emissions (California)      3.544   
  Platinum      3.475   
  Natural Gas (United Kingdom)      2.838   
  Palladium      2.619   
  Lead      2.269   

The accompanying notes are an integral part of the Financial Statements.

 

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Table of Contents

Harbor International Compounders ETF

MANAGER’S COMMENTARY (Unaudited)

 

 

SUBADVISER

 

C WorldWide Asset

Management

  

    

  

    

  

Management’s Discussion of

Fund Performance

 

        

MARKET REVIEW

 

The U.S. Federal Reserve (the “Fed”) hiked rates by 75 bps twice in the third quarter of 2022 and the U.S. money supply fell at an annualized rate of 1.60% over the last three months, the steepest drop in 84 years. This is affecting asset price volatility. The price action at the end of the quarter of the investment bank Credit Suisse and a mini crash in the British Pound fueled by an inept budget proposal are also sending ominous signs that liquidity is drying up. On a more positive note, several sentiment indicators hit historic lows such as U.S. consumer confidence and the Bull/Bear survey. This is usually a good sign for subsequent 12-month market returns.

 

In October 2022, the closely watched China Party Congress turned out to be a bit more dramatic than expected when president Xi, had former president Hu escorted out of the congress hall, as another sign that China is turning into a country ruled by one man. The U.S. introduced wide-ranging restrictions on exports of semiconductors to China. What surprised investors the most was the U.S. forbidding its citizens to work with or for China’s semiconductor companies. While the full implications are unknown, these new significant restrictions will likely hinder China’s ambitions to catch up with the U.S. in the semiconductor arms race.

 

PERFORMANCE

 

Harbor International Compounders ETF returned -2.16% for the period ended October 31, 2022, out performing the MSCI All Country World ex. U.S. (ND) Index (the “Index”), which returned -4.94%.

 

The top three contributors were Bank of Central Asia (BCA), Hoya and HDFC Bank. Hoya’s Life Care business seems to be improving with eyeglass and contact lenses leading growth after a slowdown due to COVID-19. As for BCA, the Indonesian economy has demonstrated strong resilience both during COVID-19 and against the backdrop of a strong U.S. dollar. We believe the economy will continue to benefit from reforms which will likely be compounded by Indonesia’s leading position in nickel reserves, which are crucial inputs to the energy transition. All of this should continue to support BCA, the country’s leading bank.

 

The top three detractors from performance were Sony, AIA and AstraZeneca. On the top ten list of detractors, we find a lot of Asian names and companies with sales related to semiconductors. Sony, having both attributes and exposure to a weaker consumer through its gaming business, has sold-off since mid-August. The shares are now trading at around 12x next fiscal year’s earnings. Near term, Sony’s Game & Network Services division should benefit from a potentially successful launch of the latest iteration of the “Call of Duty” game, spurring upgrades to Sony’s PS5 console. Next year the Pictures division will also benefit from the launch of two “Spiderverse” animated films.

 

OUTLOOK & STRATEGY

 

Currently, we are facing an economic slowdown. We believe this is the result of tighter monetary policy. The yield curve is inverted on most time horizons. We believe this is one of the most accurate indicators of an impending recession. Globally, central banks are reducing their balance sheets by approximately USD 1 trillion, whereas they were expanding by USD 4-5 trillion during the COVID-19 crisis. The consequence has been a strong increase in bond yields, including rising real interest rates. Looking at Treasury Inflation-Protected Securities (TIPS), the 10-year real interest rate has risen from -1% at the beginning of the year to currently over 1.5%. This has affected the valuation of equities this year, with the aggregate P/E multiple of the Index declining from approximately 18x to 14x.

 

Growth stocks with long-term sustainable business models have been hard hit by rising bond yields. Not because their fundamental business has disappointed, but because the higher discount rate negatively affects the time value of these companies harder than slow growth

 

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Table of Contents

Harbor International Compounders ETF

MANAGER’S COMMENTARY—Continued

 

 

CHANGE IN A $10,000 INVESTMENT

For the period 09/07/2022 through 10/31/2022

 

LOGO

 

The graph compares a $10,000 investment in shares of the Fund with the performance of the MSCI All Country World Ex. US (ND) Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions. Past performance is no guarantee of future results.

 

TOTAL RETURNS

For the periods ended 10/31/2022

 

 

 

 

 

 

 

     

businesses. Conversely, in an economic downturn, cyclical companies suffer, and quality growth companies usually rebound driven by the underlying earnings growth and the help of falling interest rates. Also, recessions are typically short and viewed over an investor’s full life cycle, only play a marginal role.

 

When interest rates start to fall and real rates revert to zero, we believe investors’ focus will return to long-term investing and long-duration assets. In our view, assets that over time increase in fundamental real value will be in demand and highly valued in all but the most extreme scenarios. Therefore, we stick to our long-term approach with a continued focus on finding sustainable compounders that are generally aligned with important forward-looking themes and trends.

                Unannualized  
    1 Year     5 Years     Life of Fund  

Harbor International Compounders ETF (Based on Net Asset Value)1

    N/A       N/A       -2.16%  

Harbor International Compounders ETF (At Market Price)1

    N/A       N/A       -2.21%  

Comparative Index

     

MSCI All Country World Ex. US (ND) Index1

    N/A       N/A       -4.94%  

 

As stated in the Fund’s prospectus dated August 17, 2022, the expense ratio was 0.55%. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).

 

The MSCI All Country World Ex. US (ND) Index is a free float-adjusted market capitalization weighted index that is designed to measure equity market performance in the global developed and emerging markets, excluding the US This unmanaged index does not reflect fees and expenses and is not available for direct investment.

 

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.

 

 

 

                                                                                                                  

1 The “Life of Fund” return as shown reflects the period 09/07/2022 (commencement of operations) through 10/31/2022. The first day of secondary market trading was a few days after the date on which the Fund commenced investment operations; therefore, the Net Asset Value of the Fund is used as a proxy for the period from inception of investment operations to the first day of secondary market trading to calculate the Market Price returns.

This report contains the current opinions of C WorldWide Asset Management as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.

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. Investing in international and emerging markets poses special risks, including potentially greater price volatility due to social, political and economic factors, as well as currency exchange rate fluctuations. These risks are more severe for securities of issuers in emerging market regions. A non-diversified Fund may invest a greater percentage of its assets in securities of a single issuer, and/or invest in a relatively small number of issuers, it is more susceptible to risks associated with a single economic, political or regulatory occurrence than a more diversified portfolio.

 

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30


Table of Contents

Harbor International Compounders ETF

PORTFOLIO OF INVESTMENTS—October 31, 2022

 

 

 

 

  REGION BREAKDOWN (% of investments) - Unaudited

 

 

 

LOGO

The Fund’s Portfolio of Investments include investments denominated in foreign currencies. As of October 31, 2022, 30.6% of the Fund’s investments were denominated in Euro. No other foreign currency denomination comprised more than 25% of the Fund’s net assets.

 

 

  PORTFOLIO OF INVESTMENTS

 

Value and Cost in Thousands

 

 

  COMMON STOCKS—98.4%

 

    Shares         Value  

BANKS—11.3%

  

    7,800

  HDFC Bank Ltd. ADR (India)1    $             486  

405,600

  PT Bank Central Asia Tbk (Indonesia)      229  
    

 

 

 
       715  
    

 

 

 

BUILDING PRODUCTS—6.0%

  

    9,178

  Assa Abloy AB Class B (Sweden)      185  

    1,300

  Daikin Industries Ltd. (Japan)      196  
    

 

 

 
       381  
    

 

 

 

CAPITAL MARKETS—3.2%

  

    1,222

  Deutsche Boerse AG (Germany)      199  
    

 

 

 

CHEMICALS—4.4%

  

       936

  Linde PLC (Ireland)      280  
    

 

 

 

CONSTRUCTION & ENGINEERING—2.1%

  

    1,456

  Vinci SA (France)      134  
    

 

 

 

ELECTRIC UTILITIES—4.8%

  

  12,090

  Iberdrola SA (Spain)      123  

  10,127

  SSE PLC (United Kingdom)      181  
    

 

 

 
       304  
    

 

 

 

ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—2.4%

 

       400

  Keyence Corp. (Japan)      152  
    

 

 

 

FOOD PRODUCTS—4.9%

  

    2,821

  Nestle SA (Switzerland)      307  
    

 

 

 

HEALTH CARE EQUIPMENT & SUPPLIES—3.8%

  

    2,600

  Hoya Corp. (Japan)      243  
    

 

 

 

HOUSEHOLD DURABLES—4.1%

  

    3,900

  Sony Group Corp. (Japan)      262  
    

 

 

 

INDUSTRIAL CONGLOMERATES—3.4%

  

    1,976

  Siemens AG (Germany)      216  
    

 

 

 

INSURANCE—2.8%

  

  23,400

  AIA Group Ltd. (Hong Kong)      177  
    

 

 

 

 

  COMMON STOCKS—Continued

 

    Shares         Value  

IT SERVICES—1.9%

  

       83

  Adyen NV (Netherlands)*,2    $             119  
    

 

 

 

MACHINERY—2.6%

  

15,262

  Atlas Copco AB Class A (Sweden)      163  
    

 

 

 

PHARMACEUTICALS—11.2%

 

  2,314

  AstraZeneca PLC (United Kingdom)      272  

  3,991

  Novo Nordisk AS Class B (Denmark)      434  
    

 

 

 
       706  
    

 

 

 

REAL ESTATE MANAGEMENT & DEVELOPMENT—1.7%

  

  4,849

  Vonovia SE (Germany)      107  
    

 

 

 

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—7.5%

  

     663

  ASML Holding NV (Netherlands)      313  

  2,600

 

Taiwan Semiconductor Manufacturing Co. Ltd. ADR (Taiwan)1

     160  
    

 

 

 
       473  
    

 

 

 

SOFTWARE—3.1%

  

  2,028

  SAP SE (Germany)      196  
    

 

 

 

TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—3.0%

  

     182

 

Samsung Electronics Co. Ltd. GDR (South Korea)1

     188  
    

 

 

 

TEXTILES, APPAREL & LUXURY GOODS—3.9%

  

     390

  LVMH Moet Hennessy Louis Vuitton SE (France)      246  
    

 

 

 

TOBACCO—6.2%

  

38,435

  Swedish Match AB (Sweden)      395  
    

 

 

 

 

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31


Table of Contents

Harbor International Compounders ETF

PORTFOLIO OF INVESTMENTS—Continued

 

 

Value and Cost in Thousands

 

 

  COMMON STOCKS—Continued

 

 

 

    Shares

 

       

Value

 

 

TRADING COMPANIES & DISTRIBUTORS—4.1%

 

2,392         Ferguson PLC (United Kingdom)

   $ 261  
    

 

 

 

TOTAL COMMON STOCKS

  

(Cost $6,512)

       6,224  
    

 

 

 

TOTAL INVESTMENTS—98.4%

  

(Cost $6,512)

       6,224  
    

 

 

 

CASH AND OTHER ASSETS, LESS LIABILITIES—1.6%

     100  
    

 

 

 

TOTAL NET ASSETS—100%

   $             6,324  
    

 

 

 

 

 

  FAIR VALUE MEASUREMENTS

 

All investments as of October 31, 2022 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments as of October 31, 2022 or September 7, 2022 (commencement of operations).

For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.

 

 

*

Non-income producing security

 

1

Depositary receipts such as American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs) and other country specific depositary receipts are certificates evidencing ownership of shares of a foreign issuer. These certificates are issued by depositary banks and generally trade on an established market in the U.S. or elsewhere.

 

2

Securities purchased in a transaction exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. The Fund has no right to demand registration of these securities. As of October 31, 2022, the aggregate value of these securities was $119 or 2% of net assets.

The accompanying notes are an integral part of the Financial Statements.

 

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32


Table of Contents

Harbor Long-Term Growers ETF

MANAGER’S COMMENTARY (Unaudited)

 

 

SUBADVISER

 

        Jennison Associates LLC

 

    

 

  

 

Management’s Discussion of

Fund Performance

   
     

 

MARKET REVIEW

 

Since the early 2022 inception of the Fund, the investment backdrop has been dominated by generation highs in inflation and a dramatic shift in Federal Reserve (the “Fed”) policy in favor of aggressive tightening and a succession of large interest rate hikes. U.S. equity markets began the period near all-time highs, but the spike in Treasury yields that accompanied the shift in policy led to a re-pricing of risk, which weighed heavily on higher-valuation, higher-growth stocks. These pressures persisted through the fiscal year, exacerbated by the Ukraine war and COVID-19 lockdowns in China, leading to widespread concerns around global growth. All of the major U.S. stock indices registered significant losses over the period.

 

PERFORMANCE

 

Harbor Long-Term Growers ETF returned -25.22% for the period ended October 31, 2022, while the Russell 1000® Growth Index returned -20.87%.

 

Most sectors in the growth benchmark experienced negative returns in the period. Energy, which has a small weight in the benchmark, was a significant exception, rising more than 40% over the relevant period. Information Technology, Communication Services, and Consumer Discretionary were particularly challenging.

 

The strategy’s underperformance during the period reflects the market’s overall re-pricing of risk and a small number of fundamental disappointments. Holdings in information technology (IT) and internet media were the largest detractors. Specifically, Shopify, Netflix, and Snap released disappointing results, with elevated uncertainty around their growth outlooks. We exited the positions in Shopify and Snap during the period.

 

On the positive side, Schlumberger posted significant positive returns over the period, on the back of strong energy trends. Auto parts retailer and supplier O’Reilly Automotive also added value, as did a number of holdings in the health care sector, including Centene Corp, Eli Lilly and Bristol-Myers Squibb, as these businesses are demonstrating relative resilience in the face of slowing growth.

 

We made adjustments to the portfolio during the period in response to elevated risk and lower growth expectations. Specifically, we reduced positions in companies that benefited disproportionately from the pandemic, as well as social media and select consumer names, and added to more economically-defensive positions in sectors like healthcare. That said, secular growth remains the driving force behind the Fund’s holdings.

 

OUTLOOK & STRATEGY

 

Uncertainty around the near-term path of the economy remains elevated, and the Fed’s commitment to continued rate hikes suggests a challenging growth backdrop in the near term. Central banks outside the U.S. are also tightening to tame inflation, and the dollar’s recent surge further clouds the global outlook.

 

Share price declines over the fiscal year reflect a combination of an increase in risk aversion and lower equity valuations in the face of higher interest rates. Slowing economic growth and possible recession are leading to lower revenue growth estimates and profit margin assumptions. We have, therefore, reduced earnings forecasts for a number of the Fund’s holdings in the past few months.

 

While the past year was particularly challenging, we remain confident in the potential for the secular growth companies in which we invest to deliver superior results and generate strong returns for shareholders over the long term.

 

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33


Table of Contents

Harbor Long-Term Growers ETF

MANAGER’S COMMENTARY—Continued

 

 

CHANGE IN A $10,000 INVESTMENT

For the period 02/02/2022 through 10/31/2022

 

LOGO

 

The graph compares a $10,000 investment in shares of the Fund with the performance of the Russell 1000® Growth Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions. Past performance is no guarantee of future results.

 

TOTAL RETURNS

For the periods ended 10/31/2022

 

 

 

 

 

 

 

                                                                                                     
            Unannualized           
 
    1 Year   5 Years   Life of Fund           

Harbor Long-Term Growers ETF
(Based on Net Asset Value)1

  N/A   N/A   -25.22%       

Harbor Long-Term Growers ETF
(At Market Price)1

  N/A   N/A   -25.21%       

Comparative Index

            

Russell 1000® Growth Index1

  N/A   N/A   -20.87%       

 

As stated in the Fund’s prospectus dated March 1, 2022, the expense ratio was 0.57%. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).

 

The Russell 1000® Growth Index is an unmanaged index generally representative of the U.S. market for larger capitalization growth stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 1000® Growth Index and Russell® are trademarks of Frank Russell Company.

 

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.

      

1 The “Life of Fund” return as shown reflects the period 02/02/2022 (commencement of operations) through 10/31/2022. The first day of secondary market trading was a few days after the date on which the Fund commenced investment operations; therefore, the Net Asset Value of the Fund is used as a proxy for the period from inception of investment operations to the first day of secondary market trading to calculate the Market Price returns.

This report contains the current opinions of Jennison Associates LLC as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.

All investments involve risk including the possible loss of principal. 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. At times, a growth investing style may be out of favor with investors which could cause growth securities to underperform value or other equity securities. 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. A non-diversified Fund may invest a greater percentage of its assets in securities of a single issuer, and/or invest in a relatively small number of issuers, it is more susceptible to risks associated with a single economic, political or regulatory occurrence than a more diversified portfolio.

 

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34


Table of Contents

Harbor Long-Term Growers ETF

PORTFOLIO OF INVESTMENTS—October 31, 2022

 

 

SECTOR ALLOCATION (% of investments) - Unaudited

 

LOGO

 

PORTFOLIO OF INVESTMENTS

Value and Cost in Thousands

 

COMMON STOCKS—99.6%

 

Shares          Value  

 

AEROSPACE & DEFENSE—1.0%

 

1,464   

Northrop Grumman Corp.

   $ 804  
     

 

 

 
AUTO COMPONENTS—0.7%

 

6,206   

Aptiv PLC (Ireland)*

     565  
     

 

 

 
AUTOMOBILES—7.2%

 

          24,848   

Tesla, Inc. *

     5,654  
     

 

 

 
BANKS—0.9%

 

5,465   

JPMorgan Chase & Co.

     688  
     

 

 

 
BIOTECHNOLOGY—1.8%

 

5,210   

AbbVie, Inc.

     763  
2,147   

Vertex Pharmaceuticals, Inc. *

     670  
     

 

 

 
                   1,433  
     

 

 

 
CAPITAL MARKETS—1.9%

 

3,100   

Blackstone, Inc.

     283  
659   

Goldman Sachs Group, Inc.

     227  
2,156   

Moody’s Corp.

     571  
1,376   

S&P Global, Inc.

     442  
     

 

 

 
        1,523  
     

 

 

 
CONSUMER FINANCE—0.3%

 

1,640   

American Express Co.

     243  
     

 

 

 
DIVERSIFIED FINANCIAL SERVICES—0.4%

 

5,455   

Apollo Global Management, Inc.

     302  
     

 

 

 
ENERGY EQUIPMENT & SERVICES—2.0%

 

30,787   

Schlumberger NV

     1,602  
     

 

 

 
ENTERTAINMENT—1.7%

 

2,445   

Netflix, Inc. *

     714  
8,951   

ROBLOX Corp. Class A*

     400  
2,622   

Spotify Technology SA (Sweden)*

     211  
     

 

 

 
        1,325  
     

 

 

 
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITS)—1.4%

 

3,929   

American Tower Corp.

     814  
1,117   

SBA Communications Corp.

     302  
     

 

 

 
        1,116  
     

 

 

 

COMMON STOCKS—Continued

 

Shares          Value  

 

FOOD & STAPLES RETAILING—2.3%

 

3,566   

Costco Wholesale Corp.

   $ 1,788  
     

 

 

 
HEALTH CARE EQUIPMENT & SUPPLIES—2.1%

 

1,966   

Abbott Laboratories

     194  
2,605   

Dexcom, Inc. *

     315  
931   

Intuitive Surgical, Inc. *

     229  
3,930   

Stryker Corp.

     901  
     

 

 

 
                   1,639  
     

 

 

 
HEALTH CARE PROVIDERS & SERVICES—2.5%

 

          10,158   

Centene Corp. *

     865  
1,907   

UnitedHealth Group, Inc.

     1,058  
     

 

 

 
        1,923  
     

 

 

 
HOTELS, RESTAURANTS & LEISURE—3.7%

 

5,053   

Airbnb, Inc. Class A*

     540  
438   

Chipotle Mexican Grill, Inc. *

     656  
2,406   

Expedia Group, Inc. *

     225  
6,905   

Hilton Worldwide Holdings, Inc.

     934  
3,256   

Marriott International, Inc. Class A

     522  
     

 

 

 
        2,877  
     

 

 

 
INTERACTIVE MEDIA & SERVICES—5.8%

 

45,479   

Alphabet, Inc. Class A*

     4,298  
3,075   

Meta Platforms, Inc. Class A*

     287  
     

 

 

 
        4,585  
     

 

 

 
INTERNET & DIRECT MARKETING RETAIL—7.5%

 

44,067   

Amazon.com, Inc. *

     4,514  
1,563   

MercadoLibre, Inc. (Argentina)*

     1,409  
     

 

 

 
        5,923  
     

 

 

 
IT SERVICES—6.0%

 

59,688   

Adyen NV ADR (Netherlands)*,1

     858  
3,696   

Mastercard, Inc. Class A

     1,213  
5,823   

Snowflake, Inc. Class A*

     933  
8,407   

Visa, Inc. Class A

     1,742  
     

 

 

 
        4,746  
     

 

 

 
LIFE SCIENCES TOOLS & SERVICES—1.5%

 

1,596   

Agilent Technologies, Inc.

     221  
1,977   

Danaher Corp.

     497  

 

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35


Table of Contents

Harbor Long-Term Growers ETF

PORTFOLIO OF INVESTMENTS—Continued

 

 

Value and Cost in Thousands

 

 

COMMON STOCKS—Continued

 
Shares            Value  

 

 

 

LIFE SCIENCES TOOLS & SERVICES—Continued

 

 

  926     

Thermo Fisher Scientific, Inc.

   $ 476  
     

 

 

 
                   1,194  
     

 

 

 
  MULTILINE RETAIL—0.5%  
  2,245     

Target Corp.

     369  
     

 

 

 
  PERSONAL PRODUCTS—1.7%  
  2,814     

Estee Lauder Cos., Inc. Class A

     564  
            11,689     

L’Oreal SA ADR (France)1

     734  
     

 

 

 
        1,298  
     

 

 

 
  PHARMACEUTICALS—5.8%  
  8,991     

AstraZeneca PLC ADR (United Kingdom)1

     529  
  5,670     

Eli Lilly & Co.

     2,053  
  8,894     

Merck & Co., Inc.

     900  
  3,494     

Novo Nordisk AS ADR (Denmark)1

     380  
  4,588     

Zoetis, Inc.

     692  
     

 

 

 
        4,554  
     

 

 

 
  ROAD & RAIL—1.5%  
  42,705     

Uber Technologies, Inc. *

     1,135  
     

 

 

 
  SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—4.1%  
  432     

ASML Holding NV New York Registry Shares (Netherlands)

     204  
  658     

Broadcom, Inc.

     309  
  1,257     

Enphase Energy, Inc. *

     386  
  508     

Lam Research Corp.

     206  
  5,931     

Marvell Technology, Inc.

     235  
  14,098     

NVIDIA Corp.

     1,903  
     

 

 

 
        3,243  
     

 

 

 
  SOFTWARE—14.8%  
  1,059     

Adobe, Inc. *

     337  
  3,498     

Atlassian Corp. PLC Class A*

     709  
  3,777     

CrowdStrike Holdings, Inc. Class A*

     609  
 

COMMON STOCKS—Continued

 
Shares            Value  

 

 

 

SOFTWARE—Continued

 

 

  4,628     

Datadog, Inc. *

   $ 373  
  33,973     

Microsoft Corp.

     7,886  
  1,366     

Palo Alto Networks, Inc. *

     234  
  5,817     

Salesforce, Inc. *

     946  
  11,049     

Trade Desk, Inc. Class A*

     588  
     

 

 

 
                   11,682  
     

 

 

 
  SPECIALTY RETAIL—4.0%  
  3,866     

Home Depot, Inc.

     1,145  
  1,156     

O’Reilly Automotive, Inc. *

     968  
            14,179     

TJX Cos., Inc.

     1,022  
     

 

 

 
        3,135  
     

 

 

 
  TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—11.9%  
  61,286     

Apple, Inc.

     9,398  
     

 

 

 
  TEXTILES, APPAREL & LUXURY GOODS—4.0%  
  36,032     

Cie Financiere Richemont SA ADR (Switzerland)1

     350  
  2,551     

Lululemon Athletica, Inc. (Canada)*