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
Harbor ETFTrust |
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HARBOR ALL-WEATHER INFLATION FOCUS ETF |
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3 | ||||
5 | ||||
HARBOR CORPORATE CULTURE ETF |
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7 | ||||
9 | ||||
HARBOR CORPORATE CULTURE LEADERS ETF |
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12 | ||||
14 | ||||
HARBOR DISRUPTIVE INNOVATION ETF |
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16 | ||||
18 | ||||
HARBOR DIVIDEND GROWTH LEADERS ETF |
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20 | ||||
23 | ||||
HARBOR ENERGYTRANSITION STRATEGY ETF |
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25 | ||||
27 | ||||
HARBOR INTERNATIONAL COMPOUNDERS ETF |
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29 | ||||
31 | ||||
HARBOR LONG-TERM GROWERS ETF |
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33 | ||||
35 | ||||
HARBOR SCIENTIFIC ALPHA HIGH-YIELD ETF |
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37 | ||||
39 | ||||
HARBOR SCIENTIFIC ALPHA INCOME ETF |
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43 | ||||
45 | ||||
Financial Statements |
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51 | ||||
53 | ||||
55 | ||||
57 | ||||
61 | ||||
74 | ||||
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.
78 | ||||
78 | ||||
78 | ||||
79 | ||||
79 | ||||
79 | ||||
87 | ||||
90 |
Harbor All-Weather Inflation Focus ETF
MANAGER’S COMMENTARY (Unaudited)
SUBADVISER
Quantix Commodities LP
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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 |
3
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
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
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|
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 |
N/A | N/A | 4.60% | |||||||||||||||
Harbor
All-Weather Inflation Focus ETF |
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. |
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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.
4
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.
5
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.
6
Harbor Corporate Culture ETF
MANAGER’S COMMENTARY (Unaudited)
ADVISER
Harbor Capital Advisors, Inc.
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|
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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. |
7
Harbor Corporate Culture ETF
MANAGER’S COMMENTARY—Continued
CHANGE IN A $10,000 INVESTMENT For the period 10/12/2022 through 10/31/2022
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
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Unannualized | ||||||||||||
1 Year | 5 Years | Life of Fund | ||||||||||
Harbor
Corporate Culture ETF |
N/A | N/A | 9.12% | |||||||||
Harbor
Corporate Culture ETF |
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.
8
Harbor Corporate Culture ETF
PORTFOLIO OF INVESTMENTS—October 31, 2022
SECTOR ALLOCATION (% of investments) - Unaudited |
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 | ||||
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5,078 | ||||||
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AIRLINES—0.6% |
||||||
15,960 |
Delta Air Lines, Inc. * | 541 | ||||
15,162 |
Southwest Airlines Co. * | 551 | ||||
7,581 |
United Airlines Holdings, Inc. * | 327 | ||||
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1,419 | ||||||
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AUTOMOBILES—0.3% |
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53,860 |
Ford Motor Co. | 720 | ||||
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BANKS—3.8% |
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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 | ||||
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8,176 | ||||||
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BEVERAGES—2.9% |
||||||
45,597 |
Coca-Cola Co. | 2,729 | ||||
4,788 |
Monster Beverage Corp. * | 449 | ||||
16,758 |
PepsiCo, Inc. | 3,043 | ||||
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6,221 | ||||||
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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 | ||||
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6,211 | ||||||
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BUILDING PRODUCTS—0.5% |
||||||
7,182 |
Trane Technologies PLC | 1,146 | ||||
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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 | ||||
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7,808 | ||||||
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CHEMICALS—1.3% |
||||||
17,760 |
Corteva, Inc. | 1,160 | ||||
18,763 |
Dow, Inc. | 877 | ||||
13,141 |
DuPont de Nemours, Inc. | 752 | ||||
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2,789 | ||||||
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COMMUNICATIONS EQUIPMENT—1.2% |
||||||
2,823 |
Arista Networks, Inc. * | 341 | ||||
49,875 |
Cisco Systems, Inc. | 2,266 | ||||
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2,607 | ||||||
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CONSUMER FINANCE—0.6% |
||||||
6,788 |
American Express Co. | 1,008 | ||||
6,783 |
Synchrony Financial | 241 | ||||
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1,249 | ||||||
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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 | ||||
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2,999 | ||||||
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ELECTRICAL EQUIPMENT—0.4% |
||||||
3,217 |
Rockwell Automation, Inc. | 821 | ||||
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ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—0.4% |
| |||||
1,699 |
CDW Corp. | 294 | ||||
2,394 |
Keysight Technologies, Inc. * | 417 | ||||
3,192 |
Trimble, Inc. * | 192 | ||||
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903 | ||||||
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ENTERTAINMENT—3.4% |
||||||
3,192 |
Electronic Arts, Inc. | 402 | ||||
4,389 |
Live Nation Entertainment, Inc. * | 349 | ||||
5,586 |
Netflix, Inc. * | 1,631 |
9
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 | ||||
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7,354 | ||||||
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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 | ||||
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4,653 | ||||||
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FOOD & STAPLES RETAILING—3.2% |
| |||||
13,974 |
Costco Wholesale Corp. | 7,008 | ||||
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FOOD PRODUCTS—1.6% |
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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 | ||||
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3,392 | ||||||
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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 | ||||
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|||||
4,957 | ||||||
|
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|||||
HOTELS, RESTAURANTS & LEISURE—0.8% |
| |||||
4,418 |
Expedia Group, Inc. * | 413 | ||||
7,980 |
Marriott International, Inc. Class A | 1,278 | ||||
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|||||
1,691 | ||||||
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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 |
10
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.
11
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. |
12
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
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 |
N/A | N/A | -17.04% | |||||||||
Harbor
Corporate Culture Leaders ETF |
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.
13
Harbor Corporate Culture Leaders ETF
PORTFOLIO OF INVESTMENTS—October 31, 2022
SECTOR ALLOCATION (% of investments) - Unaudited |
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 | ||||||||
|
|
14
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.
15
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 |
16
Harbor Disruptive Innovation ETF
MANAGER’S COMMENTARY—Continued
CHANGE IN A $10,000 INVESTMENT For the period 12/01/2021 through 10/31/2022
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 |
N/A | N/A | -42.85% | |||||||||||||||
Harbor
Disruptive Innovation ETF |
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.
17
Harbor Disruptive Innovation ETF
PORTFOLIO OF INVESTMENTS—October 31, 2022
SECTOR ALLOCATION (% of investments) - Unaudited |
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 | ||||
|
|
18
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.
19
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, |
20
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
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 |
-8.48% | 11.21% | 11.49% | |||||||||||||||
Harbor
Dividend Growth Leaders ETF (At |
-8.40% | 11.23% | 11.49% | |||||||||||||||
Comparative Index |
||||||||||||||||||
S&P 500 Index |
-14.61% | 10.44% | 12.79% | |||||||||||||||
NASDAQ
U.S. Dividend Achievers Select |
-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. |
|
|||||||||||||||||
21
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.
22
Harbor Dividend Growth Leaders ETF
PORTFOLIO OF INVESTMENTS—October 31, 2022
SECTOR ALLOCATION (% of investments) - Unaudited
|
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 |
23
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.
24
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. |
25
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
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.
26
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.
27
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.
28
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 |
29
Harbor International Compounders ETF
MANAGER’S COMMENTARY—Continued
CHANGE IN A $10,000 INVESTMENT For the period 09/07/2022 through 10/31/2022
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.
30
Harbor International Compounders ETF
PORTFOLIO OF INVESTMENTS—October 31, 2022
REGION BREAKDOWN (% of investments) - Unaudited
|
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 | ||||
|
|
31
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.
32
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. |
33
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
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 |
N/A | N/A | -25.22% | |||||||||
Harbor
Long-Term Growers ETF |
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.
34
Harbor Long-Term Growers ETF
PORTFOLIO OF INVESTMENTS—October 31, 2022
SECTOR ALLOCATION (% of investments) - Unaudited |
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 |
35
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)* |
839 | ||||||
11,567 |
LVMH Moet Hennessy Louis Vuitton SE ADR (France)1 |
1,460 | ||||||
5,450 |
NIKE, Inc. Class B |
505 | ||||||
|
|
|||||||
3,154 | ||||||||
|
|
|||||||
WIRELESS TELECOMMUNICATION SERVICES—0.6% | ||||||||
3,144 |
T-Mobile US, Inc. * |
476 | ||||||
|
|
|||||||
TOTAL COMMON STOCKS |
||||||||
(Cost $81,720) | 78,374 | |||||||
|
|
|||||||
TOTAL INVESTMENTS—99.6% |
||||||||
(Cost $81,720) | 78,374 | |||||||
|
|
|||||||
CASH AND OTHER ASSETS,
LESS |
352 | |||||||
|
|
|||||||
TOTAL NET ASSETS—100% |
$ | 78,726 | ||||||
|
|
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 2, 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. |
The accompanying notes are an integral part of the Financial Statements.
36
Harbor Scientific Alpha High-Yield ETF
MANAGER’S COMMENTARY (Unaudited)
SUBADVISER
BlueCove Limited |
|
|
Management’s Discussion of Fund Performance | |||
MARKET REVIEW
Market volatility increased as initially strong momentum in economic data was met with increased hawkishness from global central banks as they aggressively sought to control rising inflation. The ensuing tightening financial conditions resulted in risk markets ending in negative territory with U.S. equities down 16% and U.S. high yield bonds down 11% on the year as inflation reached new highs. The credit market sell-off was dominated by the dramatic rise in interest rates and unusually resulted in higher quality BBs underperforming lower quality CCCs on a risk adjusted basis. High yield credit spreads rose by about 50% alongside asset class outflows and growing fears of an economic slowdown as investors increasingly turned their focus to corporate earnings, geopolitical turmoil, and the impact of increased borrowing costs associated with rising rates. The increased market volatility alongside global economies showing signs of slowing down helped to accelerate the normalization of spread dispersion, a measure of the discernment in markets between corporate bonds, to levels more in line with the historical average. This was to the benefit of the Fund’s security selection focus. Toward period end, risky assets experienced a strong sentiment rally as markets anticipated a deceleration of the rate hiking cycle with more dovish rhetoric coming from global central banks. This occurred despite the start to the third quarter earnings cycle which saw a continued muted level of positive surprises and earnings growth overall. Nonetheless, spread dispersion continued to increase, which remained supportive for the Fund’s opportunity set.
PERFORMANCE
Harbor Scientific Alpha High-Yield ETF returned -9.49% on an absolute basis for the year ended October 31, 2022, while the ICE BofA U.S. High Yield Index returned -11.45%. The Fund outperformed its benchmark by 196bps over the period.
The Fund’s relative outperformance was driven by security selection, the strongest performance came from the Energy, Consumer Non-Cyclical, and Basic Industry sectors, offset by modest weakness in Communication companies. The overweight to Energy companies also added to performance. The best performing positions were overweights to Vector Group, Primo Water Holdings, and Mativ Holdings, with weakest performance from overweights to Rite Aid, Cimpress plc, and Pitney Bowes. These positions were not reduced during the period. Fund turnover increased as the opportunity set improved with increased spread dispersion over the course of the period. Sector positioning varied with expectations for security selection opportunities, with the Fund reducing risk in Telecommunications, Leisure, and Healthcare companies in favor of increasing risk to Technology, Services, and Energy companies. The Fund also reduced its marginal overweight position in credit versus the index to a more neutral position and reduced its exposure to lower quality CCCs as the outlook for credit deteriorated.
OUTLOOK & STRATEGY
The fundamental backdrop for credit has continued to deteriorate and we believe this trend will persist through the rest of 2022 and into next year. Lending conditions indicate net tightening, historically a reliable forward indicator of the corporate default cycle. The continuing backdrop of economic deceleration is also contributing to weakening fundamentals. As the likelihood of a recession increases, we believe downward revisions to projected earnings will become more pronounced and investors may become more risk averse to exposures in leveraged corporates. We project that global high yield defaults will continue to rise and this supports our more defensive stance on overall credit positioning in the Fund. A shift to increasing incidence of defaults is conducive to rising idiosyncratic spread dispersion within credit which we believe will provide an improved opportunity set for security selection in the Fund. |
37
Harbor Scientific Alpha High-Yield ETF
MANAGER’S COMMENTARY—Continued
CHANGE IN A $10,000 INVESTMENT For the period 09/14/2021 through 10/31/2022
The graph compares a $10,000 investment in shares of the Fund with the performance of the ICE BofA US High Yield Index (H0A0). 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
|
||||||||||||
Annualized | ||||||||||||
1 Year | 5 Years | Life of Fund | ||||||||||
Harbor
Scientific Alpha High-Yield ETF |
-9.49% | N/A | -9.01%< |