Our Belief: Active ETFs are Better Positioned for Opportunities in High-Yield Bonds

An increasing number of advisors are looking to high-yield bonds to help generate above-average income.

Rising interest rates have introduced challenges for fixed income investors. However, the current environment presents compelling opportunities for skilled active managers to add value. The Harbor Scientific Alpha High-Yield ETF (SIHY) offers differentiated, scientifically- driven fixed income exposure in the high-yield bond category.

In a recent survey, 33% of respondents see the greatest potential opportunity for investors over the next six months in fixed income, ahead of U.S. and international equities and commodities, according to results collected by Harbor Capital via LinkedIn from January 2023 through May 2023.

“Advisors have embraced fixed income ETFs in 2023 with higher yields available,” Todd Rosenbluth, head of research at VettaFi, said. “However, there remain strong funds that take a unique approach and remain under the radar.”

Scientific asset management firm BlueCove serves as the subadvisor to SIHY. BlueCove researches, develops, and implements state-of-the-art scientific investment processes to deliver strong fixed income returns for investors.

Active Management Captures Opportunities in High-Yield Bonds

Actively managed fixed income ETFs have the ability to select issuers with better credit profiles. Active managers can construct portfolios that allocate more heavily to bonds with favorable risk/reward characteristics. Conversely, many passive strategies are weighted by market capitalization. By weighting by market cap, passive strategies place the greatest weight on those issuers with the most debt, according to Harbor Capital.

“Active management can help adjust the interest rate sensitivity based on shifting macroeconomic data,” Rosenbluth said. “They can also better sort through the universe of bonds to spot attractive spread opportunities.”

SIHY has a subsidized SEC yield of 8.13% as of May 23, 2023, according to Harbor’s website. SIHY was launched in September 2021 and has garnered approximately $119 million in assets under management.

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For more information, please access our website at www.harborcapital.com or contact us at 1-866-313-5549.

Important Information

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.

All investments involve risk including the possible loss of principal. Please refer to the Fund’s prospectus for additional risks associated with each Fund. For the most current standardized performance and current yields: SIHY

Fixed income securities fluctuate in price in response to various factors, including changes in interest rates, changes in market conditions and issuer-specific events, and the value of your investment in the Fund may go down. There is a greater risk that the Funds will lose money because they invest in below- investment grade fixed income securities and unrated securities of similar credit quality (commonly referred to as “high-yield securities” or “junk bonds”). These securities are considered speculative because they have a higher risk of issuer default, are subject to greater price volatility and may be illiquid. Because the Funds may invest in securities of foreign issuers, an investment in the Funds is subject to special risks in addition to those of U.S. securities. These risks include heightened political and economic risks, greater volatility, currency fluctuations, higher transaction costs, delayed settlement, possible foreign controls on investment, possible sanctions by government bodies of other countries and less stringent investor protection and disclosure standards of foreign markets.

Current 30 Day Yields the average daily dividends for 30 days, annualized by 365 days and divided by the net assets per share of the end of the period. Does not reflect reimbursements or fee waivers currently in effect.

BlueCove is a third-party subadvisor to the Harbor Scientific Alpha High-Yield ETF and the Harbor Scientific Alpha Income ETF.

These survey results were collected via LinkedIn from January 2023 through May 2023.

This article was prepared as Harbor Funds paid sponsorship with VettaFI.

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