ContactU.S. Large Cap Equities
Opportunities & Considerations for 2024 & Beyond
- Although human capital is an asset, it is accounted for as an expense. This leads to human capital being systematically overlooked, mispriced, and ignored because it is difficult to quantify.
- The Human Capital Factor® (HCF®) seeks to quantify levels of motivation and engagement of a company's workforce in an effort to capture the powerful connection between human capital and stock performance. These HCF® scores assist in addressing a market inefficiency and afford access to a new alpha factor with differentiated excess return potential.
For Illustrative purposes only.
Source: Irrational Capital, October 2023.
- At the core of the HCF® is the distinct data ecosystem developed by Irrational Capital that is proprietary, expansive, and provides wide coverage.
- Private (Exclusive) + Public
- Highly Stable Question Sets
- Survey (Likert scale) + Comments
- Behavioral Only: No Financial Data
- Wide Coverage
- 7,500+ Companies
- 4,200+ Public Companies
- Long, Consistent Data Set
- 17+ Years of Insight
- Deep & Precise Insights
- 750 Million+ data points
HAPI: Solactive GBS United States 500 Index
HAPY: U.S. Large Cap Market Cap >$1B
HAPS: Solactive GBS United States 2000 Index
- Through in-depth research, Irrational Capital has identified the seven dimensions that are most important to employees.
- Notably, extrinsic factors such as compensation weigh less heavily than intrinsic factors, those that are more personal to an employee's experience.
| HUMAN CAPITAL FACTOR® TYPE | HUMAN CAPITAL SEVEN DIMENSIONS |
|---|---|
| Intrinsic | Organizational effectiveness Innovation Direct Management Organizational Alignment Engagement Emotional Connection |
| Extrinsic | Extrinsic Rewards |
Source: Irrational Capital, October 2023.
- Each company in the universe is scored on each of the seven dimensions.
- Scores across all seven dimensions are aggregated for each company.
- Raw HCF® values Z-Scored1 across entire universe.
For Illustrative purposes only.
1A Z-score is a statistical measurement that tells you how far away from the mean (or average) your datum lies in a normally distributed sample.
Source: Irrational Capital, October 2023. The Highest (most favorable) raw HCF® value is 3, the lowest (least favorable) raw HCF® value is -3.
Case Study of Improving Human Capital
A Large Hardware and Software Company
- Previously, had a since-described “know it all” culture. Recognizing the need for a culture change, the company replaced the existing CEO with a new CEO in 2014.
- Embraced an open-minded, “learn it all” culture emphasizing innovation, which has produced an exceptional culture. As a result, this company was at the forefront of technology trends such as Cloud and artificial intelligence (AI).
- As the HCF® scores improved at this company, the business has performed well, and its stock went on to outperform the broad market by a wide margin.
1/1/2012 - 12/31/2023
Performance data shown represents past performance and is no guarantee of future results.
Case Study of Declining Human Capital
A Food and Beverage Retailer
- Founder-centric culture with multiple terms as an on-and-off CEO of the business.
- During the COVID-19 period, a management vs. worker culture emerged. This produced a lack of emotional connection from front-line employees and, ultimately, less organizational alignment and effectiveness.
- As a result, per-store revenue suffered, and the company has underperformed the broad market (S&P 500) in recent years following the declining HCF® score.
1/1/2012 - 12/31/2023
Performance data shown represents past performance and is no guarantee of future results.
Source: Morningstar Direct & Irrational Capital, December 2023. For illustrative purposes only. Security performance is for illustrative purposes only and does not represent actual performance of a security held by Harbor Capital. The Highest (most favorable) is 1, the lowest (least favorable) is 0.
Important Information
The views expressed herein may not be reflective of current opinions, are subject to change without prior notice, and should not be considered investment advice or a recommendation to purchase or sell a particular security.
Past performance is no guarantee of future results.
Investing involves risk, principal loss is possible. Unlike mutual funds, ETFs may trade at a premium or discount to their net asset value.
HAPI: 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 a corporate culture leader. 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.
HAPY: 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.
HAPS: 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. Stocks of small cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. 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 a corporate culture leader. 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. The Fund’s assets may be concentrated in a particular sector, industry or group of industries to the extent the Index is so concentrated and could subject the Fund to the risk that economic, political or other conditions that have a negative effect on the Fund. There can be no assurance that the Fund will grow to or maintain an economically viable size, in which case the Board of Trustees may determine to liquidate the Fund.
HCF Scoring: Each company in the universe is scored on each of the seven dimensions (organizational effectiveness, innovation, direct management, organizational alignment, engagement, emotional connection, and extrinsic rewards). In the examples provided, eligible constituents 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. HCF scores across all seven dimensions are aggregated for each company. The raw score reflects aggregate scores across the seven dimensions for every company in the universe. The Z-score then serves to normalize the distribution of raw scores across the universe. A Z-score is a statistical measurement that tells you how far away from the mean (or average) your datum lies in a normally distributed sample. The Highest (most favorable) raw HCF® value is 3, the lowest (least favorable) raw HCF® value is -3.
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 (“Irrational Capital”) 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. 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. The CIBC Human Capital Small Cap Index consists of a modified market capitalization-weighted portfolio of equity securities of approximately 200 U.S. companies identified by Irrational Capital LLC (“Irrational Capital”) as those it believes to possess strong corporate culture based on its proprietary scoring methodology. The Index was developed by the Canadian Imperial Bank of Commerce.
Alpha refers to excess returns earned on an investment.
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