Weakness in Harbor Disruptive Innovation ETF's Process and People Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. The portfolio maintains a cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The strategy receives a Low Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in liquidity exposure and an underweight in quality exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The strategy suffers from its inexperienced portfolio management team. This largely drives the strategy's Low People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

Analyst Rating

Lam Research

ServiceNow

Alphabet

Progressive

Danaher

NVIDIA

Linde

Shopify

Advanced Micro Devices

Amazon

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. Harbor Disruptive Innovation ETF earns a Low Process Pillar rating. 

The most meaningful detractor from the rating is the experience of the management team, which averages three years at this fund. The parent firm's five-year risk-adjusted success ratio of 52% also limits the process. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's subpar success ratio suggests that the firm could do better across its fund lineup. The parent firm's five-year retention rate of 52% weakens the process further.

 This strategy leans toward smaller, more growth-oriented companies than its average peer in the Large Growth Morningstar Category. Looking at additional factor exposure, the fund has held stocks with higher trading volumes compared to Morningstar Category Peers in the past few years. More-liquid assets are easier to buy and sell without adversely moving their prices and tend to provide some ballast during market selloffs. They also are easier to sell to meet redemptions if a host of investors decide to leave the fund in a short period of time. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also favored low-quality stocks. This means the fund avoids holding companies that are consistently profitable, growing, and have solid balance sheets. Such positions do not tend to provide much ballast for a portfolio. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. Additionally, the managers have consistently taken on more risk, demonstrated by higher volatility exposure than peers. Such stocks tend to rise faster and fall harder than the broad market. High-volatility exposure contributes to stronger performance during bull markets, but often at the cost of losing more during downturns. In this month, the strategy also had more exposure to the Volatility factor over its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in technology and healthcare relative to the category average by 14.5 and 10.4 percentage points, respectively. The sectors with low exposure compared to category peers are communication services and financial services, underweight the average by 7.2 and 6.0 percentage points of assets, respectively. The portfolio is composed of 94 holdings and is less top-heavy than peers. Specifically, 29.3% of the portfolio's assets are concentrated within the top 10 fund holdings, compared to the typical peer's 54.8%. And finally, in terms of portfolio turnover, looking at year-over-year movements, 77% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Process

Harbor Disruptive Innovation ETF earns a Low People Pillar rating. The primary factor affecting the rating is the parent firm's five-year success ratio of 44%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median return for the period. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup. Management team experience, which averages three years at this fund, also limits the team. The parent firm's five-year retention rate of 52% detracts from the rating further.

People

A history of thoughtful manager selection and continued investment in its research team underpin Harbor Capital Advisors' Above Average Parent rating.

Harbor is an independent subsidiary of Orix Corporation Europe N.V., itself a subsidiary of Japanese financial-services firm Orix, which bought Harbor's previous parent Robeco in 2013. Today Robeco, Harbor, and other asset managers operate autonomously under Orix, which takes a hands-off approach toward its subsidiaries.

Harbor has long been known for hiring best-in-class subadvisors to manage its roughly $64 billion held almost exclusively in actively managed mutual funds. Yet the firm has expanded its vehicle lineup in recent years: from February 2020 through March 2022, the firm introduced a collective investment trust version of an existing open-end strategy as well as six transparent, active exchange-traded funds. The firm has also shaken up its subadvisor lineup, removing Pimco from Harbor Core Plus HABDX in February 2022 and hiring smaller and less established asset managers like BlueCove and Quantix Commodities to manage its newer ETF offerings. These moves break new ground for Harbor, but the firm has invested in new data and analytics tools to help its capable manager research team oversee the expanding subadvisor roster and has retained long-standing subadvisor relationships where they continue to add value.

Above Average

Parent

Harbor Disruptive Innovation ETF

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