State of Wisconsin Investment Board, Madison, is the biggest investor by far in a relatively new exchange-traded fund that offers exposure to an investment factor developed by Irrational Capital, a firm co-founded by behavioral economist Dan Ariely.
SWIB had more than $143 billion in assets as of Dec. 31, with the Wisconsin Retirement System accounting for roughly 86% of that, according to SWIB's website.
SWIB's investment came shortly after the Harbor Corporate Culture ETF launched in October, according to Kristof Gleich, president and chief investment officer of Harbor Capital Advisors, the fund's investment adviser. SWIB "ultimately saw what we saw," Mr. Gleich said in a recent interview.
Harbor believes that Irrational Capital's human capital factor is a "new investment factor that isn't explained by other well-known factors like quality or momentum or value," Mr. Gleich said. "We think it's unique."
SWIB's 13F holdings report filed with the Securities and Exchange Commission for the quarter ended Dec. 31 showed it holding about 9.87 million shares of ETF, valued at about $214 million. Chase Nicholson, a SWIB senior portfolio manager, confirmed in a Feb. 15 email that SWIB had invested in the fund but said "SWIB does not comment on investment strategy."
The ETF seeks to provide investment results that, before fees and expenses, correspond to the performance of the CIBC Human Capital index, according to a Sept. 28 prospectus. The Canadian Imperial Bank of Commerce developed the index and licensed it to Harbor.
The index consists of a portfolio of equity securities of about 150 U.S. companies that Irrational Capital views as having a strong corporate culture based on its proprietary scoring methodology, the prospectus said.
According to Harbor Capital's website as of Monday, the ETF, also known by its ticker HAPI, had about $225 million in total net assets and about 9.93 million shares outstanding. The fund has posted a total return of more than 4% this year through Feb. 24, according to Morningstar.
Irrational Capital calculates human capital factor scores based on a variety of characteristics such as employee engagement and motivation; trust and transparency; point of view diversity; and compensation fairness, the prospectus said.
"Our work has clearly proven that corporate culture and employee motivation are deeply connected with financial performance," Mr. Ariely said in an October news release about the launch of the ETF.
The factor first became publicly investible via another Harbor fund, the Harbor Corporate Culture Leaders ETF, the news release said. That fund, which has the ticker HAPY, launched in February 2022 and currently has about $10 million in total net assets, according to Harbor's website.
In addition, Harbor plans to offer the Harbor Corporate Culture Small Cap ETF, a January filing with the SEC showed. The proposed fund will seek to track the performance of the CIBC Human Capital Small Cap index, the filing said. The index consists of a portfolio of equity securities of about 200 small-cap U.S. companies that Irrational Capital believes have a strong corporate culture based on its scoring methodology, the filing said.
Mr. Ariely's career has not been without controversy, however. An August 2021 BuzzFeed News article focused on Mr. Ariely in connection with the retraction of a 2012 paper that listed him among its authors.
"The data was indeed falsified," Mr. Ariely said in an interview with Pensions & Investments on Feb. 24. "I had no connection with falsifying the data, and after thorough investigation we don't know how it happened."
Harbor currently offers 11 ETFs with assets under management totaling about $780 million. In addition to the Harbor Corporate Culture Small Cap ETF, Harbor has also filed to offer another small-cap equity ETF, which would bring the total number of ETFs it offers to 13.
Harbor had about $37.3 billion in total assets under management as of Dec. 31.
