In the first quarter of 2026, the Harbor Emerging Markets Select ETF (EMES) experienced a slight downturn in performance, registering a -0.36% return based on its Net Asset Value (NAV). This fell short of its benchmark, the MSCI Emerging Markets Index, which posted a -0.17% return during the same period. This report summarizes the key factors influencing EMES's performance and outlines strategic adjustments for the future.
Details of the Investment Landscape and Strategic Adjustments
The primary contributors to EMES's underperformance were specific stock choices within the Consumer Discretionary and Financials sectors. Additionally, the fund's limited exposure to the Energy sector, which saw a robust performance in the quarter, acted as a detractor. Significant headwinds from the Indian equity market also impacted the fund's relative returns. Conversely, astute stock selection within the Information Technology and Industrials sectors proved beneficial, positively influencing overall performance.
In response to these market dynamics and to position for future growth, Harbor Capital Advisors is implementing several strategic changes. The fund is increasing its allocation to sectors and regions expected to benefit from a new "fiscal age," with a particular focus on defense, artificial intelligence (AI), and energy security. This proactive approach aims to capture opportunities arising from evolving global economic and geopolitical landscapes. Simultaneously, EMES is reducing its exposure to markets such as India and Saudi Arabia, reflecting a reassessment of their near-term prospects.
Recent portfolio adjustments highlight this evolving strategy. The fund has added Aselsan, a Turkish defense contractor; PriceSmart, a U.S.-based warehouse club operator with significant Latin American presence; and MCX, India's leading commodity exchange. These additions are designed to tap into growing demand in defense and consumer sectors. Conversely, EMES divested from Elm, a Saudi Arabian digital security company; Dino Polska, a Polish grocery chain; and Electrical Industries, an Indian electrical equipment manufacturer. These exits were prompted by concerns over growth trajectories and valuation risks associated with these entities.
The Harbor Emerging Markets Select ETF (EMES) is designed to offer investors access to high-quality equities across emerging markets. It employs a concentrated, long-term investment strategy managed by C WorldWide, focusing on companies believed to possess strong growth potential and robust fundamentals.
The first quarter of 2026 presented a mixed bag for the Harbor Emerging Markets Select ETF. While some sector-specific choices and market exposures weighed on performance, the fund's strategic reallocations and new investments demonstrate a forward-looking approach. This adaptability to changing global economic paradigms, particularly in embracing themes like AI and energy security, could prove crucial for navigating the volatile emerging markets landscape. The ability to identify and pivot towards new growth drivers, while judiciously exiting positions facing headwinds, underscores a dynamic investment philosophy aimed at long-term value creation for its shareholders.
