If you’ve ever wanted to invest in the famous “best places to work” lists, there may now be a product with which to do so – the HAPI ETF. I review it here.
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HAPI – What, Who, Why, and How
What if the secret to beating the market wasn’t finding the cheapest stocks or the fastest-growing companies, but simply finding the ones where people actually want to show up to work?
That’s the premise behind HAPI, the Harbor Human Capital Factor US Large Cap ETF. It’s one of the more intellectually interesting ETFs to hit the market in recent years. It selects roughly 150 large-cap U.S. companies based almost entirely on one thing: how their employees feel about working there.
No earnings filters. No balance sheet screens. Just culture.
The idea sounds intangible. But there’s actually a surprisingly robust body of peer-reviewed academic research suggesting it might work, and HAPI’s own live performance since its 2022 inception has been pretty impressive. That said, there are some legitimate questions worth digging into before you throw your money in.
Let’s get into it.
What is the HAPI ETF?
HAPI is a passively managed ETF that tracks the Human Capital Factor Large Cap Index. It launched in late 2022 and has grown to nearly $500 million* in assets under management with an expense ratio of 0.35%.
There’s a notable asterisk on that AUM, though. The State of Wisconsin Investment Board (SWIB) was an early institutional investor that put roughly $362 million into Harbor’s human capital ETF suite. For context, that reportedly constituted a substantial majority of total assets across the suite at one point.
As such, HAPI’s relatively healthy $454 million in AUM isn’t entirely organic retail adoption; it’s heavily skewed by one large institutional allocator’s conviction. Any SWIB withdrawal could significantly impact the fund. Just something to be aware of.
Who’s Involved?
The fund is managed by Harbor Capital Advisors, a Chicago-based firm known primarily as a manager-of-managers. Harbor essentially built this product around a partnership with Irrational Capital LLC, a behavioral research firm that does all the heavy lifting of actually scoring companies.
The index actually involves three separate parties:
- Irrational Capital LLC – scores companies on their “Human Capital Factor.”
- CIBC World Markets – sponsors the index and owns the methodology rules.
- Solactive AG – calculates and publishes the index daily.
Irrational Capital was co-founded by Dan Ariely, the well-known Duke University behavioral economist and author of Predictably Irrational, along with David van Adelsberg and Gregory Barnett. The firm’s research premise is that traditional financial analysis ignores one of the most powerful drivers of corporate performance: the people doing the work.
Van Adelsberg has described their approach as measuring “the psychological relationship between employees and their employers” and translating that into an investable factor. The firm claims to have collected over two million survey responses and 13 million unique data points from more than 4,000 companies using a combination of public data (including Glassdoor-style reviews) and proprietary third-party surveys.
The behavioral science underpinning the model – trust, motivation, autonomy, psychological safety – draws on decades of academic research in organizational psychology. Irrational Capital’s argument is that these factors drive employee engagement, which in turn drives productivity, innovation, retention, and ultimately financial performance.
The How – Index Selection Methodology
The starting universe is the Solactive GBS United States 500 Index, which is essentially the 500 largest U.S. companies by market cap. This is very similar but not identical to the S&P 500. The main difference is that Solactive uses a purely rules-based selection process with no profitability requirement, while the S&P has a committee-driven process requiring positive earnings. In practice, roughly 85-90% of the stocks overlap, and the two indexes have a near-perfect correlation.
For all intents and purposes, you can think of HAPI’s universe as the S&P 500, but I figured I’d note the subtle distinction.
From that universe, Irrational Capital evaluates companies using employee perception data across multiple behavioral dimensions – things like psychological safety, trust and transparency, autonomy, motivation, purpose, compensation fairness, and leadership quality. According to the prospectus, the weighting of each dimension varies at each reconstitution based on the most current data.
Here’s the most interesting thing: Irrational Capital uses zero financial data. No P/E ratios. No earnings metrics. No revenue growth. Just employee perceptions, codified into a proprietary score. Companies are sorted into buy, sell, and neutral buckets, and roughly the top 150 make it into the index.
After that, the weighting is modified market-cap weighted with sector neutrality. On each annual reconstitution, the index sets sector weights to match the Solactive 500 universe. Individual stock weights are capped at 5% or 5x their weight in the starting universe, whichever is lower.
If a sector doesn’t have enough high-scoring companies to fill its target weight, the index actually inserts SPDR Select Sector ETFs as proxy holdings, essentially saying “we don’t have enough good-culture companies in energy, so here’s XLE,” for example. That’s an unusual design choice worth knowing about that I’m pretty sure I’ve never encountered.
Portfolio turnover is approximately 27% annually, which is high, but not unexpected for a factor strategy with annual rebalancing.
Holdings
All that results in top 10 holdings as of Q1 2026 as follows:
HoldingWeightAmazon.com5.1%Apple5.0%Alphabet (Class A)4.9%Meta Platforms4.9%Microsoft4.7%NVIDIA4.7%Netflix3.2%JPMorgan Chase2.9%Cisco Systems2.4%Eli Lilly2.3%
The top 10 make up about 41% of the fund. If you squint at that list, it looks a lot like a slightly modified S&P 500 core holding. You’re basically getting Mag 7 plus some of the other usual suspects.
Sector breakdown is roughly:
- Real Estate: 2%
- Information Technology: 28%
- Communication Services: 16%
- Financials: 12%
- Industrials: 10%
- Healthcare: 9%
- Consumer Discretionary: 9%
- Consumer Staples: 7%
- Energy: 3%
- Utilities: 2%
So you can see this is overwhelmingly a U.S. large-cap product with a cultural quality tilt, not some niche thematic fund.
The Why – Academic Research Behind the Idea
The human capital and employee satisfaction thesis seems to have some genuine academic backing.
The landmark study is Alex Edmans’s “Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices,” published in the Journal of Financial Economics in 2011. Edmans, a professor at London Business School (previously tenured at Wharton, PhD from MIT), used Fortune’s “100 Best Companies to Work For in America” list as his measure of employee satisfaction. From 1984 to 2009, a value-weighted portfolio of these companies earned a four-factor alpha of 3.5% annually, controlling for Beta, Size, Value, and Momentum. That’s alpha on top of alpha, even after stripping out the well-known factors.
His explanation is that employee satisfaction is an intangible that doesn’t show up on balance sheets, and accounting rules force companies to expense most employee-related costs immediately, so the long-term benefits of investing in your workforce are systematically underpriced by the market. That mispricing, according to him, gets corrected over time through earnings surprises. “Best Companies” generated significantly more positive earnings announcements than peers, outperforming by 1.2-1.7% across quarterly announcements.
In a 2012 follow-up in the Academy of Management Perspectives, Edmans extended the data through 2011, finding 2.3–3.8% annual outperformance depending on methodology. The paper won the Moskowitz Prize for best paper in socially responsible investing.
To add some legitimacy to the claims, all this has been independently replicated. Boustanifar and Kang published “Employee Satisfaction and Long-Run Stock Returns, 1984-2020” in the Financial Analysts Journal in 2022, extending the period and finding that equal-weighted portfolios of companies treating employees best earned 2-2.7% excess annual returns over four decades. They found no evidence of factor decay; alphas were positive in most sub-periods with no downward trend. Their conclusion was that “The stock market (still) undervalues employee satisfaction.”
A 2024 paper in Management Science by Edmans, Pu, Zhang, and Li extended the analysis to 30 countries. They found employee satisfaction alpha is significantly stronger in flexible labor market economies like the U.S., where the marginal benefit of voluntarily investing in employees is largest, because workers can more freely move to competitors. In rigid labor markets where regulations mandate minimum worker welfare, you don’t get as much bang for the buck. In my opinion, that geographic variation actually strengthens the causal story.
Supporting evidence also comes from Green et al in the Journal of Financial Economics in 2019, showing that changes in Glassdoor employer ratings predict stock returns, and from FTSE Russell’s analysis of 27 years of the Fortune 100 Best Companies; a hypothetical index of those companies beat the Russell 1000 by a factor of 3.5x over that period.
“Best Places to Work” Lists
You’ve probably heard of the Glassdoor Best Places to Work and the Fortune 100 Best Companies to Work For lists. These are real annual rankings, and the academic research above is largely built around them.
Glassdoor’s list is crowdsourced, comprised entirely of voluntary anonymous reviews weighted by quantity, recency, and consistency. No company application is required.
Fortune/Great Place to Work uses a formal confidential survey administered to a statistically representative employee sample, plus company-submitted information. Companies must actively apply and pay for the certification.
HAPI doesn’t simply buy companies that appear on these lists. Irrational Capital uses its own proprietary scoring that draws from multiple data sources (including Glassdoor reviews) but applies more granular behavioral dimensions and produces a continuous score rather than a binary on/off list. This creates a broader, more nuanced selection, which I guess is theoretically better than just buying listed companies, but is invariably less transparent and not directly validated against the list-based academic research.
The underlying logic is the same but the specific implementation is different.
HAPI ETF Performance
That was a lot of theory and construction to discuss. You’re probably more curious about the performance.
Annualized return since HAPI’s inception has been right at 21% for the fund versus 19% for the S&P 500:
Click to enlarge.
Factor premiums don’t show up uniformly every year, though. The one-year lag behind the S&P 500 in 2025 (16.27% vs. 17.88%) is worth noting.
The tracking difference between HAPI and its own benchmark index is pretty tight at about 0.40%. That gap reflects the 0.35% fee plus trading costs.
Additionally, results like this directly from Glassdoor themselves offer further support for the fundamental thesis:
Source: Glassdoor.com
Is HAPI an ESG Fund?
This one seems to come up a lot, and the answer is no, at least not by Harbor’s own framing.
HAPI applies no environmental screens, no governance screens, and no exclusion lists. There’s no fossil fuel divestment, weapons exclusion, or board diversity requirement. Harbor explicitly states the fund “is not an ESG dedicated fund.” The sole criterion for inclusion is the Human Capital Factor score – how employees perceive the company as an employer.
In practice, the fund will have meaningful overlap with ESG large-blend funds because companies that invest heavily in employees tend to also score reasonably on other ESG dimensions. But the construction logic is entirely different: HAPI is a return-seeking strategy built on an academic signal, not a values-based screen. If employee satisfaction happened to predict lower returns, the fund presumably wouldn’t exist.
That’s a meaningful distinction for investors who are skeptical of ESG performance or don’t want a values overlay but who still find the intangible “culture as alpha” thesis compelling.
Is HAPI a Good Investment?
So is HAPI a good investment? Maybe.
Like I mentioned earlier, it’s basically a U.S. large cap fund with a human factor tilt at a not-crazy-high fee of 0.35%.
The investment thesis may or may not prove fruitful going forward. It provides you access to a research-backed intangible and saves you time from cross-referencing “Best Places To Work” lists yourself. Is that worth 0.35%? I don’t know.
But before you go all in, let’s talk about some potential issues to be aware of.
1. The black box problem is real.
Irrational Capital’s scoring methodology is proprietary and not independently verifiable. You know the broad dimensions being measured (trust, motivation, autonomy, compensation fairness) but the specific weighting of those dimensions, the statistical models, and the inclusion thresholds are all hidden. Harbor’s own prospectus concedes: “There is no guarantee that the construction methodology will accurately assess a company to include or exclude it from the index.”
Compare that to Value (price-to-book), Momentum (past 12-month return), or Quality (profitability metrics), factors any investor can replicate with a spreadsheet. With HAPI, you’re trusting a third party’s proprietary judgment that you can’t audit.
The prospectus also explicitly flags survey data biases: response bias (who chooses to respond), non-response bias (who doesn’t), and the lag risk from annual reconstitution. A company’s culture score could be up to 12 months stale by the time it’s reflected in the portfolio.
2. About that co-founder…
Here’s an elephant in the room that virtually everyone reviewing HAPI has ignored: Dan Ariely, the firm’s co-founder and intellectual anchor, has faced some pretty serious data fabrication allegations.
In 2021, the Data Colada research blog exposed manipulated data in a 2012 paper co-authored by Ariely on honesty pledges. The Hartford Insurance Company confirmed that data from their study was “manipulated inappropriately and supplemented by synthesized or fabricated data.” The paper was retracted. Ariely denied intentional wrongdoing but acknowledged he “undoubtedly made a mistake.” Subsequent investigation found that each co-author had alibis pointing back to Ariely.
Now, let me be clear. The allegations are about academic survey experiments, not Irrational Capital’s investment methodology. The investment scoring system is operationally separate. But for an investment thesis whose entire credibility rests on one person’s expertise in behavioral science and honest data interpretation, this is, in my opinion, at least a material credibility consideration.
3. Is the outperformance really from “culture” or from something else?
This is the deepest and probably the most obvious question about HAPI, and honest observers have raised it already.
When you look at the portfolio, you’re essentially holding a sector-neutral large-cap U.S. fund that is overweight Amazon, Apple, NVIDIA, Meta, Microsoft, and Alphabet – companies that would rank highly on any quality, growth, or momentum screen and happen to score well on employee satisfaction because they have enormous resources to invest in their workforce.
The sector-neutral design means the only active bet is stock selection within each sector. But when the top six holdings are all mega-cap tech clustered near the 5% weight cap, it’s genuinely difficult to disentangle what the “human capital” signal is contributing versus what you’d get from any quality-tilted large-cap fund, which you can get at a lower cost elsewhere.
Analysis of HAPI from others flagged that the fund shows 1–3% higher sales and earnings growth than the S&P 500, excellent earnings momentum, and a nearly identical forward P/E, characteristics that overlap heavily with existing established factors. The outperformance may be real, but attributing it specifically to employee satisfaction versus Quality is a hard case to make with only a few years of live data.
This doesn’t mean HAPI is a bad fund. It means you should be honest with yourself about why you might be buying it.
4. The live track record is short.
The Human Capital Factor Large Cap Index has been live-calculated only since October 2020. Backtest data extends to February 2014, but backtests are constructed with the benefit of hindsight in an era of unprecedented large-cap tech dominance. HAPI itself launched in October 2022, meaning you have roughly 3.5 years of actual fund performance, all in a bull market.
5. “Human capital” isn’t an established factor [yet].
You’ll notice I used the word “factor” somewhat loosely several times already here.
The academic factor investing pantheon – e.g. market, size, value, momentum, profitability, investment – is backed by decades of multi-market, multi-researcher evidence. Human capital is not yet in that group. It lives in the broader “intangibles” family alongside R&D intensity, advertising expenditure, and patent-based factors.
I’m reminded of Swedroe’s 5 criteria for factors (persistent, pervasive, robust, investable, and intuitive), and human capital doesn’t check all those boxes, at least not yet.
It may get there. The evidence is genuinely promising. But we’ve already seen hundreds of purported “factors” subsumed by the big boys like Profitability and Investment. There’s real risk that what HAPI is measuring as “human capital alpha” is really just a subset of the Quality factor – profitable, well-managed companies can afford to treat employees well, and profitable, well-managed companies tend to outperform.
Conclusion
HAPI is interesting. The academic thesis is better-supported than most thematic ETFs. The live performance has been pretty strong, albeit short. The fee is defensible for a factor strategy. And the sector-neutral construction keeps sector bets out of the picture, making the human capital signal the only active tilt.
But it comes with real questions that aren’t exactly trivial.
If you’re a long-term buy-and-hold investor who believes the academic evidence is real, wants a low-beta large-cap core with a modest quality tilt, and is comfortable with a 0.35% fee for a black-box strategy, HAPI might be a reasonable choice. It’s one of the few thematic ETFs you could make a legitimate evidence-based case for rather than just a narrative one.
If you’re skeptical of paying 10x more than a plain vanilla S&P 500 index fund for a signal you can’t verify, VOO at 0.03% is always available.
What do you think of HAPI? Let me know in the comments.
Disclosures: I am long VOO.
Disclaimer: While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a research report. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. I mention M1 Finance a lot around here. M1 does not provide investment advice, and this is not an offer or solicitation of an offer, or advice to buy or sell any security, and you are encouraged to consult your personal investment, legal, and tax advisors. Hypothetical examples used, such as historical backtests, do not reflect any specific investments, are for illustrative purposes only, and should not be considered an offer to buy or sell any products. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.
