OSEA ETF Lagged Q1 on Tech Underweight, Japan Exposure

Harbor International Compounders ETF (OSEA) trailed its benchmark in the first quarter of 2026, with the fund's tech-sector positioning and Japan exposure weighing on returns.

The ETF, which invests in non-U.S. stocks with sustainable competitive advantages, underperformed the MSCI ACWI ex USA Index during the period. A key drag was the fund's underweight in technology stocks, a sector that rallied sharply in Q1. OSEA's managers have historically favored industrials, financials, and consumer staples over tech, a bet that cost relative performance as AI-related demand lifted semiconductor and software shares globally.

Japan, OSEA's largest country allocation at roughly 22% of net assets, also hurt. The yen weakened against the dollar during the quarter, eroding the dollar-denominated returns of Japanese holdings. The fund's top Japan positions include industrial and auto names, sectors that lagged the broader Tokyo market as tech-driven stocks led.

On the positive side, OSEA's European holdings in healthcare and luxury goods held up relatively well. The fund's Swiss and French consumer names benefited from steady demand in Asia, partially offsetting the tech and currency headwinds.

The portfolio's active share remains high, meaning it looks quite different from its benchmark. That structural divergence means OSEA will periodically lag in quarters where the index is driven by a narrow set of sectors the fund avoids. The managers have signaled no plan to shift toward tech, sticking to their compounder framework of high-return-on-capital businesses with pricing power.

For the full quarter, OSEA returned roughly 1.5%, versus the benchmark's 3.2%. The fund's expense ratio is 0.60%.