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International Fund —
Markets benefited from continued optimism during the first quarter
1st Quarter, 2017
"Market conditions became more favorable as the markets started to trade on fundamentals and optimism on global growth. "
– Northern Cross, LLC

The first quarter of 2017 showed positive returns for both domestic and international stocks, as the optimism for an improving global economy continued from the fourth quarter of 2016. The Harbor International Fund made gains during the quarter, posting a return of 8.71%, outperforming its benchmark, the MSCI EAFE (ND) Index, which returned 7.25%. The benchmark is a measure of equities in developed markets outside the United States. The Fund’s outperformance relative to its benchmark largely was due to stock selection within the Consumer Discretionary and Industrials sectors. Stock selection within the Health Care and Real Estate sectors dragged on relative results for the period.
Northern Cross’ comments were made in an April, 2017 report. Highlights adapted from the report appear below. All comments relate to the quarter ended March 31, 2017, unless otherwise indicated. All references to the year-to-date are for the period January 1 through March 31, 2017.

Interview Highlights

Favorable Market Conditions and Steady Macro-Level Outlook
Market conditions were generally more favorable to our investment approach and to the Fund during the first quarter, as markets started to trade on fundamentals and optimism on global growth. Therefore, our macro-level outlook did not encourage major changes during the period. In general, the Fund’s quarterly modifications have been gradual due to our traditionally low turnover. During the first quarter of 2017, the Fund’s largest overweight allocations were to the Health Care, Consumer Discretionary and Consumer Staples sectors. The Las Vegas Sands and Wynn both rose on strong mass-market visitation and positive comments on recent VIP segment strength. Alibaba was also a key contributor during the period, due to reacceleration of growth in its e-commerce business as well as continued monetization of the online advertising segment of its business. The Fund’s largest underweights were to the Industrials, Telecom Services and Utilities segments. On a country basis, the Fund was overweight the U.S., France and Colombia, while it was underweight Japan, Australia and Hong Kong.
Despite Uncertainty, Optimism Prevails
Though it introduced much uncertainty, the election of Donald Trump could be positive for the U.S. and, therefore, the global economy as fiscal and budgetary stimuli could revive growth. At the same time, Europe is seeing an uptick in short-term indicators, which drives a slightly more optimistic view. We do view some international currencies, especially the Mexican and Colombian Peso and the Swedish Krona as undervalued, and we increased our exposure to Mexico during the period. We continue to remain unhedged in the portfolio as we do not feel we can add significant value over the long-term from currency trading.

Performance data shown represents past performance, which is no guarantee of future results. Current performance may be higher or lower than the past performance data shown. Investment returns and the value of an investment will fluctuate, and an investor's shares, when sold, may be worth more or less than their original cost. You can obtain performance data current to the most recent month-end (available within seven business days after the most recent month-end) by calling 800-422-1050 or visiting

Performance figures discussed reflect that of the institutional class shares.

The views expressed herein are those of the portfolio manager at the time of the interview and may not be reflective of their current opinions or future actions.  These views are not necessarily those of the fund company and should not be construed as such.

This information should not be considered as a recommendation to purchase or sell a particular security and the holdings or sectors mentioned may change at any time and may not represent current or future investments.