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Capital Appreciation Fund —
Continued strong performance driven by stock selection
2nd Quarter, 2015
"I do not think it is going to be the end of the world if the Fed raises interest rates, even though some people seem to be fearful. "
– Jennison Associates LLC

After a strong start to the quarter, the U.S. equity market struggled to reach the finish line in positive territory at the end of the quarter. The S&P 500 Index, a measure of the broad domestic stock market, returned 0.28% during the quarter. Growth stocks, as measured by the Russell 1000® Growth Index, were marginally positive at 0.12% for the quarter. The Health Care and Consumer Discretionary sectors were the best performers, returning almost 4.0% and 3.0%, respectively.
The Harbor Capital Appreciation Fund built on its strong start to the year, rising 2.88% in the quarter. For the year-to-date period, the Fund was up 8.60%, more than double its benchmark’s return of 3.96%. The Fund’s overweight positions in the Consumer Discretionary, Health Care, and Information Technology sectors were the primary drivers of outperformance. The three sectors accounted for more than 80% of the portfolio’s holdings during the period.
Long-time portfolio manager for the Fund, Sig Segalas, was pleased with the performance of the Fund, particularly in light of the increased volatility and larger macro events that continued to weigh on global equity markets in the quarter. He pointed to the strong performance of stocks such as Netflix, Amazon, and Tesla as indications that good fundamentals will be rewarded by the market. Holdings in Twitter and LinkedIn were small detractors to the otherwise positive Fund performance during the quarter.
Sig Segalas’s comments were made in a July 15, 2015 interview. Highlights adapted from the interview appear below. All comments relate to the quarter ended June 30, 2015 unless otherwise indicated. All references to year-to-date are for the period January 1, 2015 through June 30, 2015.

Interview Highlights

Investing Environment
In a world with a lot of uncertainties, we were fortunate that the fundamentals carried the day and we were not as hampered by some of the macro concerns that we have had going on for some time. Our companies are fighting against a pretty strong currency and sluggish growth around the world, including in the United States, even though the U.S. is doing better than others. We are reasonably confident in our companies. We expect top line revenue growth and in some cases margin improvement.
Fund Performance
The goal has always been to make absolute money for our shareholders, and then hopefully outperform the popular averages. Well, that is certainly what happened in this second quarter, which was a very strong quarter for the Fund. The first six months of the year have been really strong. The Fund was helped more than anything else by the enormous strength of the Consumer Discretionary holdings, which led the parade.
Looking Ahead
I am cautiously positive as we enter earnings season. One has to be cautious in an environment in which the Fund and the market have done quite well. The macro factors, including the outcome of the situation in Greece and Europe, do create some uncertainty, and sometimes carry a heavier weight. China is another nagging concern. We just do not know what economic growth numbers to believe. But I think we are going to be fine. We believe our companies are in good shape. I expect the market to be higher by the end of the year, though we should expect some volatility and corrections along the way.
Impact of Expected Fed Activity
I do not think it is going to be the end of the world if the Fed raises interest rates, even though some people seem to be fearful. Interest rates are officially low. I think the action will be a modest increase that will not have an impact on the real economy for some time, but it does affect the market sentiment in the short-term.

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.