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Large Cap Value Fund —
Stocks gain on positive economic news and solid earnings reports
4th Quarter, 2016
"We continue to believe that the businesses we own can do well over the next three to five years. "
– Aristotle Capital Management, LLC

The election of Donald Trump in the quarter had a major impact on markets, as investors anticipated possible effects of Trump administration policies. Expectations for lower corporate tax rates, less cumbersome regulations and a more generally “business friendly” atmosphere drove markets higher.
The Harbor Large Cap Value Fund advanced in the fourth quarter of 2016. The Fund posted a total return of 5.22%, underperforming its Russell 1000® Value Index benchmark, which rose 6.68%.
The underperformance was due largely to the Fund’s underweight in Financials, which was the best performing sector in the benchmark by a significant margin, as well as an overweight in Health Care, the worst performer in the benchmark. Having no exposure to Real Estate, also a negative performer, had a positive impact on relative results. Stock selection was positive in the quarter overall but did not overcome the drag from sector allocations.
Aristotle Capital Management’s comments were made in a January, 2017 report. Highlights adapted from the report appear below. All comments relate to the quarter ended December 31, 2016, unless otherwise indicated. All references to the year-to-date are for the period January 1 through December 31, 2016.

Interview Highlights

Maintaining Our Long-Term Focus
We did not make any immediate or direct changes to the portfolio because of the macro-level events and changes that occurred in the fourth quarter of 2016. As always, short-term macroeconomic events do not alter our long-term fundamental endeavor to uncover advantaged business models that we believe can be successful, regardless of short-term events.
Some of our clients have been asking us how the result of the elections will impact our investment process. The answer is quite simply: It won’t. We are always cognizant of the broad picture of the economy; however, we spend the majority of our efforts in identifying what we believe to be unique businesses that have the opportunity to thrive regardless of the economic and political environment. We will persist in our quest to add value through in-depth company research, focusing on what we perceive to be high-quality businesses, trading at discounts to intrinsic value, that possess catalysts for appreciation that are within management’s control.
Economic Improvement
The U.S. economy continued to improve throughout 2016. Starting out at nearly recessionary levels, Gross Domestic Product growth steadily improved, as did the labor market. The improvement (albeit lackluster by historical standards) had a significant impact on U.S. markets. Correlations among individual businesses began to fall as volatility increased. Falling correlations combined with increased volatility is generally a good environment for our bottom-up fundamental, higher-quality philosophy.

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.