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Large Cap Value Fund —
Stocks gain on positive economic news and solid earnings reports
3rd Quarter, 2016
"Post-Brexit, global markets continued to climb the proverbial wall of worry. Buoyed by global economic results at least stabilizing, investors cheered the fact that things were not getting worse. "
– Aristotle Capital Management, LLC

In the third quarter of 2016, the U.S. labor market continued to strengthen as the average worker got a raise for the first time in more than a decade. Corporate earnings largely met estimates, oil prices ticked up and the S&P 500 posted an above-average quarterly return.
The Harbor Large Cap Value Fund advanced in the third quarter of 2016 posting a total return of 5.13%, outperforming both its Russell 1000® Value Index benchmark, which rose 3.48%, and the broad S&P 500 Index, which rose 3.85%.
The primary contributor to outperformance was security selection in Industrials. Meanwhile, Consumer Staples detracted the most from relative returns due to both stock selection and an overweight in the sector.
Aristotle Capital Management’s comments were made in an October, 2016 report. Highlights adapted from the report appear below. All comments relate to the quarter ended September 30, 2016, unless otherwise indicated. All references to the year-to-date are for the period January 1 through September 30, 2016.

Interview Highlights

Maintaining Our Long-Term Focus
We did not make any immediate or direct changes to the portfolio as a result of the macro level events and changes that occurred in the third 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.
The fund’s outperformance in the third quarter resulted from a combination of sector allocation and security selection decisions. All sector under- and overweights relative to the benchmark result from bottom-up security selection rather than tactical allocation decisions.
Our investment style measures opportunities found over many years, not months. We continue to uncover businesses that we believe have a clear competitive advantage and can flourish regardless of the environment. Most quarters, we are reminded that macroeconomic events or “the news of the day” (like Brexit) may cause stock prices to temporarily diverge from company fundamentals. As always, we will incorporate this new information into our investment process but will not allow it to impact our daily discipline of seeking out what we believe to be unique and value-creating businesses the world over.
Slow Income Growth and Low Inflation
Throughout the world, stubbornly anemic income growth and low inflation have been major impediments to economic growth. Policymakers have yet to determine how best to nudge either higher. Originally highlighted by former Federal Reserve Chairman Ben S. Bernanke, global central banks have warned of the danger of allowing deflation to take hold. It could, they worry, lead to a downward spiral of low confidence, muted spending, low inflation, minimal income growth and low or no economic growth.
Higher inflation should allow for higher interest rates and reverse the downward momentum. This could be why higher rates appear to be positively correlated with higher equity prices over the past two decades. As always, we will monitor such global macroeconomic trends but continue to devote the vast majority of our resources to understanding individual businesses, which is where we believe we can add the most value for our clients.

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.