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Large Cap Value Fund —
Fund outshines benchmark in an up and down period for large cap value stocks
2nd Quarter, 2015
"Volatility is a good thing for us. It really gives us opportunities to buy companies that we think have very good solid long-term values when the market gets a bit more volatile. "
– Aristotle Capital Management, LLC

Large cap value stocks were up and down in 2015’s second quarter, climbing during both April and May and then surrendering nearly all of their gains in June. In all, the Russell 1000® Value Index gained just 0.11% for the period.
The Harbor Large Cap Value Fund registered a 1.95% return during the quarter. The Fund is managed by Aristotle Capital Management, LLC. Jim Henderson, a Principal and Portfolio Manager with Aristotle Capital Management, reports that the vast majority of the Fund’s performance was driven by stock selection. The Fund’s returns topped the index’s returns in eight of the nine sectors in which the Fund had investments. The positive effects from stock selection more than offset the negative effects of below-benchmark exposures to the strong performing Telecom, Health Care, and Financials sectors. Sector weights typically are a reflection of individual stock selection decisions rather than an active element of the Fund’s investment strategy.
Turning to individual stock contributors, several stocks offered double-digit gains for the period, led by beauty company Coty, which climbed more than 30%. Other strong performers included diversified financial services firm Mitsubishi UFJ Financial Group, drug maker AbbVie, commercial and consumer regional bank BOK Financial, and JP Morgan Chase. On the other hand, double-digit declines came from oil and gas production and exploration firm Pioneer Natural Resources, electric utility ITC Holdings, and specialty vehicle maker Oshkosh Corp.
Comments by Jim Henderson and Jay Cunningham, a Senior Global Research Analyst with Aristotle Capital Management, 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 through June 30, 2015.

Interview Highlights

Realization of Catalysts
Our process is highly dependent on identifying catalysts in businesses that we think will come to fruition over time. There is really no rhyme or reason as to when those catalysts will come to fruition or when the stock price will reflect the catalyst coming to fruition. We can go a couple of quarters, or longer, in which performance is kind of ho-hum, and then you’ll have a quarter or two when the catalysts that we’ve seen in the businesses that we’ve owned come to fruition in more of a concentrated time period. Not that we’ve changed, but things can be a little lumpy and they’ve been lumpy on the positive side for the past couple of quarters.
Market Volatility May Be Helpful
Geopolitical fears, related to events in Greece, China, and elsewhere, have contributed to short-term volatility in the marketplace. Volatility is a good thing for us. It really gives us opportunities to buy companies that we think have very good solid long-term values when the market gets a bit more volatile.
Acquisition Cheered
Coty, which is in the health, beauty, fragrance, and nail care businesses, made an announcement in the second quarter that it would be acquiring the health and beauty brand of Procter & Gamble. The acquisition will dramatically increase the size of the business. The stock price rose 31%, reflecting the market’s deference to CEO Bart Becht’s expected ability to take the brands from P&G, roll them into Coty, and to use his experience to support those brands and add value to the overall company.
Finding Quality in Financials
The portfolio has generally had an underweight position in Financials, but Aristotle’s investment team has been able to find a number of quality stocks in the sector and in particular in the banking industry, including additions during the quarter. The Financials stocks held by the Fund tend to have management teams with strong track records of gaining market share with a conservative profile. They are sensible acquirers and have broad product suites and low loan charge-offs.

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.