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Large Cap Value Fund —
Stock selection drives Fund performance in Q1
1st Quarter, 2014
"We have not had a problem finding attractive names... "
– Aristotle Capital Management, LLC

The Harbor Large Cap Value Fund gained ground in the first quarter of 2014, outperforming its benchmark. The Fund returned 4.06% for the three months ended March 31, 2014, compared with the 3.02% return of the Russell 1000® Value Index.
Investments in Information Technology stocks proved to be the biggest contributor to the Fund's absolute performance. Stock selection, especially in the Information Technology, Industrials, and Energy sectors, was the primary factor in the Fund's outperformance of the index.
Portfolio holdings that gave the biggest lift to absolute returns in the quarter included Walgreen, Halliburton, Oshkosh, General Dynamics, Bank of America, and Microsoft. All recorded double-digit increases in their share prices. The Fund is managed by Aristotle Capital Management, LLC.
The first quarter saw a considerable variation in performance among economic sectors in the Russell 1000® Value Index, says Jim Henderson, a Principal and Portfolio Manager with Aristotle Capital Management. In his view, this suggests a somewhat stronger focus by investors on fundamental differences between companies.
Jim Henderson’s comments were made in an April 9, 2014, interview. Highlights adapted from the interview appear below. All comments relate to the quarter ended March 31, 2014, unless otherwise indicated. All references to year-to-date are for the period January 1 through March 31, 2014.

Interview Highlights

Favorable stock selection
There was a considerable degree of dispersion among sector returns in the first quarter, which I think indicates a lessening of the strong correlations that we saw in the market last year. From our standpoint, as a fundamental bottom-up stock-picking shop, that’s a good thing. We were able to outperform the market by about 100 basis points, and that was achieved primarily through stock selection.
Intrinsic value
We have not had a problem finding attractive names, even through the strong stock market performance in 2013. One of the by-products of a momentum-driven market is that there are companies whose share prices may not fully reflect improvements in their intrinsic business value. When stock correlations start to lessen over time, that allows the market to focus more on fundamental business values and less on momentum.
Tech holdings
For the most part our Information Technology businesses did very well. TE Connectivity, Adobe, Microsoft, EMC Corp., Texas Instruments, and Oracle all were up in excess of 7%. One laggard was IBM, which was down 5% and which we sold during the quarter.
Decline in housing starts
Both of our home-related businesses, Lennar and Home Depot, were weak in the first quarter. Housing starts weakened late last year and early this year primarily due to the very harsh winter. We see that as a short-term phenomenon that should right itself over time.
Portfolio addition
We added Martin Marietta Materials to the portfolio during the first quarter. Martin Marietta recently acquired Texas Industries, which is a leader in aggregates and cement manufacturing in Texas and California. We think this could be a very favorable acquisition, giving Martin Marietta added exposure in two of the fastest-growing regions in the construction market.

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.