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International Growth Fund —
Foreign stocks up in Q4 with all sectors advancing
4th Quarter, 2013
Please note:  This commentary was provided by Marsico Capital Management, LLC, subadviser to the Harbor International Growth Fund through May 20, 2013.
"There is evidence that the American economy is starting to gather momentum and that could be very significant for a number of the companies in our portfolio. "
– Gerard Callahan

International equities advanced in the fourth quarter of 2013 and posted a double-digit percentage gain for the calendar year. The MSCI All Country World Ex. US (ND) Index returned 4.77% for the three months ended December 31, 2013, with all 10 economic sectors posting positive results. The index is a gauge of equity performance in all capitalization ranges in 23 developed-market countries, excluding the U.S. For the full year the index returned 15.29%.
The Harbor International Growth Fund recorded a return of 4.13% for the fourth quarter, lagging the index. Strong stock selection in the Financials sector aided Fund performance relative to the index. However, this was more than offset by weak returns in the Industrials and Information Technology sectors. The Fund is managed by Baillie Gifford Overseas Limited, which began managing the portfolio on May 21, 2013.
Key contributors to absolute performance for the Fund in the fourth quarter included e-commerce related businesses ASOS and Kinnevik, financial services provider Hargreaves Lansdown, and specialty chemicals producer Johnson Matthey, Portfolio Manager Gerard Callahan reports. Detractors included Imagination Technologies Group and Turkish bank Garanti.
Gerard Callahan's comments were made in a January 14, 2014, interview. Highlights adapted from the interview appear below. All comments relate to the quarter ended December 31, 2013, unless otherwise indicated. All references to year-to-date are for the period January 1 through December 31, 2013.

Interview Highlights

Economic momentum
There is evidence that the American economy is starting to gather momentum and that could be very significant for a number of the companies in our portfolio. We think the macroeconomic backdrop, driven by improvements in America, is pretty encouraging.
Long-term perspective
We're looking at an investment horizon over a period of years, where hopefully a number of individual stock decisions will aggregate to worthwhile performance. We are optimistic about the outlook for the portfolio from here.
E-commerce investments
A number of our e-commerce related holdings continued to enjoy strength through the back end of the year. I'm thinking in particular of ASOS, the online apparel retailer, and the Swedish holding company Kinnevik, which has interests in a collection of internet assets including online fashion retailer Zalando. The holdings we have in that area have generally been quite helpful.
Improving conditions
We see even gradual moves toward a normalization of monetary conditions as a positive development in the sense that this would not be happening unless there were underlying fundamental improvements going on, particularly in the American economy but more generally across the global economy. In our view this is good news for what we are trying to achieve in terms of identifying growing businesses.
Prospects for global growth
While Inditex happens to be a Spanish-domiciled retailer, its story has little to do with macro-related issues around Spain or the European periphery. Clearly an improvement in Spain would help, but our interest in the stock is driven primarily by the global distribution of the company's retail brands. It has been growing in China and other emerging markets and we think prospects for continued growth are, if anything, greater now than in the past.

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.