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International Growth Fund —
Aided by the rally in foreign equity markets and strong stock selection, the Fund outperformed
4th Quarter, 2015
"We can say with confidence that we think, over the long-term, international equity markets will deliver attractive returns for patient shareholders. "
– Baillie Gifford Overseas Limited

After a dismal third quarter, international equities staged a recovery early in the fourth quarter and held on to post positive returns for the period. The MSCI All Country World Ex. US (ND) Index, a measure of equity returns across all capitalization ranges in both developed and emerging markets excluding the U.S., posted a 3.24% return for the quarter. Returns across all sectors with exception of Energy were positive during the quarter with strong performance coming from the Technology, Health Care and Industrials sectors. Returns across countries were more mixed with most developed markets experiencing positive returns while many emerging markets continued to struggle.
The Harbor International Growth Fund held up well throughout the quarter, generating a return of 6.66%, which was 3.42% above its benchmark. For the 2015 calendar year, the Fund’s return of 1.52% outpaced the benchmark’s return of -5.66%. Stock selection was strong across all sectors held in the Fund with the exception of Energy, in which the Fund was underweight relative to the benchmark. The Fund continues to benefit from positive contributions from its holdings in the Consumer Discretionary, Industrials, and Technology sectors. On a country basis, the Fund’s holdings in Japan and the United Kingdom, which are the two largest country exposures in the Fund and benchmark, outperformed during the quarter.
Three portfolio holdings that contributed to the Fund’s positive performance in the quarter were Baidu, a Chinese internet search company, Hargreaves Lansdown, a U.K. retail online investment platform, and Auto Trader, a U.K. online auto trading website. Portfolio Manager, Iain Campbell, highlighted the common thread between such businesses is the movement towards e-commerce across many different industries.
Iain Campbell’s comments were made in a January 15, 2016 interview. Highlights adapted from the interview appear below. All comments relate to the quarter ended December 31, 2015 unless otherwise indicated. All references to the year-to-date are for the period January 1 through December 31, 2015.

Interview Highlights

Continued Rise of Online Activity
The shift to online activity is something we are seeing in the majority of sectors that we can invest in. It is a huge and long-term shift. We think it is providing us with lots of exciting opportunities in lots of different areas. We think that viewing the online space or the technology space as a standalone area is probably the wrong way to think about it. Instead, we try to differentiate between those companies that have genuine competitive advantages and genuinely durable businesses, and invest in them. There are many online businesses that we have looked at and passed on because we think that the barriers to entry are low, or their business model is not differentiated enough.
Outlook for 2016 and Beyond
We continue to find exciting opportunities to invest in. We think that long-term demographic developments, regulatory change, and innovation in technology across many different industries continue to throw up opportunities to us as growth investors. We do not know what 2016 will bring. As always, there are plenty of things to worry about, both geopolitical and economic. We can say with confidence that we think, over the long-term, international equity markets will deliver attractive returns for patient shareholders. We believe our approach of buying growing franchise businesses run by sensible, aligned managers should give us a very good chance of delivering attractive long-term returns for our clients.
Domestic versus Global Oriented Companies
The companies we look at tend to be increasingly international. The ones that are seeing growth and opportunities tend to be the ones that are looking outside of their domestic markets and in many cases, are looking overseas into Asia and the U.S. for growth opportunities. What is going on in local markets, for instance in Europe, in terms of a closer European Union or, for some countries, an exit from the European Union, is not the most relevant contributor to many companies’ five to ten year growth prospects.

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.