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Mid Cap Growth Fund —
Fund performance hurt in volatile Q3
3rd Quarter, 2015
"The global macro environment picture weakened during the quarter, which had a direct negative impact on the U.S. economy. "
– Wellington Management Company LLP

Following a reasonably good start to 2015, the U.S. equity markets were buffeted by mixed signals of positive GDP growth and unemployment improvements and negative sentiment towards global growth and Federal Reserve policy uncertainty. The Russell Midcap® Growth Index, a measure of mid-size company stock performance, was down -7.99% during the quarter, bringing its year-to-date return to -4.15%.
The Harbor Mid Cap Growth Fund delivered a -10.64% return in the quarter, lagging the return of its benchmark. The Fund maintained its outperformance of the benchmark on a year-to-date basis. Portfolio exposures in Consumer Staples, Industrials, and Information Technology were detractors while stock selection in Health Care helped offset the significant negative pressure on the sector during the quarter.
Volatility may present opportunities to add to favored names according to Portfolio Manager Steve Mortimer. During the quarter, he and the team added to its position in Mylan and initiated positions in Stericycle and SS&C Technologies. In other instances, as sentiment turned increasingly negative, Mortimer elected to sell stocks such as AECOM and SunEdison, in an attempt to avoid further price declines.
Steve Mortimer’s comments were made in an October 14, 2015 interview. Highlights adapted from the interview appear below. All comments relate to the quarter ended September 30, 2015, unless otherwise indicated. All references to year-to-date are for the period January 1, 2015 through September 30, 2015.

Interview Highlights

Overall Positioning Remained Stable during Volatile Quarter
The portfolio’s active sector positioning, which is the result of the bottom-up stock selection process, remained relatively unchanged throughout the quarter. Health Care remains our largest overweight, where we take a balanced approach with holdings across a number of different industries. The portfolio remains underweight to Financials and Materials, where there is less breadth of companies displaying the traits we typically value.
Macro Environment Presents Challenges and Opportunities
The global macro environment picture weakened during the quarter, which had a direct negative impact on the U.S. economy. Although the Fed did not raise rates in September, the potential for rising domestic interest rates remains a constant concern. We are using this opportunity to upgrade the portfolio with high quality growth companies at attractive prices, with an industry displaying positive, cyclical growth trends. We are still more pro-cyclically balanced in the portfolio holdings.
When you get highly volatile markets like this, it does become a headwind for active management. We saw all of Health Care down indiscriminately – I mean that was a highly correlated, negative trade in a sector that was our largest overweight. If there is continued volatility it will be a headwind for active management if it is done in a similar fashion. Hopefully the volatility will allow us opportunities like we had in the third quarter to add to our positions, such as Mylan, which we think will pay off in the long run.
Select Consumer Stocks Added to Returns
The top relative contributor to performance was fast casual restaurant chain operator Chipotle Mexican Grill. We believe the company offers a dynamic and profitable business model which we favor over the long-term and we maintain an overweight position.

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.