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Small Cap Growth Fund —
The economic backdrop in the U.S. remained stable
1st Quarter, 2017
"As macroeconomic concerns have started to fade, we think fundamental characteristics, rather than economic factors, could drive stocks going forward. "
– Westfield Capital Management Company, L.P.

After 2016, a year riddled by volatility and macroeconomic events (e.g., Brexit and the U.S. election), equity markets were back to trading largely on fundamental factors in the first quarter of 2017. The economic backdrop in the U.S. remained stable, with housing and employment as bright spots. During the quarter, small cap stocks underperformed large and mid cap stocks, and growth stocks outperformed value stocks across the capitalization spectrum. In the U.S. small cap growth equity market, as measured by the Russell 2000® Growth Index, the Health Care sector performed particularly well. The Materials sector, a relatively small weighting in the index, also performed well, as did the Information Technology sector. Conversely, the Energy and Telecommunication Services sectors, small weightings in the index, declined.
For the first quarter of 2017, the Russell 2000® Growth Index, a measure of growth-oriented companies in the small cap segment of the U.S. equity market, returned 5.35%. The Harbor Small Cap Growth Fund outperformed its benchmark, with a return of 8.01%. Stock selection in the Health Care and Consumer Discretionary sectors contributed to relative performance for the quarter. In contrast, the Industrials sector detracted from relative results, due to security selection and an overweight position. The Materials sector also hindered relative performance, due to stock selection and an underweight allocation.
Westfield Capital Management Company’s comments were made in an April, 2017 report. Highlights adapted from the report appear below. All comments relate to the quarter ended March 31, 2017, unless otherwise indicated. All references to the year-to-date are for the period January 1 through March 31, 2017.

Interview Highlights

Our Investment Approach was Rewarded in the Recent Market Environment
Domestic stocks rose in the first quarter of 2017, extending postelection gains and propelling most equity indexes into record territory. The market’s advance tapered off by early spring, with cyclical and financial stocks pulling back as the “Trump trade” faded. The quarter was generally led by high quality, growth-oriented companies. Our growth at a reasonable price investment approach, which seeks companies with faster rates of growth and below average multiples, was rewarded in the recent market environment.
We Remain Constructive on Domestic Growth Equities
Despite mostly positive economic data and stronger consumer and business confidence during the quarter, investors remained skeptical of the rally, as billions of Dollars poured into bond funds. We remain constructive on domestic growth equities, and we view the recent backdrop as favorable. As macroeconomic concerns have started to fade, we think fundamental characteristics, rather than economic factors, could drive stocks going forward.
We Have a Strong Conviction in Our Investment Style and Positioning
We believe there will be modest market returns going forward because the stock market has more than doubled off its 2009 lows. However, we have strong conviction in our investment style and positioning. The Federal Reserve’s former zero interest rate policy took high dividend yield and low volatility stocks to extreme valuations over the last several years, a trend we believe will normalize over time. Lower asset correlations usually go along with lower market volatility, which, in our opinion, provides a favorable backdrop to active managers like us who rely on fundamental analysis and valuation discipline in their investment approach.

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.