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High-Yield Bond Fund —
High yield companies continued to meet earnings expectations
1st Quarter, 2017
"High yield companies continued to meet earnings expectations on the whole and maintained solid credit quality. "
– Shenkman Capital Management, Inc.

During the quarter, the Federal Reserve (Fed) continued with its goals of increasing inflation above 2% and reducing unemployment to the mid-4% range. The new presidential administration had difficulty getting health care and tax changes through the system. The combination of these macroeconomic events led to a rally in Treasury bonds, which provided a favorable overall backdrop for fixed income, including high yield. High yield companies continued to meet earnings expectations on the whole and maintained solid credit quality.
The Harbor High-Yield Bond Fund returned 2.13% in the first quarter of 2017, underperforming its benchmark, the BofA Merrill Lynch US Non-Distressed High Yield Index, which advanced 2.39%. Security selection in Utilities: gas industry and the oil and gas industry detracted from relative performance. In contrast, security selection in Utilities: electric industry and Telecom: satellites industry contributed to relative results.
Shenkman Capital Management’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

Contributors to and Detractors from Performance
During the quarter, selection among securities rated B and CCC and below detracted from relative performance. Off-benchmark cash and bank loan exposure slightly hindered results. In contrast, selection among securities with less than six years duration to worst contributed to relative performance. An underweight allocation to credits rated BB also helped results.
The American Economy Could Pick Up Some Speed
Although President Donald Trump’s inability to immediately make good on his promise to “repeal and replace” the Affordable Care Act could make the already daunting challenge of tax reform even more difficult, we believe the American economy could pick up some speed later in the year, especially, if the White House and Congress can agree on a package of promised tax cuts and new infrastructure spending. Additionally, surging consumer confidence, improving business sentiment, and intensifying animal spirits could push growth above its anemic 2% trajectory over the past few years.
The Backdrop for Credit Could be One Where Spreads Move Sideways or Grind Tighter
Although the Fed may raise interest rates an additional two times in 2017, we believe its gradualist pace and transparency about the rate of monetary normalization should make the transition orderly. With default rates trending lower, a benign maturity schedule for high yield issuers, and broad based improving corporate profitability, the backdrop for credit could be one where spreads move sideways or grind tighter for the balance of the year. We are looking to purge bonds with long maturities in an effort to protect against rising interest rates.
We Believe Defaults Will Remain Low
We remain optimistic about the high yield market. We believe default rates for high yield issuers are likely to remain low amid solid economic growth.

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.