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Global Value Fund —
Global equities lost ground in 2011 despite Q4 gains
4th Quarter, 2011
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"The portfolio is made up mostly of companies with very good balance sheets, very good cash flow, and they're leaders in their respective fields. "
– John Goetz

Global equity markets finished 2011 on a positive note, with the MSCI World Index recording a return of 7.59% for the quarter ended December 31, 2011. The Harbor Global Value Fund outperformed the index with a return of 7.92% for the quarter. Stock selection in the Consumer Discretionary sector was the biggest contributor to the Fund's performance relative to the index, while stock selection and a larger-than-index position in Financials detracted from relative performance.
Despite the positive finish, global equities ended the year in negative territory. The MSCI World Index had a negative return of -5.54% for the year, while the Harbor Global Value Fund was off -14.17%. The continuing European debt crisis was the key factor weighing on investor confidence, says John Goetz, Portfolio Manager of the Fund.
Even after their advances in the fourth quarter, many global stocks are priced at attractive levels, Goetz believes. At year end, the portfolio was trading near the low end of its historical valuation range, he reports.
John Goetz's comments were made in a January 12, 2012, interview. Highlights adapted from the interview appear below. All comments relate to the quarter ended December 31, 2011, unless otherwise indicated. All references to year-to-date are for the period January 1 through December 31, 2011.

Interview Highlights

Fear and volatility
Clearly 2011 had a lot of volatility in it and a lot of fear. Unfortunately, periods of increasing fear usually aren't that great for deep value managers and they can be ugly as they were in the third quarter. But they also can lead to great opportunity.
Long-term perspective
The portfolio is made up mostly of companies with very good balance sheets, very good cash flow, and they're leaders in their respective fields. Meaning that if we do go into a global recession or depression, we think these companies will be survivors. We may accept near-term volatility in our performance but we don't accept long-term risk.
Value-driven process
When you see an overweight in the portfolio relative to the benchmark, it doesn't mean we're trying to make a macro call by country. Rather, our portfolio weights are a result of company-by-company research, deciding where the best values are, based on their earnings, and taking into account where those earnings actually come from.
End-market perspective
The U.S. appears to have better economic momentum than Europe does right now so I wouldn't want the Fund to be massively overexposed to Europe. Europe's got some real problems. If you look at the portfolio from an end-market perspective, you'll find that the companies we own are basically global.
Taking profits
We always have both risk and reward in mind in managing the portfolio. During the fourth quarter J.C. Penney got close enough to our fair value target price that we felt there were better risk/reward opportunities out there. So we sold out of it and put the proceeds to work elsewhere.

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.