Harbor Funds | Manager Commentary

News & Commentary

View all Commentary headlines

Commodity Real Return Strategy Fund —
Commodity prices weak in Q1
1st Quarter, 2013
View as a PDF|View Fund Details
"Emerging markets continue to be the bright spot in the global economy. "
– PIMCO Investment Strategy Group

Commodities traded lower in the first quarter of 2013. The Dow Jones-UBS Commodity Index, an unmanaged index of futures contracts on 19 physical commodities, had a negative return of -1.13% for the three months ended March 31. In terms of performance, agricultural products, precious metals, and industrial metals all finished in negative territory. The Energy sector, led by natural gas and crude oil, gained ground in the quarter. It was the best performing sector.
The Harbor Commodity Real Return Strategy Fund recorded a negative return of -0.67% but outpaced the index. The Fund also has outperformed the index for the 12 months ended March 31 and since its inception in 2008.
The Harbor Commodity Real Return Strategy Fund invests in commodity-linked derivative instruments backed by a portfolio of inflation-indexed bonds such as Treasury Inflation-Protected Securities (TIPS) and other fixed income securities. The Fund is managed by Mihir Worah, an executive vice president of Pacific Investment Management Company (PIMCO).
In the first quarter investment positions in platinum, crude oil, and natural gas all helped Fund performance relative to the benchmark, the PIMCO team reports. Positive contributors in the collateral portfolio included investments in inflation-linked bonds in the U.S. and United Kingdom, currency strategies, and a small allocation to corporate bonds in the Financials sector.
PIMCO's comments were made in an April 12, 2013, interview. Highlights adapted from the interview appear below. All comments relate to the quarter ended March 31, 2013, unless otherwise indicated. All references to year-to-date are for the period January 1 through March 31, 2013.

Interview Highlights

Portfolio strategies
In terms of the collateral portfolio, the positioning is similar to that of the Harbor Real Return Fund. We are holding long positions in the inflation-protected markets in the United States, Australia, Brazil, and Mexico. We think those countries provide the best risk/reward relationship and some of the highest yields in the inflation-linked bond market.
Global bright spot
Emerging markets continue to be the bright spot in the global economy. The demographics of most emerging market countries are much more advantageous than those of the developed market economies. Many of these countries have benefited substantially from export-led growth over the past several years and that continues to be the case.
Crude-oil futures
On the commodity side, we have favored the West Texas Intermediate futures, which are basically U.S. crude-oil futures, over the Brent crude, which is the European oil future. We believe there will be a convergence between these two contracts, which have been trading quite far apart for the past 12 to 24 months.
Precious metals
Platinum is interesting in that it's been trading relatively cheap in comparison with gold and we believe that type of relationship cannot persist for very long. Platinum has a substantial amount of usage in the industrial sector and is much harder to find than gold, so we think there are opportunities in terms of trading the relative price between these two precious metals.
Tracking corn prices
We had a pretty significant drought in the Midwest staring about this time a year ago; as a result corn prices rose substantially in the United States. We believe that trend could reverse itself over the course of this year, mainly because the high prices are attractive in terms of causing potentially higher production, which would impact corn prices on the downside.

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.