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Global Growth Fund —
Fund outperforms index amid risk-off market environment
3rd Quarter, 2015
"We continue to believe that we are in a U.S.-led moderate GDP growth environment with mild inflation and a restrained interest rate outlook. "
– Marsico Capital Management, LLC

Global equity markets suffered major losses with few if any bright spots across sectors or regions. The MSCI All Country World (ND) Index, a benchmark of equity performance across all capitalization ranges in both developed and emerging markets, declined -9.45%, with all ten sectors producing negative returns. While most developed markets generated mid-single digit negative returns, emerging markets declined sharply.
The Harbor Global Growth Fund outperformed in this poor market environment, returning -8.61% during the third quarter of 2015. Notable contributors to the Fund’s outperformance were two casual dining businesses: U.K.-based franchise company Domino’s Pizza Group and Chipotle Mexican Grill. Both companies continued to see strong sales growth. Other contributors included Facebook, which expanded its services and continued to grow its active user base, and Visa, which managed to overcome a difficult macroeconomic environment.
From a sector perspective, the Manager favored Consumer Discretionary, Health Care, and Information Technology. These sectors contain companies that are innovators in their markets allowing for sustained growth and improved competitive positions. With the Health Care sector facing increased headwind, the Manager broadened the Fund’s exposure within the sector to benefit from different growth drivers. The Fund has limited exposure to lower growth sectors such as Consumer Staples, Utilities, and Energy. The lack of exposure to Consumer Staples and Utilities was a headwind in the quarter, while the underweight to Energy proved to be a contributor.
The investment team’s comments were made in an October 13, 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

Changes in Market Environment
The “risk-off” market environment of the third quarter challenged the stock prices of fast-growing companies, including companies in the pharmaceuticals, biotechnology and life sciences industry group. Comments by U.S. presidential candidates led to greater concerns that legislative changes could lead to drug price controls and hamper profitability for drug manufacturers, and related attention to drug pricing contributed to the sell-off in the industry group. During the third quarter, the Fund pared its allocation to the pharmaceuticals, biotechnology and life sciences industry group, selling Biogen, Valeant and Allergan.
Limited Exposure to Emerging Markets
Our current investments in companies domiciled in emerging markets are driven by company-specific attributes. We remain cautious about investing in emerging markets and we are being very selective about our exposure. We believe the U.S. Federal Reserve’s bias to raise interest rates in the coming months could contribute to an increase in emerging markets’ domestic interest rates, making it more expensive to service their debts.
Emphasis on Stock Selection
The Fund’s positioning is centered on quality growth companies that are well positioned for a slow global growth and low inflation environment. In this backdrop, we believe unique growth franchises and businesses with repeatable revenues and strong free cash flow generation should be rewarded. Our research efforts continue to focus on identifying companies that can grow faster than GDP due to exposure to long-term structural and secular tailwinds, which will help drive outperformance over the coming years, despite increased equity market volatility.
Outlook for Macro Environment
History suggests that when emerging economies experience difficulties, as has occurred in recent months, the U.S. economy may slow, but it need not contract. U.S. exports may generally weaken, and profit margins for manufacturers and commodity producers that sell overseas may come under pressure. Still, significant positive effects on the U.S. economy may emerge, the most visible of which may be lower prices for raw materials and consumer goods, and a perk-up in consumer spending. Increased purchasing power can give a significant boost to consumption spending. In addition, falling price pressures may lead to lower interest rates. Indeed, these expected developments appear to be precisely what has transpired in recent months in the U.S.

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.