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Global Growth Fund —
Global stocks post positive return for 2014 after modest Q4 gain
4th Quarter, 2014
"As of December 31, 2014, the Fund had no exposure to the Financials, Energy, Utilities, Consumer Staples, or Telecommunication Services sectors. We favor investments in companies with unique products and services that are positioned to take market share in large and growing markets and believe we have identified more attractive opportunities in other industries. "
– Marsico Capital Management, LLC

Global equities managed a modest advance in the fourth quarter of 2014 and recorded a positive return for the year. The MSCI All Country World Index, a measure of equity performance across all capitalization ranges in both developed and emerging markets, recorded returns of 0.41% for the fourth quarter and 4.16% for the full year. Although 7 of the 10 economic sectors in the index posted positive returns in the fourth quarter, overall index performance was hindered by a steep decline in the Energy sector, down 15%.
The Harbor Global Growth Fund returned 1.24% for the fourth quarter, outpacing the index. Portfolio Manager Thomas Marsico reports that the outperformance was aided by holdings in the Materials sector, an above-benchmark position in Consumer Discretionary names, and a smaller-than-index exposure to Energy stocks. These favorable factors were partially offset by below-index returns among Health Care and Energy holdings. The Fund's Energy sector exposure was reduced and finally eliminated from the portfolio by the end of the quarter. The Fund returned 3.57% for the year, trailing the index. Longer term, the Fund outperformed the benchmark for the latest 5-year period and since its inception in 2009.
Several U.S. companies were among the leading contributors to Fund performance in the fourth quarter, including financial transaction processor Visa, paint maker Sherwin-Williams, Domino's Pizza Group, and biotechnology holding Juno Therapeutics. Chinese online commerce company Alibaba also was a leading contributor. Among the bigger detractors from absolute returns in the quarter were U.S. biotechnology holding Gilead Sciences, U.S.-based Energy sector stocks Continental Resources and Halliburton, Belgian pharmaceutical company UCB, and Canadian Pacific Railway.
The investment team’s comments were made in a January 9, 2015, report. Highlights adapted from the report appear below. All comments relate to the quarter ended December 31, 2014, unless otherwise indicated. All references to year-to-date are for the period January 1 through December 31, 2014.

Interview Highlights


Growth prospects
Our view is that lower petroleum prices in the U.S., on balance, improve prospects for growth amid very low inflation. The U.S. still demands a good deal more oil than it produces. Thus we believe that, on balance, the slide in petroleum prices should be a major positive for U.S. economic activity.
Stronger dollar
U.S. Dollar strength during the second half of 2014 reflected growing confidence in the U.S. economy and firming of short-term interest rates, along with widespread expectations of more quantitative easing from both the European Central Bank and the Bank of Japan. We believe the Dollar’s strength will continue for a period and that a stronger Dollar may be a factor that could postpone tightening by the Federal Reserve.
Industry exposures
The Fund continues to have overweighted allocations to the biotechnology and Internet services industries – areas that we believe are experiencing positive fundamental changes. The portfolio also continues to have a significant overweight allocation to the Consumer Discretionary sector, as we believe that many of its holdings are poised to benefit from higher levels of consumer discretionary spending. As of December 31, 2014, the Fund had no exposure to the Financials, Energy, Utilities, Consumer Staples, or Telecommunication Services sectors. We favor investments in companies with unique products and services that are positioned to take market share in large and growing markets and believe we have identified more attractive opportunities in other industries.
E-commerce growth in China
While we trimmed the Fund’s position in Alibaba during the quarter on stock price strength, we remain enthusiastic about the company’s multi-faceted business and culture of innovation. We also continue to see a strong growth trajectory for Chinese consumers to further embrace online and mobile commerce for retail transactions.
Investment themes
There are several themes at work in the Fund. One is represented through a significant Consumer Discretionary exposure, which includes companies with strong global brands such as Nike and Hermes International. We believe consumers are starting to spend more on experiences, including travel, rather than acquiring more material items. As global travel is on the rise, we believe that hospitality company Starwood Hotels should be poised for growth. In Health Care, we believe that a number of drug companies – including Gilead Sciences and Biogen Idec – offer robust new-product pipelines for unmet clinical needs. The Fund’s Information Technology holdings emphasize investments in businesses such as Alibaba, Apple, LinkedIn, and Facebook.

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 www.harborfunds.com.

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.