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Global Growth Fund —
Equity markets register mixed returns in Q2
2nd Quarter, 2015
"We find the [Health Care] sector to be attractive due to demographic trends combined with innovation, which we believe will drive exceeding GDP for a number of years. "
– Marsico Capital Management, LLC

Global equities were virtually flat for the second quarter of 2015, recording a positive return of 0.35%, as measured by the MSCI All Country World (ND) Index. The index is a benchmark of equity performance across all capitalization ranges in both developed and emerging markets. From a sector perspective, Telecommunications and Financials were the best performing sectors while Utilities and Information Technology underperformed. From a regional point of view, South America delivered the strongest returns as Brazil posted positive results as global energy prices rebounded modestly over the quarter. Conversely, Central Asia delivered negative absolute returns over the period as India, a net beneficiary of low oil prices, declined for the quarter. U.S. results were essentially in-line with global results.
The Harbor Global Growth Fund was effectively flat versus the index for the quarter, returning 0.09%, underperforming the index by 0.26%. Portfolio Manager, Thomas Marsico, reports that from a regional point of view, exposure to India vis-à-vis holding Tata Motors within the automobile industry was a headwind as the market became more concerned about the effects of slower economic growth in China and the impact that may have on the higher-end Chinese consumer end market. Good stock picking in Europe, including in the U.K. and France, partially offset this headwind. An overweight to U.K. internet software services firm Auto Trader Group was additive to performance, as was an overweight to French luxury goods maker Hermes.
From a sector perspective, stock picking in the Health Care and Industrials sectors were the largest detractors. Within Health Care, holdings in a number of biotechnology and pharmaceutical companies, including Biogen, Celldex, and Pacira, hurt performance, and in the Industrials space, a sizable bet in Canadian Pacific Railway also detracted as the company experienced lower volumes as fewer carloads of commodities such as coal are being transported. Good stock picking in Information Technology, including active overweights in Facebook and Tencent in addition to the previously mentioned Auto Trader Group, offset the aforementioned detractors.
The investment team’s comments were made in a July 13, 2015, report. Highlights adapted from the report appear below. All comments relate to the quarter ended June 30, 2015, unless otherwise indicated. All references to year-to-date are for the period January 1 through June 30, 2015.

Interview Highlights

Slow-Growth / Low Inflation Environment
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 quarters, despite increased equity market volatility.
Observations on Oil and Implications for the Economy
Second quarter gains for U.S. and European economic data, and evidence of sharp cutbacks in fracking production in the U.S., elicited an impressive snapback for oil prices. Oil rose from slightly under $50 per barrel to slightly over $60. But late in the quarter, concerns about China’s fading economic momentum stripped away more than half of that rebound, and oil prices in early July traded at around $53 per barrel. Despite their recent bounce, oil prices remained dramatically lower than 2014 levels. Lower energy prices may have contributed to a rebound in U.S. consumer spending during the second quarter.
Caution on Emerging Markets
As of June 30, 2015, the Fund had approximately 4% of its net assets invested in emerging markets. The Fund’s emerging markets positions were comprised of two China-based holdings: online commerce company Alibaba and Internet services holding company Tencent. 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 emerging markets 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.
Sector Positioning
A significant portion of the Fund’s net assets are currently invested in the Health Care sector. We find the sector to be attractive due to demographic trends combined with innovation which we believe will drive growth exceeding GDP for a number of years. The Consumer Discretionary sector is another area where we continue to find attractive investment ideas. Our consumer-related investments are not a call on general retail spend but rather are anchored to great consumer franchises with continuous innovation and global growth opportunities.

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.