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Global Growth Fund —
For global equities, U.S. gains overcame international losses
2nd Quarter, 2016
"While we continue to invest in innovation and demographic themes, we have shifted some assets toward more defensive 'compounder' stocks with stable businesses, recurring revenue models and solid growth outlooks. "
– Marsico Capital Management, LLC

Despite a growing sense that economic momentum had slowed and that inflation worries were misplaced, notions that were reinforced by Brexit, the U.K.’s decision to leave the European Union, global equities advanced overall during the second quarter of 2016 thanks to the resiliency of the U.S. bull market. The S&P 500 Index gained 2.46%, while developed international markets, as measured by the MSCI EAFE (ND) Index, ended the period down, with a return of -1.46%. Growth stocks lagged value stocks.
The Harbor Global Growth Fund returned -1.37% in the second quarter, underperforming its benchmark, the MSCI All Country World (ND) Index, which advanced 0.99%. Fund performance relative to the benchmark was hurt by a significant overweight to the Consumer Discretionary sector as the market rotated away from growth toward value. Lack of exposure to Energy and Utilities also hurt relative results. Stock selection in the Industrials sector had a substantial negative impact. Conversely, a significant underweight to Financials boosted relative returns; the Fund held just one stock in the sector, as the investment team struggled to find good topline growth or compelling returns.
On a stock-specific level, key detractors included restaurant operator Chipotle Mexican Grill, internet search company Alphabet, European airline operator Ryanair, and Norwegian Cruise Lines. Norwegian was sold from the Fund during the quarter on concerns that a slowing economy could adversely impact discretionary purchases. On the positive side, two Information Technology holdings, video publisher Electronic Arts and business productivity software developer, were strong positive contributors. Within Consumer Discretionary, e-commerce retailer and discount store operator Dollar Tree also boosted returns.
Marsico Capital Management’s comments were made in a July, 2016 report. Highlights adapted from the report appear below. All comments relate to the quarter ended June 30, 2016, unless otherwise indicated. All references to the year-to-date are for the period January 1 through June 30, 2016.

Interview Highlights

Shifting Toward Defense
While we continue to invest in innovation and demographic themes, we believe uncertainty could usher in more risk aversion, and that investors’ “search for yield” should favor more defensive, dividend paying, U.S.-centric stocks. The Fund added exposure in the Consumer Staples sector, initiating positions in Anheuser-Busch InBev and SABMiller. We believe the former’s impending acquisition of the latter will create a dominant player with truly global scale in the worldwide beer market.
Avoiding Energy
As has been the case for much of the past year, the Fund maintained no exposure to Energy. Oil prices grinded higher in the quarter, but we believe that prices will remain low for some time. In our view, advances in hydraulic fracturing will result in excess supply, which could cap prices. In addition, we believe technological improvements in alternative energy, particularly battery technology, may weaken demand for fossil fuels in the decades ahead.
Ryanair a Long-Term Opportunity
The Brexit creates uncertainty in Ryanair’s largest market, as approximately a quarter of the airline’s flights take off or land in the U.K., and investors are concerned about regulatory difficulties if the nation leaves the E.U. We believe those and other risks are well contained and priced-in to the shares. We also believe Ryanair has provided sufficiently conservative profit guidance for the year, and that the company will continue to take market share from European flagship carriers, due to the latter’s significantly higher cost positions.

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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.