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Global Growth Fund —
Global stocks post modest gains in volatile quarter
1st Quarter, 2014
"In what seems to be a volatile market trading largely on 'noise,' company fundamentals are our anchor. "
– Marsico Capital Management, LLC

In a quarter marked by relatively high levels of volatility, global equity markets posted somewhat flat returns for the three months ended March 31, 2014. The MSCI All Country World (ND) Index recorded a return of 1.08% for the quarter. Utilities and Health Care, sectors generally regarded as less vulnerable to global uncertainty economic cycles, were the top performing areas of the index.
The Harbor Global Growth Fund posted a negative return of -1.22% for the quarter, trailing the index. From a longer-term perspective, the Fund outperformed the benchmark for the latest 12-month and 5-year periods and since its inception in 2009.
In the first quarter, Energy holdings were the top contributors to Fund performance, both absolute and relative to the benchmark. Stock selection in the Industrials and Information Technology sectors detracted from relative returns, as did an above-benchmark exposure to Consumer Discretionary, one of the weaker performing areas of the index.
Portfolio Managers Thomas Marsico and James Gendelman note that a variety of concerns weighed on investor confidence during the first quarter, including Federal Reserve policy, slower growth in emerging markets, rising equity valuations, weaker U.S. economic data and geopolitical tensions in Ukraine. After generally strong performance in January and February, they report, stocks reversed direction in March, with some of the heaviest pressure falling on companies with higher valuations.
The investment team’s comments were made in an April 11, 2014, report. Highlights adapted from the report appear below. All comments relate to the quarter ended March 31, 2014, unless otherwise indicated. All references to year-to-date are for the period January 1 through March 31, 2014.

Interview Highlights

Improving environment
We believe that the U.S. economy is improving, signs of growth continue to appear, and some rate normalization is likely in the years ahead. We think there will be opportunities to invest in companies that benefit from somewhat firmer growth. Likewise we may reduce somewhat our exposure to investments that thrive in extremely low interest rate environments. We see opportunities in Europe, where growth trends have just begun to improve.
Focus on fundamentals
In what seems to be a volatile market trading largely on “noise,” company fundamentals are our anchor. We are finding opportunities to add to several high-conviction positions at attractive prices. We continue to balance the Fund using our flexible approach to portfolio construction, including core growth, aggressive growth, and life cycle change positions. We also continue to identify new companies for potential investment. As always, we are focusing our investments on high quality franchises with strong business models that we believe to be positioned to gain market share.
Investment themes
Several themes are at work in the portfolio. One is represented through a significant Consumer Discretionary exposure, which includes strong global brands such as BMW and Hermes International. As global travel is on the rise, we believe that airline components company Safran, hospitality companies Starwood Hotels and Wynn Macau, and online travel reservations company are 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. Our Information Technology holdings emphasize investments in businesses with “network effect” advantages, such as Google, Facebook, and
Financials holdings sold
The Fund has continued to have an underweighted allocation to the Financials sector, as we favor investments in companies with unique products and services. We sold the portfolio's few Financials positions (Citigroup, First Republic Bank, and AIA Group) during the quarter. As of quarter end, the Fund had no exposure to the Financials sector.
Positive drivers
Our overall view has not materially changed despite recent market volatility. Positive macroeconomic drivers that should continue to provide tailwinds for our holdings include growth in U.S. housing and autos, shale gas and oil exploration, growing industrial development in the U.S., strengthened personal and corporate balance sheets, and banks’ increased willingness to lend. Furthermore, we anticipate slow, albeit improving, growth accompanied by remarkably low inflation. That type of environment typically has been a good backdrop for high quality growth companies.

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.