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Global Growth Fund —
Equity markets dipped, then recovered losses by quarter end
1st Quarter, 2016
"In a slow global growth environment, we target companies that will not just survive but thrive over the long-term, and can increase capital investments in their businesses. "
– Marsico Capital Management, LLC

The first quarter of 2016 saw global equities fall sharply before rebounding to end the period essentially flat. The S&P 500 Index advanced 1.35%, while developed international markets, as measured by the MSCI EAFE (ND) Index, ended lower with a return of -3.01% during the quarter. Markets were heavily influenced by global policy makers, oil prices, weakness in China, and strength in the U.S. Dollar. Later in the quarter, Chinese, U.S. and European officials responded to global anxieties about potentially aggressive monetary tightening with moves toward easing, oil prices rebounded, and the Dollar weakened. Equities and other risk assets bounced back.
The Harbor Global Growth Fund underperformed its benchmark, the MSCI All Country World (ND) Index, during the first quarter. The Fund returned -2.71% compared to the benchmark’s advance of 0.24%. Fund performance relative to the benchmark was hurt by stock selection in the Information Technology and Health Care sectors, but the Fund’s stocks in Consumer Discretionary outperformed those in the benchmark. While the Fund's sector weightings had a negative effect on relative performance, lack of exposure to Financials stocks boosted relative results, as the sector generated negative returns. Sector positioning generally is a byproduct of individual stock selection decisions rather than an active element of the Fund's investment strategy.
For some time, the Fund has maintained investments in companies that the Manager believes are making innovative use of technology. A number of these holdings performed well during the first quarter, particularly in the Consumer Discretionary sector. The Fund’s top individual contributors relative to the benchmark included casino operator Wynn Macau, Canadian discount retailer Dollarama and France-based media position JCDecaux. Conversely, several holdings in pharmaceuticals and biotechnology were among the top detractors, including U.S.-based Pacira Pharmaceuticals and Regeneron Pharmaceuticals (both of which were sold during the quarter).
The investment team’s comments were made in an April 2016 report. Highlights adapted from the report appear below. All comments relate to the quarter ended March 31, 2016, unless otherwise indicated. All references to the year-to-date are for the period January 1 through March 31, 2016.

Interview Highlights

Easing Monetary Policy Prompts Rally
Perhaps the key dynamic triggering a rebound during the quarter was the about-face by Chinese, U.S. and European officials as they responded to global market anxieties. Importantly, China’s pledge to eschew a currency war was a strong positive. Alongside the Chinese pledge to “do no harm,” U.S. monetary policy officials backed away from previous aggressive plans to tighten interest rates, signaling a “best guess” of just two tightening moves in 2016, half of the four moves flagged in late 2015. In Europe, renewed pledges to buy sovereign debt were married to another issuance of long-dated, near-zero financing for European banks.
Limited Exposure to Emerging Markets
The MSCI Emerging Markets (ND) Index rebounded after underperforming for much of 2015, gaining 5.71% during the quarter. As of March 31, 2016, the Fund had approximately 9% of its assets invested in emerging markets. The Fund continued to refrain from investments in most emerging markets, holding only several China-headquartered stocks that we believe to be attractive from a “bottom-up,” stock-specific basis: online commerce company Alibaba, internet services holding company Tencent and online travel reservations company During the period, the Fund reestablished a position in casino operator Wynn Macau.
Avoiding Overvalued Groups
The Fund had no exposure to two of the strongest performing sectors of the MSCI All Country World (ND) Index: Utilities and Telecommunication Services. In the uncertain macroeconomic environment, it seemed that dividend-paying stocks perceived by the market to offer safety were rewarded, and our lack of exposure detracted from relative returns during the quarter. We believe valuations for many companies in both sectors are high.
Lower for Longer
We summarize our investment outlook with the term “lower for longer,” meaning that we believe global growth will remain muted for an extended period of time. Relatively low energy prices kept headline inflation near zero for the first quarter of 2016, although there was a slight uptick in core inflation. Low inflation and tame interest rates historically have been supportive for the equity markets. However, we believe uncertain Fed policy and the U.S. presidential election will likely lead to continued volatility.

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.