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Global Growth Fund —
Health Care stocks boost Fund's outperformance of global benchmark
1st Quarter, 2015
"Many of the holdings in the portfolio are companies displaying innovation in solving unmet needs. "
– Marsico Capital Management, LLC

Global equities recorded a positive return of 2.31% for the first quarter of 2015, 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. Health Care was the best performing area of the index, as eight of the 10 economic sectors in the global benchmark posted positive returns.
The Harbor Global Growth Fund outperformed the index with a return of 4.58%. Portfolio Manager Thomas Marsico reports that Health Care stocks were a key contributor to the outperformance, as the Fund's Heath Care holdings, which had an above-benchmark weighting in the portfolio, outpaced those in the index. A larger-than-index allocation to Consumer Discretionary stocks also helped relative performance, as did the Fund's lack of exposure to Energy and Utilities, the only sectors to post negative returns in the quarter. These positive factors were partly offset by the portfolio's Consumer Discretionary stocks, which lagged those in the index. Longer term, the Fund also outperformed the benchmark for the latest 1-year and 5-year periods and since its inception in 2009.
Health Care stocks Biogen, Actavis, and Novartis were among the leading contributors to absolute performance for the Fund, as were Information Technology stocks Apple and Chinese Internet company Tencent Holdings. Portfolio holdings that detracted from absolute returns included Chinese e-commerce company Alibaba, electric car maker Tesla Motors, Dutch semiconductor equipment maker ASML Holding, railroad operator Canadian Pacific Railway, and U.S. drug maker Vertex Pharmaceuticals.
The investment team’s comments were made in an April 13, 2015, report. Highlights adapted from the report appear below. All comments relate to the quarter ended March 31, 2015, unless otherwise indicated. All references to year-to-date are for the period January 1 through March 31, 2015.

Interview Highlights

Slow-growth environment
We believe the companies held in the portfolio are positioned to grow in the current slow global growth environment, characterized by unprecedented central bank actions and continued fiscal and monetary policy uncertainty. We continue to favor investments in companies gaining market share in large and growing markets. Many of the holdings in the portfolio are companies displaying innovation in solving unmet needs. We also seek to invest in businesses that have repeatable revenues, pricing power, strong free cash flow, and responsible capital allocation; we believe that, in a lower-growth environment, share buybacks and dividends may be larger contributors to total returns.
Inflation outlook
While a significant uptick in inflation might pose risks, we see few signs of global inflationary pressures. Two-year interest rates in several European countries have fallen to negative real yields, and we expect commodity pricing to remain soft, as infrastructure projects in China, Russia, and Brazil, which drove commodity demand for the past 15 years, have slowed. Further, continued U.S. Dollar strength should be generally favorable in damping inflation for consumption-oriented economies like the U.S. In addition, we believe that China's anti-corruption campaign is likely to have a further slowing effect on Chinese growth.
Caution on emerging markets
The Fund had approximately 8% of its net assets invested in emerging markets as of March 31. At quarter end the Fund’s emerging markets positions were comprised of three holdings: Chinese online commerce company Alibaba, Chinese Internet services holding company Tencent, and India-domiciled auto manufacturer Tata Motors. At this time, we are being very selective about our emerging markets exposure. Our current investments in companies domiciled in emerging markets are driven by company-specific attributes.
Sector positioning
As of March 31, the Fund had no investments in the Financials, Energy, or Telecommunication Services sectors. The Fund also had no exposure to the Utilities or Consumer Staples sectors, as we generally see few opportunities for top-line growth and pricing power in these areas, and valuations appear full. We favor investments in companies with unique products and services that are positioned to take market share in large and growing markets; as such, we have identified more attractive opportunities in other industries.
Pressures on China
The Chinese economy continued to look soft; for example, China’s freight traffic was down by double digits over the first two months of the year. China’s currency, given its rough peg to the U.S. Dollar, appreciated sharply versus most of its other trading partners. Thus, pressures on its export sector are growing as a stronger currency makes Chinese goods more expensive for overseas consumers. These headwinds complicate China’s efforts to unwind its boom in real estate in a measured manner.

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.