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Emerging Markets Equity Fund —
As U.S. Dollar declined, emerging markets earnings revised higher
1st Quarter, 2017
"We believe that the portfolio is positioned well for further market upswings and a continued rotation into value. "
– Oaktree Capital Management, L.P.

Market consensus has been broadly negative on emerging markets prospects as investors believed the U.S. Dollar would continue to strengthen and adversely affect emerging markets. This consensus position was challenged during the first quarter of 2017, as the Dollar declined and broad emerging markets company earnings were revised higher. This contributed to renewed optimism surrounding the asset class and its potential to outperform developed markets.
Against this backdrop, the Harbor Emerging Markets Equity Fund advanced for the quarter, posting a return of 12.61%. The Fund outperformed its benchmark, the MSCI Emerging Markets Index (ND), which returned 11.44%. On a sector basis, Consumer Staples made the largest contribution to relative performance thanks to stock selection and sector allocation. Stock selection in Financials detracted slightly from relative results. Among countries, stock picking in Brazil was advantageous, while stock selection in China, the Fund’s largest individual country holding, weighed on relative results.
Oaktree Capital Management’s comments were made in an April, 2017 report. Highlights adapted from the report appear below. All comments relate to the quarter ended March 31, 2017, unless otherwise indicated. All references to the year-to-date are for the period January 1 through March 31, 2017.

Interview Highlights

India Performed Well Following Favorable Fiscal and Monetary Policy
India was one of the best performing countries in the Fund for the period due to declining concerns surrounding the growth impact of last year’s demonetization and a prudent proposed 2018 budget with some fiscal stimulus. The ruling Bharatiya Janata party’s victories in state elections were advantageous and solidified their political position. The comprehensive Goods and Services Tax (GST) moved closer to reality with the government’s approval of supplementary GST bills, continuing progress in their reform efforts. India experienced $6.2 billion in foreign inflows during the period, the most in five years.
Investors Optimistic on South Korea and Mexico
South Korea had a notably positive quarter. Upwards earnings revisions helped drive foreign Fund flows, and the South Korean Won appreciated. Investors were optimistic surrounding the conclusion of President Park’s impeachment process and that the coming elections in May would bring pro-growth policies. Positive earnings revisions, particularly in the Information Technology sector, boosted relative returns during the period. The Mexican Peso was the best performing currency in the Fund, fueled by a dovish U.S. Federal Reserve and improved sentiment regarding the U.S./Mexico relationship amongst softened trade rhetoric. Economic activity was also positive, with improving manufacturing exports.
The first quarter rewarded the Fund’s strategy of holding opportunistic value names. Given valuations, we have been selecting stocks that would perform well in a better market environment rather than hide in (overpriced) defensive names that would lose less in poor markets. We remain optimistic about the long-term prospects for emerging markets equities, which continue to trade at a low price-to-book value relative to the benchmark’s long-term average and relative to developed market indexes. We believe the Fund is positioned well for further market upswings and a continued rotation into value.

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.