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International Fund —
New fund management reflects shift in strategy
3rd Quarter, 2018
"Our investment team has been applying and refining the same investment philosophy and analytical model in the same markets for more than 30 years. "
– Marathon Asset Management LLP (Marathon-London)

On August 22, 2018, Marathon Asset Management LLP (Marathon-London) began managing the Harbor International Fund. The Fund will continue to invest in a wide-ranging portfolio of foreign company stocks across styles (growth and value), market capitalizations and geographies.
In managing the Fund, Marathon-London follows a "capital cycle" approach to investing. This philosophy is based on the idea that the prospect of high returns will attract excessive capital (and hence competition), and vice versa. The Manager believes that assessments of how company managements respond to the forces of the capital cycle through their capital allocation strategy, coupled with how they are incentivized, are critical to the investment outcome.
Marathon-London’s process is primarily bottom-up and focused on industry capital cycle characteristics, along with in-depth research regarding the company management’s motivation, incentivization and skill at responding to the forces of the cycle. Given the contrarian and long-term nature of the capital cycle, the portfolio construction process results in strong views versus the market and long holding periods (seven years plus).
Marathon-London’s comments were made in an October, 2018 report. Highlights adapted from the report appear below. All comments relate to the quarter ended September 30, 2018, unless otherwise indicated. All references to the year-to-date are for the period January 1 through September 30, 2018.

Interview Highlights

Evaluating Potential Investments
Marathon-London’s assessments of a company’s business model cover the history and current strategy of the company. We seek to invest in companies that:
• deploy capital effectively and efficiently
• have high insider ownership and/or an incentive structure that encourages company management to focus on long-term results
• operate in a monopolistic, oligopolistic or consolidating industry
• show improving – or high and sustainable – returns on invested capital
• generate attractive or improving free-cash-flow.
Alongside assessing the business model and corporate strategy, the investment team considers the ability of a company’s management to implement its proposed strategy successfully. We believe that how a company allocates its capital between acquisitions, dividend payments, share repurchases and investment is a key factor in determining whether it is likely to generate strong future returns.
A Well Diversified Fund
The Fund invests primarily in common and preferred stocks of foreign companies located principally in developed markets across Europe, Japan and the Asia Pacific region. Marathon-London carefully examines the valuation levels of individual securities before making purchase decisions. We believe that the investment risk, in terms of the price paid for an individual investment in relation to its intrinsic value, is much more important than a company’s position in the benchmark or lack thereof. We prioritize diversification in terms of geography and sector. Even more importantly, in our view, is diversification in terms of individual stock risk, which we achieve through a larger-than-peer average number of individual holdings in the Fund.
Research in Action
Our investment team’s research effort is prerequisite to translating our philosophy into actionable investments. The process is typified by analysis and understanding of industries, competitive structures, and by following the actions and investment decisions of company managements over a long time horizon. Our investment team has been applying and refining the same investment philosophy and analytical model in the same markets for more than 30 years.

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.