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Large Cap Value Fund —
Fund outperforms as markets rise
3rd Quarter, 2017
"Market conditions, though generally favorable, were neither a relative headwind nor tailwind. This environment, in our view, allowed our bottom-up, fundamental analysis to add value "
– Aristotle Capital Management, LLC

U.S. equities delivered strong, broad based gains during the third quarter, as stocks continued their ascent despite increasing geopolitical tensions, divisive rhetoric in Washington and three major hurricanes which caused devastation across several states and territories. Investors however, seemed to focus on better than expected economic news—including U.S. Gross Domestic Product growth of 3.1%, the strongest in two years—and generally positive corporate earnings announcements.
The Harbor Large Cap Value Fund advanced in the third quarter of 2017. The Fund posted a total return of 4.16%, outperforming its benchmark, the Russell 1000® Value Index, which rose 3.11%. Stock selection was the primary driver of relative performance during the quarter, while sector allocations also boosted relative returns. Fund outperformance was due in part to a combination of stock selection and an overweight in Information Technology. Stock selection in Industrials and Health Care also drove relative gains. Lack of exposure to Real Estate, which declined in the benchmark, also contributed to relative results. In contrast, stock selection in the Materials sector weighed on relative performance. An overweight to Consumer Staples, along with stock selection in the benchmark’s weakest sector, also dragged on relative returns.
Aristotle Capital Management’s comments were made in an October, 2017 report. Highlights adapted from the report appear below. All comments relate to the quarter ended September 30, 2017, unless otherwise indicated. All references to the year-to-date are for the period January 1 through September 30, 2017.

Interview Highlights

Stock-by-Stock Analysis Pays Off During Benign Quarter
Market conditions, though generally favorable, were neither a relative headwind nor tailwind. This environment, in our view, allowed our bottom-up, fundamental analysis to add value. Generally, in the face of positive economic news, the more economically sensitive sectors outperformed. Our overweight positions in Information Technology and Materials was additive, though Materials detracted overall. Meanwhile, our underweight in Energy and overweight in Consumer Staples detracted from performance. As always, our sector concentrations are a by-product of our bottom-up, fundamental analysis.
Finding Value That the Market May Be Missing
Capital One Financial was a new position added during the quarter. The company has long been a leader in credit cards, being amongst the first to offer a differentiated pricing model within a very competitive space, which has allowed the company to gain significant share. The company has greatly diversified its loan portfolio to offer an expanse of traditional banking products. Credit cards continue to be a very important driver of profitability, along with some of Capital One’s other loan products, such as auto loans. We believe the company is well positioned to continue its strong presence in the credit card industry, and has the potential to gain share across the card space. We also see potential profitability enhancements. As we seek to unlock what we believe is a company’s true value, we look for value catalysts, including productive use of strong free cash flow. We believe Capital One uses excess capital and free cash flow for shareholder-beneficial strategies.
A Steady Process That Looks Beyond Macro Events
Our process seeks to identify businesses that we believe can be successful over a three- to five-year period, regardless of market conditions. We continue to seek to uncover such businesses today, just as we always have.

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.