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Small Cap Value Fund —
Strong year for small cap stocks continues into third quarter
3rd Quarter, 2018
"In the third quarter, the equity market environment was more favorable for our investment approach. "
– EARNEST Partners LLC

U.S. small cap stocks posted gains in the third quarter of 2018 amid continued positive performance for equities generally. Against this backdrop, the Harbor Small Cap Value Fund generated a return of 2.38% during the quarter, outperforming its benchmark, the Russell 2000® Value Index, which returned 1.60%.
Overall, both stock selection and sector weightings contributed to relative performance. Industrials and Health Care were the largest drivers of outperformance, due primarily to stock selection. Overweights in both sectors also helped relative performance. Conversely, stock selection in Information Technology and Financials weighed on relative results. The Fund’s sector weightings are purely a residual outcome of the bottom-up stock selection process.
EARNEST Partners’ 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

Market Rewards Fundamentals
In the third quarter, the equity market environment was more favorable for our investment approach. The market rewarded strong company fundamentals and put less value on speculative stocks. We did not introduce any new themes or trends into the Fund’s portfolio during the quarter. We continue to position the Fund based on the underlying fundamentals of individual companies and our view on the growth prospects of companies relative to what is currently reflected in their stock prices.
Where We Found Opportunities
The Fund entered the quarter with a relative overweight to Information Technology, where we have found more attractive individual opportunities relative to other sectors. Our views on the Fund’s Information Technology holdings have remained consistent since last quarter, and the Fund has continued to maintain a healthy overweight. Conversely, the Fund entered the third quarter with a relative underweight to Financials. Within that sector, we have found fewer individual opportunities among banks, and relatively more in insurance companies and diversified financial institutions, both industries in which the Fund has relative overweights. We have maintained the same view on Financials over recent quarters, though the overall sector underweight has become less severe with the addition of more banks over recent quarters. The Fund’s sector weightings are a result of our bottom-up stock selection process.
We Evaluate Stocks One at a Time
EARNEST Partners does not forecast or provide a formal outlook on the broader equity market. Instead, we focus on a company’s individual opportunities to grow earnings and take market share. Opportunities like those present themselves in all types of market environments, including today’s. Our view on what ultimately drives relative returns has not changed, and is inherent in our ability to identify and take advantage of mispricings in the market on an individual stock-by-stock basis.

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.