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Mid Cap Value Fund —
U.S. equities post strong third quarter results
3rd Quarter, 2017
"U.S. equities continued to hit new highs in the quarter, bolstered by strong economic data and continued positive corporate earnings. "
– LSV Asset Management

U.S. equities posted strong results in the third quarter of 2017. Small cap stocks led the market, particularly in September. Mid cap stocks lagged both large and small stocks during the period. While value stocks staged a comeback in September, value stocks continued to lag across all market cap ranges over the full quarter. Year-to-date, the Russell Midcap® Value Index has trailed the Russell Midcap® Growth Index by nearly 10%.
During the third quarter of 2017, the Harbor Mid Cap Value Fund advanced 2.98%, outperforming the Fund’s benchmark, the Russell Midcap® Value Index, which advanced 2.14%. Information Technology was the key contributor to relative performance, due to stock selection and sector allocation. Strong stock picking in Industrials and Energy and sector allocation in Health Care also added value. On the other end of the spectrum, weak stock selection in Financials and Utilities dragged on relative returns.
LSV Asset 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

Sector Allocation Effects of the Russell Rebalance
Changes in relative sector weights since the beginning of the year were primarily driven by the annual Russell rebalance on June 30, 2017. The weight to Industrials and Information Technology stocks in the Russell Midcap® Value Index declined upon the rebalance. As a result, the overweight to both sectors in the Fund increased. The weight to Consumer Discretionary and Health Care stocks increased in the benchmark, which reduced the relative exposure to these sectors in the Fund. During the third quarter, the most significant change to the relative sector weights was a decrease in our weight to Utilities.
FOMC Forward Guidance Rallied Equities
Gross Domestic Product (GDP) grew at 3.1% in the second quarter, and corporations reported good earnings, helped somewhat by weakness in the U.S. Dollar. While the Federal Open Market Committee (FOMC) did not raise rates in the quarter, they did confirm their intention to reduce its $4.5 trillion balance sheet. Another rate increase by year end remains on the table. Equities rallied on the FOMC’s announcement, particularly Financials.
Value Stocks Staged a Comeback
During the period, cyclical areas of the market generally outperformed while defensive sectors trailed. The best performing sectors in the Fund’s benchmark included Energy and Materials, while Consumer Staples, Health Care, and Telecommunication Services lagged. Energy stocks were up on the recovery in crude oil prices. While value stocks recovered late in the period, value stocks lagged for the full quarter across all U.S. market cap ranges. This had a negative impact on the Fund given our deep value bias. The Fund Manager took advantage of the recovery in value late in the period as the Fund outperformed the benchmark by nearly 2% in September.

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.