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High-Yield Bond Fund —
A favorable backdrop allowed the high yield market to have a strong quarter
2nd Quarter, 2017
"We believe a record refinancing wave and the strongest earnings season in six years have left corporate balance sheets in a strong position. "
– Shenkman Capital Management, Inc.

During the second quarter of 2017, the U.S. economy’s growth rate continued to be about 2%. Inflation, although trending higher, remained under the Federal Reserve’s 2% target, and unemployment remained low. The new U.S. presidential administration continued to suffer from an inability to pass health care and tax reform. As a result, Treasury interest rates remained low. This environment provided a favorable backdrop for most fixed income asset classes, as high yield companies generally continued to meet earnings expectations and maintained solid credit quality.
The Harbor High-Yield Bond Fund posted a return of 1.91% for the quarter, underperforming its benchmark, the BofA Merrill Lynch US Non-Distressed High Yield Index, which returned 2.21%.
Shenkman Capital Management’s comments were made in a July, 2017 report. Highlights adapted from the report appear below. All comments relate to the quarter ended June 30, 2017, unless otherwise indicated. All references to the year-to-date are for the period January 1 through June 30, 2017.

Interview Highlights

Contributors to and Detractors From Performance
Security selection in Utilities: electric and an underweight position in Finance: banking detracted from relative performance. In contrast, security selection in Finance: services and an underweight position in oil and gas contributed. Security selection among credits between four and eight years duration to worst detracted from results, while selection in credits with less than four years benefitted relative performance. Security selection and an overweight position in B rated credits hindered results, as did selection in securities rated CCC and below. Conversely, selection among BB rated securities helped performance. Cash and bank loan exposures detracted slightly from relative results.
We Believe the Federal Reserve Will Continue to Increase Interest Rates
Generally, our outlook has remained unchanged from the prior quarter, and we continue to believe the Federal Reserve (Fed) will increase interest rates over the next few quarters, as well as reduce its holdings of government securities. We believe legislative changes are likely to be smaller in scope than previously expected by market observers.
Corporate Balance Sheets Are in a Strong Position
Although we are mindful of the failure of the Trump policy agenda to gain traction to date, the inability of oil markets to maintain prices above $50 per barrel for an extended time, and the potential for a more aggressive Fed, we believe the high yield market could continue to maintain a spread profile similar to where it stands today. We believe that the probability of a U.S. recession over the intermediate term is unlikely and that the noticeable absence of aggressive leveraged buy-out activity in the high yield market is a positive development. In addition, we believe a record refinancing wave and the strongest earnings season in six years have left corporate balance sheets in a strong position.
“Clipping the Coupon" Could Produce Respectable Income
Market expectations for defaults are benign. Although high yield valuations have steadily risen over the past several quarters, we believe that owning higher quality credits and “clipping the coupon" could produce respectable income in a low yield environment, while concurrently helping to protect investor capital in the event of an unexpected downturn.

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.