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Global Value Fund —
Stock picking boosts Q3 return as Global Value Fund outpaces benchmark
3rd Quarter, 2013
"We had several pockets of very strong stock selection across geographies and sectors; at the same time, we had very few pockets of weakness. "
– James Doyle

The Harbor Global Value Fund posted a double-digit gain for the third quarter of 2013 and outperformed its benchmark by a substantial margin. The Fund returned 11.44% compared with the 8.18% return of the MSCI World (ND) Index, a measure of global equities including the U.S. Portfolio Manager James Doyle notes that the advance was broad based, with every country in the index recording a positive return.
On a year-to-date basis, the Fund returned 23.15% for the first nine months of 2013, while the MSCI World (ND) returned 17.29%. In addition, the Fund returned 27.15% for the 12 months ended September 30 compared with the index return of 20.21%. Causeway Capital Management LLC has managed the Fund since May 25, 2012.
The Fund's outperformance in the third quarter was driven primarily by security selection, Doyle reports. Relative to the benchmark, stock selection was especially strong in the Industrials and Energy sectors. Sector allocations, a byproduct of Causeway's bottom-up investment process, also made a positive contribution, including a below-benchmark exposure to Consumer Staples stocks and an overweighted position in Industrials.
The comments by James Doyle were made in an October 15, 2013, interview. Highlights adapted from the interview appear below. All comments relate to the quarter ended September 30, 2013, unless otherwise indicated. All references to year-to-date are for the period January 1 through September 30, 2013.

Interview Highlights

Strong stock selection
We had strong stock selection across the portfolio. We had several pockets of very strong stock selection across geographies and sectors; at the same time, we had very few pockets of weakness. Those combined to give us a nice tailwind for performance.
Recovery in Europe
Automobiles was an area of strength for us and that was driven by two stocks, Toyota and Daimler. Daimler in particular was a strong performer, driven in part by the belief that the European economy is recovering, or at least normalizing. We saw this recovery theme influence the performance of holdings across the portfolio.
Limiting exposure to commodity pricing
We think some of the best opportunities in our Energy portfolio are with services companies such as National Oilwell Varco and Technip. Their opportunities are somewhat independent of commodity pricing, in our view. That is not something we see in the traditional Materials sector, where most of the companies have strong exposure to underlying commodity prices.
Measuring risk
We are a bottom-up manager and what primarily drives portfolio construction is our company-by-company analysis of where we believe the best values are. At the same time, however, we also pay attention to risk. We have very sophisticated quantitative risk-analysis tools that allow us to look at portfolio-level risk as well as individual security risk.
U.S. exposure
We think there are cheaper ways to get exposure to the U.S. than by actually investing in shares of U.S.-headquartered companies. We analyze the companies in our portfolio in terms of what we call underlying economic exposure, in which we break out the revenue sources by geography for the portfolio companies as well as for the benchmark. Based on country of listing, our underweight to the U.S. is substantial; but as measured by underlying economic exposure the underweight is considerably less.

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.