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Small Cap Growth Opportunities Fund —
Investor sentiment swung through several distinct moods during the period
3rd Quarter, 2017
"We remain committed to our longstanding process that focuses on identifying individual companies with attractive fundamentals. "
– Elk Creek Partners, LLC

There were no significant macroeconomic-level events that impacted the domestic small cap growth equity market during the third quarter of 2017, although investor sentiment swung through several distinct moods during the period. In this environment, small cap growth stocks, as measured by the Fund’s benchmark, the Russell 2000® Growth Index, posted a return of 6.22% for the quarter. Within the Russell index, Telecommunication Services was the strongest performer. Industrials, Health Care and Financials also had strong returns. Real Estate, Consumer Staples and Utilities lagged.
The Harbor Small Cap Growth Opportunities Fund underperformed its benchmark, with a quarterly return of 0.88%. Stock selection in Information Technology detracted from relative performance for the quarter, while security selection in Consumer Discretionary contributed to relative results.
Elk Creek Partners’ 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

Our Sector Weightings Have Not Changed Dramatically
Thus far in 2017, our sector weightings have not changed dramatically, with most of the portfolio invested in the following four sectors: Information Technology, Health Care, Industrials and Consumer Discretionary. These sectors also represent a majority of the Russell 2000® Growth Index. We do not select investment opportunities based upon macro events or themes like potential political change. We remain committed to our longstanding process that focuses on identifying individual companies with attractive fundamentals.
Investor Sentiment More Fragile than Performance Suggests
Although the markets have had strong absolute returns thus far in 2017, in some respects investor sentiment seems more fragile than performance would suggest. For example, investors have seen the carnage in retail stocks and have attributed that largely to Amazon’s success. Accordingly, investors have developed a hypersensitivity to potential disruption risks across most industries rather than just retail, being quick to sell on news they perceive to be a threat to growth rates.
Investors Quick to Sell on Negative News
We have seen investors swiftly sell individual stocks of companies that report negative news. Selling a stock following negative news is not surprising; rather, the magnitude of the downward moves is what is surprising. Relative to previous periods that we have observed, the market seems to quickly presume a negative scenario, with higher certainty than has been typically warranted. This behavior leads to more volatility and, often, share prices take longer to recover, even when the market’s fears are shown to be unfounded. We saw this dynamic several times during the third quarter.
Underlying Businesses Are the Ultimate Arbiters of Stocks’ Values
We believe, and our historical results show, that over time stocks will track to their underlying businesses. Our task is to get the businesses right, and we are unwavering in our efforts in that regard. Nonetheless, we are in a market that seems to be reacting negatively to headlines, with less attention to underlying fundamentals. These pessimistic narratives can dictate a stock’s direction in the short-term, but we believe underlying businesses, rather than short-term passions, are the ultimate arbiters of stocks’ values.

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.