Harbor International Small Cap Fund Institutional Class (HAISX)

Investment Strategy

The Fund invests primarily in equity securities, principally common and preferred stocks, of foreign companies. Under normal market conditions, the Fund invests at least 80% of its net assets, plus borrowings for investment purposes, in small cap companies. The Fund defines small cap companies as those with market capitalizations that fall within the range of the MSCI EAFE (Europe, Australasia and Far East) Small Cap (ND) Index, provided that if the upper end of that range falls below $5 billion, the Fund will continue to define those companies with market capitalization between the upper end of the range of the Index and $5 billion as small cap companies. As of December 31, 2018, the range of the Index was $95 million to $7.8 billion, but it is expected to change frequently.

The Subadviser's investment strategy focuses on identifying companies that have unrecognized earnings growth, such as where earnings growth prospects are better than market expectations or where current earnings growth is not fully reflected in the stock price. The Subadviser first employs a range of quantitative and qualitative screens and research to create an investment universe of approximately 400 companies. The Subadviser then uses fundamental, bottom-up research to evaluate, and ultimately score, those companies in three primary areas: quality, growth and valuation. In scoring individual stocks for potential investment, the Subadviser considers the degree to which the company appears to possess some or all of the following characteristics across those three primary areas:

  • A quality business franchise with a competitive advantage, efficiency in operations and/or stability
  • Competent company management committed to the business and aligned with shareholder interests
  • A stable balance sheet
  • Earnings growth over recent periods, such as the past three years and/or the past 12 months
  • Prospects for earnings growth over the next five years that are better than the market consensus
  • Reasonable company valuation indicating a strong upside potential in the stock price over the next 9 to 12 months

Up to 20% of the Fund's total assets may be invested in emerging market companies, which the Fund defines as those countries included in the MSCI Emerging Markets Index, which currently includes countries located in the Americas, Europe, Middle East, Africa and Asia. Under normal market conditions, the Fund typically expects to maintain investments in a diversified portfolio of between approximately 80 and 110 stocks, with no one individual holding normally representing more than 3% of the Fund's total assets. The Subadviser may sell a portfolio holding when the Subadviser believes the company's earnings growth prospects have been fully reflected in the stock price, the perceived catalyst needed for the market to recognize the earnings growth prospects has disappeared or is expected to take too long to materialize, a significantly more attractive investment idea is identified, or the stock's scoring by the Subadviser in terms of growth, quality and valuation declines materially.

Risks

Investing in international and emerging markets poses special risks, including potentially greater price volatility due to social, political and economic factors, as well as currency exchange rate fluctuations. These risks are more severe for securities of issuers in emerging market regions. Stocks of small cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies.

Stock markets are volatile and equity values can decline significantly in response to adverse issuer, political, regulatory, market and economic conditions.