Harbor Capital Appreciation Fund’s Sector Bets Paid Off in 2015

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Performance evaluation

The Harbor Capital Appreciation Fund – Investor Class (HCAIX) fell 1.7% in December 2015 in comparison to the previous month. In the three-month and six-month periods ended December 31, the fund has risen 7.9% and 1.9%, respectively. In the one-year period, the fund is up 10.5%. Meanwhile, from the end of December until January 20, the fund is down 10.9%.

December was less than favorable for HCAIX. However, 2015 was great for the fund. It was the second best performer among the 11 funds in this review. Let’s look at what has contributed to the fund’s strong performance.

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Portfolio composition and contribution to returns

The HCAIX is a comparatively newer fund compared to its peers. It was launched in November 2002. The latest complete portfolio breakdown declaration from the fund is from September 2015. Thus, we will take that portfolio as our base and consider valuation changes as they stand at the end of December 2015 for our analysis. All portfolio percentages mentioned from here on refer to their weights as per changes in valuation from September to December.

Even though consumer discretionary was the second biggest sector in the fund, it was by far the biggest positive contributor to the fund’s returns in 2015. The sector contributed over half of the fund’s total returns. Amazon (AMZN) was the primary reason why the sector was able to contribute to the fund in such large measure. Positive contributions from Netflix (NFLX) and Class B shares of Nike (NKE) also helped. Had it not been for negative contributions from Chipotle Mexican Grill (CMG), Time Warner (TWX), and 21st Century Fox (FOXA), the sector would have contributed even more to the fund’s returns.

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The information technology sector was the second biggest contributor in the period. Facebook (FB) was the biggest individual positive contributor, followed by class C and A shares of Alphabet (GOOG), respectively. The biggest negative contributor was the sponsored ADR (American depository receipt) of Alibaba Group Holding Limited (BABA). Other negative contributors did minimal damage to the sector’s returns.

Industrials were the biggest negative sectoral contributors to the HCAIX in 2015. They were led down by Canadian Pacific Railway Limited (CP). However, Boeing (BA) reduced some of the negative contributions from the sector. The negative contribution from materials was primarily due to Monsanto (MON).

Reasons for strong performance

The fund placed its bets on the two sectors that have done well this year, meanwhile keeping exposure to losing sectors like energy and industrials to a minimum. More importantly, except a few, most stock picks in the top contributing sectors performed well for the fund, thus helping it post a top-notch performance in 2015. Had a few picks in materials and industrials not fallen as much as they did, the fund could have been a contender for the top spot among the 11 funds in this review.

Let’s move on to the next fund in this series: the MFS Growth Fund – Class A (MFEGX).

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