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Inside the Portfolio Changes in the Harbor Capital Appreciation Fund so Far in 2016

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Fund overview

The Harbor Capital Appreciation Fund Investor Class (HCAIX) “invests primarily in equity securities, specifically US companies with market capitalizations of at least $1 billion at the time of purchase.” The fund’s managers meet with the top management of companies on their radar and claim to invest in those companies that they believe have the following:

  • strong balance sheets and earnings performance
  • sales momentum and growth outlook
  • high profitability history or potential
  • unique market position
  • a capable and committed management team

HCAIX’s managers adopt a bottom-up approach while selecting securities for the portfolio. The fund’s website also claims that “the fund stays fully invested in stocks and does not try to time the market, but instead works toward steady investment growth.”

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HCAIX’s assets were invested across just 60 holdings (stocks, bonds, and cash) as of June 2016, and it was managing assets worth $24.6 billion as of the end of June. In the June portfolio, its equity holdings included Bristol-Myers Squibb (BMY), O’Reilly Automotive (ORLY), NIKE (NKE), Netflix (NFLX), and Kroger (KR), which make up a combined 10% of the fund’s assets.

Portfolio changes

HCAIX is mainly focused on the information technology and consumer discretionary sectors. The former commands nearly 40% of the fund’s assets, and combined with the latter, it makes up 70% of the portfolio. The healthcare sector is a distant third—and the only other sector whose portfolio weight reads in two digits. The fund is not invested in the telecom services and utilities sectors.

Compared to the Russell 1000 Growth Index, the fund is noticeably overweight in the information technology and consumer discretionary sectors. Meanwhile, it’s substantially underweight consumer staples, industrials, and materials.

We’ve looked at the fund’s quarterly portfolio for the past three years until June 2016. In this period, the fund has sharply increased its exposure to consumer discretionary stocks. These stocks used to make up a little over one-fifth of the fund’s assets three years ago, and now they make up 30% of the fund’s assets.

The case with information technology stocks is similar. But exposure to industrials and materials, especially the former, has been sharply reduced. Industrials used to form one-tenth of the assets three years ago. They currently make up just 2% of the portfolio pie.

But how has HCAIX performed YTD in 2016, and what can this performance be attributed to? We’ll investigate in the next article.

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