International & Global Funds
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Semi-Annual Report April 30, 2021 International & Global Funds Retirement Institutional Administrative Investor Class Class Class Class Harbor Diversified International All Cap Fund HNIDX HAIDX HRIDX HIIDX Harbor Emerging Markets Equity Fund HNEMX HAEMX HREMX HIEEX Harbor Focused International Fund HNFRX HNFSX HNFDX HNFIX Harbor Global Leaders Fund HNGIX HGGAX HRGAX HGGIX Harbor International Fund HNINX HAINX HRINX HIINX Harbor International Growth Fund HNGFX HAIGX HRIGX HIIGX Harbor International Small Cap Fund HNISX HAISX HRISX HIISX Harbor Overseas Fund HAORX HAOSX HAOAX HAONX Table of Contents Letter from the Chairman ............................................... 1 International & Global Funds HARBOR DIVERSIFIED INTERNATIONAL ALL CAP FUND Manager’s Commentary . ............................................... 2 Portfolio of Investments . .......... 4 HARBOR EMERGING MARKETS EQUITY FUND Manager’s Commentary . ............................................... 12 Portfolio of Investments . .......... 14 HARBOR FOCUSED INTERNATIONAL FUND Manager’s Commentary . ............................................... 18 Portfolio of Investments . .......... 20 HARBOR GLOBAL LEADERS FUND Manager’s Commentary . ............................................... 22 Portfolio of Investments . .......... 24 HARBOR INTERNATIONAL FUND Manager’s Commentary . ............................................... 26 Portfolio of Investments . .......... 28 HARBOR INTERNATIONAL GROWTH FUND Manager’s Commentary . ............................................... 35 Portfolio of Investments . .......... 37 HARBOR INTERNATIONAL SMALL CAP FUND Manager’s Commentary . ............................................... 40 Portfolio of Investments . .......... 43 HARBOR OVERSEAS FUND Manager’s Commentary . ............................................... 46 Portfolio of Investments . .......... 48 Financial Statements STATEMENTS OF ASSETS AND LIABILITIES . .......... 54 STATEMENTS OF OPERATIONS. ................... 56 STATEMENTS OF CHANGES IN NET ASSETS. ................................ 58 FINANCIAL HIGHLIGHTS . .................................................. 64 Notes to Financial Statements ......................................... 80 Fees and Expenses Example ........................................... 90 Additional Information PROXY VOTING. ............................................................ 93 HOUSEHOLDING . ................................................. 93 QUARTERLY PORTFOLIO DISCLOSURES . ........................ 93 ADVISORY AGREEMENT APPROVALS. ............. 93 REVIEW OF LIQUDITY RISK MANAGEMENT PROGRAM . 99 This document must be preceded or accompanied by a Prospectus. Letter from the Chairman Dear Fellow Shareholder: Looking back on the past two calendar quarters reveals a tale of two markets. After a strong summer market rally, volatility reemerged last fall, due to continuing investor concerns about the pandemic, increasing political rhetoric, and other geopolitical events. However, the resolution of the presidential election, new vaccine approvals/rollouts, along with the passage of two U.S. fiscal stimulus packages, led to improved investor sentiment and appetite for risk that generated an equity market rally that continued through the first quarter of 2021—although at a slower pace than in the fourth quarter of 2020. U.S. and global equity markets produced positive total returns over the six-month period ended April 30, 2021. The S&P 500 added to its strong performance of 12.15% in the fourth quarter, with a return of 6.17% in the first quarter, outperforming the MSCI EAFE (ND) and the MSCI Charles F. McCain Emerging Markets (ND) Indexes, which returned 3.38% and 2.29%, respectively, for the first quarter. Chairman Beginning late last fall, we saw a pronounced reversal from a growth-driven to a value-driven equity market, and this rotation has persisted through the first quarter. The market rotation occurred globally—in the U.S., developed, and emerging equity markets—by style (cyclical/value outperformed growth), by market cap (small cap outperformed large cap), and by factor (momentum reversed, while beta remained strong). Prior to the fourth quarter, U.S. growth-oriented stocks were the dominant outperformers by a large margin, with value-oriented names trading at huge discounts. However, by late in the year and moving through the first quarter, value outperformed growth, with the Russell 3000® Value Index beating the Russell 3000® Growth Index by the widest margin since the first quarter of 2001. Cyclical industries (e.g., oil & gas, machinery, construction materials, and metals & mining), along with the Energy and Financials sectors, took center stage. In contrast, the Information Technology, Consumer Staples, and Healthcare sectors retreated. While large caps have been in favor in past years (FAANG stocks etc.) and still remain ahead over trailing three- and five-year periods, the trend reversed over the six-month reporting period, which saw small caps outperforming. The bond markets took a hit, as investors shifted to equities in anticipation of a broader economic recovery, and the yield curve steepened at the long end. The yield on 10-year Treasuries rose from 0.78% after the election to 1.74% in March—one of the most significant moves in decades. As economies around the world have begun to reopen, and markets have rallied, the focus is shifting from fear to cautious optimism. Growth in the U.S. gross domestic product (GDP) over the past two quarters reflects the long-hoped-for economic recovery now underway, the reopening of businesses, and the massive government response to the COVID-19 pandemic. GDP grew by 4.3% in the fourth quarter and by an estimated 6.4% in the first quarter. The Biden administration passed the $1.9 trillion American Rescue Plan, although without a single Republican vote. Its proposals for still more fiscal stimulus (the American Jobs Plan at $2.3 trillion and the American Families Plan at $1.8 trillion) will have to pass the gauntlet of a divided Congress; the scope, size, and timing of those plans will no doubt undergo protracted negotiations. Harbor expects that volatility will remain elevated for the foreseeable future. But we also believe there are thoughtful, practical solutions to manage volatility and enable investors to reach their long-term goals. Our subadvisers are active portfolio managers who remain focused on uncovering opportunities and skillfully executing their strategies to deliver shareholder value in a climate of economic and geopolitical uncertainty, unprecedented health challenges, and financial market volatility. We believe that thoughtful, active management and adherence to enduring investment principles such as diversification, discipline, and a long-term view, will stand the test of time. Over the past year, we have seen massive disruptions and challenges that have taken a severe toll on human lives. But the human spirit has remained resilient through it all. We believe there is now more reason for cautious optimism than fear as we look ahead. I hope you and your families stay safe through this difficult time. Thank you for your confidence and continued investment in Harbor Funds. June 22, 2021 Charles F. McCain Chairman ●●1 Harbor Diversified International All Cap Fund MANAGER’S COMMENTARY (Unaudited) SUBADVISER Management’s Discussion of Marathon Asset Management LLP Fund Performance Orion House 5 Upper St. Martin’s Lane MARKET REVIEW London, WC2H 9EA England The six-month period ended April 30, 2021 displayed strong market performance. There was a notable change in style leadership in equity markets that took place around November 9, 2020 with the announcement of an effective vaccine. For years, the market has been led PORTFOLIO MANAGERS mainly by mega-cap companies which are either ‘growth’ businesses or reliable income generators Neil M. Ostrer (“bond proxies”). This began to change in November, initially in Europe and subsequently Since 2015 spreading to all other major markets. The ‘value’ area of the market and smaller capitalization companies (and particularly those businesses which are both) began to outperform. Although Charles Carter this new trend has now been in place for around six months, the disparity in valuations between Since 2015 the ‘growth’ and ‘value’ segments of the market remains high from a historical perspective, reflecting the extremes that had been reached. Nick Longhurst Since 2015 Cyclical sectors, such as Financials, Energy, Materials and Information Technology have been the key beneficiaries over the period, with more defensive sectors, including Health Care, William J. Arah Consumer Staples and Utilities, performing relatively weakly. Given the depth of the COVID-19 Since 2015 crash earlier in the year, this might be expected; cyclicals in general fell faster and further than their more defensive peers and so had further to recover as the outlook improved. Simon Somerville The MSCI All Country World Ex. U.S. (ND) Index performed well and returned 27.40% Since 2016 over the six-month period ended April 30, 2021. On a regional basis, Canada, which averaged 6.48% of the Index, led the way returning 34.83%, closely followed by European markets Michael Nickson, CFA which returned 33.32% and averaged 38.93% of the MSCI All Country World Ex. U.S. (ND) Since 2018 Index over the period. Developed Asian ex-Japan markets (Australia, Hong Kong, Singapore and New Zealand), which constituted 7.34% of the Index on average over the period, were Michael Godfrey,