Fundamental. Thinking. Worldwide. Annual Commentary October 31, 2020 Harding, Loevner Funds, Inc. Global Equity Portfolio ▪ International Equity Portfolio ▪ International Small Companies Portfolio ▪ Institutional Emerging Markets Portfolio ▪ Emerging Markets Portfolio ▪ Frontier Emerging Markets Portfolio ▪ Global Equity Research Portfolio ▪ International Equity Research Portfolio ▪ Emerging Markets Research Portfolio ▪ Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically by contacting your financial intermediary. You may elect to receive all future reports in paper free of charge. You can inform the Fund that you wish to continue receiving paper copies of your shareholder reports by calling (877) 435-8105 or by sending an email request to [email protected]. If your account is held through a financial intermediary, you can contact your financial intermediary to make your election. Your election to receive reports in paper will apply to all Funds held with the Fund complex/your financial intermediary. The Prospectus, SAI, and the Fund’s annual and semi-annual reports are also available free of charge on Harding Loevner’s website at hardingloevnerfunds.com. Reports and other information about the Fund are also available on the EDGAR database on the Commission’s Internet site at SEC.gov or by electronic request at the following e-mail address: [email protected]. A duplication fee will be applied to written requests and needs to be paid at the time your request is submitted. As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. HARDING LOEVNER FUNDS Global equity investing for institutions is Harding Loevner’s exclusive focus. Through Harding Loevner Funds it offers distinct global strategies based on its quality-and-growth investment philosophy. It seeks to purchase shares of growing, financially strong, well-man- aged companies at favorable prices. Harding Loevner manages each of the Funds’ Portfolios according to a disciplined, research-based investment process. It identifies companies with sustainable competitive advantages and assesses the durability of their earnings growth by conducting in-depth fundamental research into global industries. In constructing portfolios, Harding Loevner diversifies carefully to limit risk. RECEIVE INVESTOR MATERIALS ELECTRONICALLY Shareholders may sign up for electronic delivery of investor materials. By doing so, you will receive the information faster and help us reduce the impact on the environment of providing these materials. To enroll in electronic delivery, 1. Go to http://www.icsdelivery.com 2. Select the first letter of your brokerage firm’s name. 3. From the list that follows, select your brokerage firm. If your brokerage firm is not listed, electronic delivery may not be avail- able. Please contact your brokerage firm. 4. Complete the information requested, including the e-mail address where you would like to receive notifications for electronic documents. 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If you have any questions, please contact your brokerage firm. 2 Table of Contents 4 Letter to Our Shareholders 6 Global Equity Portfolio 10 International Equity Portfolio 14 International Small Companies Portfolio 18 Emerging Markets portfolios 22 Frontier Emerging Markets Portfolio 26 Global Equity Research Portfolio 30 International Equity Research Portfolio 34 Emerging Markets Research Portfolio Contact Harding, Loevner Funds, Inc. c/o Northern Trust Attn: Funds Center, Floor 38 333 South Wabash Avenue Chicago, IL 60604 Phone: (877) 435-8105 Fax: (312) 267-3657 Must be preceded or accompanied by a current Prospectus. www.hardingloevnerfunds.com Quasar Distributors, LLC, Distributor 3 LETTER TO OUR SHAREHOLDERS DAVID LOEVNER, CFA, CIC roost once again. Earnings, profits, and cash flows, the build- CHAIRMAN AND CHIEF ing blocks at the foundation of any sensible fundamental in- EXECUTIVE OFFICER vestment approach, have been cast aside in favor of revenue SIMON HALLETT, CFA growth rate and the potential size of the addressable market. CO-CHIEF INVESTMENT OFFICER The latter term is a conveniently malleable notion that admits any number of self-contradictory futures featuring incompat- FERRILL D. ROLL, CFA ible outcomes. An electric car in every driveway? Sure. And a CO-CHIEF INVESTMENT OFFICER swarm of on-demand self-driving taxis, too? Why not! We are suspicious of value calculations that project gallop- Value investing, the notion of excluding all but the most un- ing growth out beyond the horizon. No tree grows to the sky. loved stocks from portfolios, is dead. Following value’s decade Most phenomena are cyclical, even within secular trends. of underperformance of the broad market, the coup de grâce Investors are apt to make their biggest blunders when they was delivered by the pandemic. Then again, value investing has forget this and extrapolate current trends ad infinitum. Ev- been readied for a spot in the ground before, only later to leap ery valuation model embeds opinions about the future, but back to life. without evidence opinion morphs into conjecture, making it indistinguishable from hearsay. And as the rationale for high The Wall Street Journal in its October 23rd edition wrote about valuations drifts further away from actual observable cash one high-profile casualty of value’s latest demise: systematic val- flows and profits the greater is the risk that stocks slip their ue investor Ted Aronson, who’s thrown in the towel by decid- valuation anchor entirely. Unmoored from any rational basis, ing to dissolve his longstanding investment fund. Aronson, who stock prices become ever more sensitive to fickle changes in was highly successful throughout most of his long career, said of mood, in either direction. his—or any—particular investment approach: “It can all work for years, for decades, until or except when the not-so-invisible hand comes down and slaps you and says, ‘That’s what worked Many analysts who’d started their careers in the past, but it’s not going to work now, nope, not anymore.’” in the late ’90s appeared to be mentally A useful reminder that, in investing as in life, nothing works stunted by the bursting of the TMT bubble in always or forever. 2000, left wondering why what had worked The efficacy of investment styles tends to ebb and flow, and on in their formative years and filled their these cycles float the fortunes of investors. An earlier generation playbook no longer held. of value managers suffered a similar fate to Ted Aronson at the peak of the technology-media-telecom (“TMT”) bubble twenty years ago. In the space of three months in early 2000, Gary Brin- The last few years have been brutal for any investor seeking a son, founder of Brinson Partners, Julian Robertson of Tiger Man- margin of safety, that is, a discount to fair value intended to agement, Tony Dye of Phillips and Drew, and George Vander- insure against unforeseen risks. It may yet get more merciless. heiden of Fidelity, all storied value investors with once-enviable A person forming their view of markets could easily be con- track records, decided to call it quits after a run of disappointing vinced that valuation no longer matters, that price can safely returns. The Nasdaq index, a useful proxy for growth stocks, sa- be ignored. We believe they do so at their peril. Many analysts luted their departure by peaking on March 10, 2000, at 5,132, at who’d started their careers in the late ’90s appeared to be a price to trailing earnings multiple of 72. “Value managers are mentally stunted by the bursting of the TMT bubble in 2000, fast becoming a rare species” quipped Jeremy Grantham, one of left wondering why what had worked in their formative years value’s handful of survivors, in his first quarter letter of 2000. and filled their playbook no longer held. Growth is ascendant again but it’s a different generation of analysts leading the Growth investors for their part took to explaining why their ap- charge—a generation comprised of many who have yet to ex- proach must out of necessity win always, from that point on- perience their investment style fall out of favor. wards and into eternity and, as a corollary, why value investing was destined to fail. Heedless, value stocks commenced out- Even the most sensible investment policies will get you into performing growth stocks and continued to do so over the next trouble sometimes. Because markets are the collected actions five years. Now, twenty years on, growth at any price rules the of individual human beings, they don’t follow fixed rules. 4 Previously reliable relationships can evaporate without warning ue because each helps us to view different constellations of and, although conditions may be similar, they are never the stocks.