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2023: The Year of Haves and Have Nots Within Large Cap Growth


Harbor Capital Appreciation Fund

2022 proved a challenging year for U.S. large cap growth equities as persistent elevated inflation, tighter monetary policy, and higher interest rates pressured companies with stronger earnings per share growth prospects. The Russell 1000 Growth Index returned -29.14%, lagging most other major U.S. equity asset classes during the year.

2023 has proven almost mirror opposite through its first six months as slower economic growth, moderating inflation, secular growth tailwinds such as artificial intelligence, and other influences have propelled U.S. large cap growth equities ahead of most other U.S. equity asset classes. In fact, the Russell 1000 Growth Index has returned 29.02% year-to-date as of 6/30/2023.

This year may have ushered in return reprieve for passive large cap growth investors, however, a closer look under the hood may likely raise concerns pertaining to employing an indexed approach within the space moving forward.

The chart below shows the number of Russell 1000 Growth Index constituents (benchmark for the Harbor Capital Appreciation Fund) that outperformed or underperformed the benchmark’s total return dating back five years on a quarterly basis. Over the last two quarters, 358 and 428 Index constituents lagged the benchmark’s total return. Said differently, 70% and 75% of Index holdings underperformed the Russell 1000 Growth total returns in 1q2023 and 2q2023, respectively. Alongside the height of the pandemic in 2020, the first and second quarters of 2023 proved only the second occurrence within the last five years where two consecutive quarters placed well beyond average levels in terms of Russell 1000 Growth constituent underperformance.

Source: FactSet Research Systems

Performance data shown represents past performance and is no guarantee of future results.

In our view, these results signal a few important items to consider for passive U.S. large cap growth equity investors:

  • The Russell 1000 Growth Index has become increasingly concentrated over the last market cycle. Its top ten holdings weight has increased from 20.7% to 51.2% over the past decade. This means that a handful of companies can have an outsized impact on Index returns.
  • Within today’s backdrop of slower global growth coupled with a murky economic outlook, companies with weaker earnings per share growth prospects, lower levels of profitability and less seasoned management teams could potentially face performance pressures looking ahead. We believe active management is well suited to navigate this environment, particularly managers with an emphasis on companies with durable competitive advantages and strong fundamentals.
  • Not only can active managers help drive alpha by seeking to identify outperformers within this landscape, but they also have the potential to generate excess returns by aiming to avoid performance laggards. In 2023, evading underperformers has provided an expanded opportunity set for active U.S. large cap growth alpha generation.

The Harbor Capital Appreciation Fund has been managed by Jennison Associates’ seasoned Large Cap Growth team since May 1990. The team seeks companies with multi-year structural growth opportunities and employs a highly active approach within the large cap growth space. Thus far in 2023 (as of 6/30/2023), Harbor Capital Appreciation has outperformed the Russell 1000 Growth Index by 7.87% (institutional share class, net of fees).

The Fund’s year-to-date outperformance has been attributed to active positions in strong outperformers. Importantly, Harbor Capital Appreciation has also meaningfully benefitted from lack of exposure to Russell 1000 Growth Index performance laggards across sectors and industries.

Average Annual Returns

As of 06/30/23. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate and when redeemed may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at or by calling 800-422-1050. For the most current quarter end performance click here.

The net expense ratios for this Fund are subject to a contractual management fee waiver through 02/29/2024.

Key Takeaways

Overall, passive large cap growth investors may likely be breathing a brief sigh of respite given the return reversal experienced thus far in 2023. However, a closer look under the hood shows that 70% and 75% of Russell 1000 Growth Index constituents lagged the benchmark’s total returns in 1q2023 and 2q2023, respectively. This highlights the growing concentration risk embedded within the Index, as well as the potential for an enhanced opportunity set for active managers in their effort to select attractive performers and avoid performance laggards. The Harbor Capital Appreciation Fund is managed by seasoned experts focused on long-term growth opportunities and strong company fundamentals. The team’s highly active approach has produced solid outperformance thus far in 2023 versus the Russell 1000 Growth Index. Much of the Fund’s outperformance in 2023 has been attributed to what was owned, as well as what was not owned (and held within the Index). With 2023 shaping up to be the year of “Haves and Have Nots” within large cap growth, now could prove an opportune time to consider the Harbor Capital Appreciation Fund for the road ahead.

Important Information

There is no guarantee that the investment objective of the Fund will be achieved. Stock markets are volatile and equity values can decline significantly in response to adverse issuer, political, regulatory, market and economic conditions. 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.

The Russell 1000® Growth Index is an unmanaged index generally representative of the U.S market for larger capitalization growth stocks. The Russell 1000® Growth Index and Russell® are trademarks of Frank Russell Company. These unmanaged indices do not reflect fees and expenses and are not available for direct investment.

This material may reference countries which may be generally the subject of selective sanctions programs administered. Readers of this commentary are solely responsible for ensuring that their investment activities in relation to any sanctioned country are carried out in compliance with applicable laws, rules or policies.

Alpha is a measure of risk (beta)-adjusted return.

The views expressed herein may not be reflective of current opinions, are subject to change without prior notice, and should not be considered investment advice.


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Harbor Funds Distributors, Inc. is the Distributor of the Harbor Mutual Funds.
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Investing involves risk and the potential loss of capital.

Investors should carefully consider the investment objectives, risks, charges and expenses of a fund before investing. To obtain a summary prospectus or prospectus for this and other information, click here or call 800-422-1050. Read it carefully before investing.

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