Harbor Mid Cap Fund

Mid-Caps: Perhaps the Best of Both Worlds

In some ways, mid-cap stocks might be considered the sweet spot of the US equity market. Mid-sized businesses possess some positive attributes of both small and large companies. Similar to small-caps, mid-cap firms are more nimble and have more growth opportunities than corporate behemoths. But unlike small businesses, mid-cap companies are often more established and more competitively well positioned. In addition, in many cases the managers of mid-cap companies have proven their ability to execute, guiding the firm through its small-cap phase and having it earn its way into the mid-cap stage.

This positive fundamental picture can be reflected in stock performance. The chart below highlights annualized returns and standard deviation for mid-cap stocks vs small and large-cap equities over the last 30 years, ending June 2023. As you can see, mid-cap stocks have generated the highest returns, with volatility that is more closely associated with large caps than with more volatile small caps.

Source: Mstar Direct, June 2023. Standard Deviation (Std Dev) - Amount of variation or dispersion of a set of values.

The green color used above signifies the benchmark for the Harbor Mid Cap Fund. The legend provided still applies.

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

Investors May Be Underexposed To Mid-Caps

Unfortunately, we believe that many investors may have less exposure to mid-caps than they may intend, particularly if they rely on index funds to gain this exposure. It is typical to see portfolios that pair large-cap funds with small-cap funds to gain market-cap diversification. However, due to recent market action, that approach may no longer provide adequate exposure to mid-caps in our view. The market’s preference for mega caps over the past few years has had a significant impact on the composition of the large-cap universe. The top holdings in the Russell 1000 have driven much of the returns in recent years and now consume far more index assets than they used to. This has had the effect of crowding out the mid-caps included in the index. As shown on the chart below, the mid-sized stocks within the Russell 1000 (market caps less than $25 billion) have fallen by 40% over the last 5 years and 60% over the last 10 years.

Source: FactSet, June 2023.

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

Go Active For Mid-Cap Exposure

For this reason, we believe it is time for investors to consider adding a dedicated mid-cap fund to their portfolios to help top-up their mid-cap allocation. Furthermore, we believe that investors are better served by active funds in the mid-cap space. While many stocks in the mid-cap universe possess attractive fundamental characteristics, the mid-cap space also includes former large-cap stocks that are in secular decline. Consequently, it is important, in our view, to favor active funds with experienced PMs who can sort through the opportunity set in an effort to separate the rising stars from the also-rans.

Harbor Mid-Cap Fund

Harbor has partnered with EARNEST Partners on Harbor Mid-Cap Fund. Founded in 1998, EARNEST is an established boutique investment firm, specializing in US equity investing. We believe Harbor Mid-Cap Fund holds appeal for those seeking dedicated mid-cap exposure:

Strategy Highlights

• Veteran Management. EARNEST’s principals have over 20 years’ experience. Founder and CEO Paul Viera has spent more than three decades in the industry.
• Deep Industry Knowledge. EARNEST’s rigorous research-oriented process is executed by a diverse team of experienced investors who have specialized subject matter expertise gained from years of hands-on experience across a wide range of industries.
• Return Pattern Recognition. EARNEST consistently seeks company characteristics that they believe are hallmarks of outstanding financial performance.
• Valuation Discipline. The team seeks fiscally sound businesses with appealing prospects that are trading at reasonable valuations, resulting in a core style orientation.

Average Annual Returns as of 6/30/2023

Performance data shown represents past performance and is no guarantee of future results. 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 harborcapital.com or by calling 800-422-1050. For the Fund's most current performance click here.

Important Information

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 or a recommendation to purchase or sell a particular security.

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. Stocks of mid cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies.

The Russell Midcap® Index is an unmanaged index generally representative of the U.S. market for medium capitalization stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell Midcap® Index and Russell® are trademarks of Frank Russell Company.

The Russell Top 200 TR Index tracks the stock market performance of the largest 200 companies in the Russell 3000® index. Investors and analysts watch it as a benchmark for U.S.-based ultra-large-cap stocks. The Russell 3000® is a capitalization-weighted stock market index. It can serve as a barometer of the entire U.S. stock market.

The Russell 1000® Index measures the performance of the large-cap segment of the US equity universe. It is a subset of the Russell 3000® Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership.

The Russell Mid Cap TR Index is a market capitalization weighted index representing the smallest 800 companies in the Russell 1000® Index.

The Russell 2000® Index measures the performance of the small-cap segment of the US equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index.

The S&P 500 Index is an unmanaged index generally representative of the U.S. market for large capitalization equities. This unmanaged index does not reflect fees and expenses and is not available for direct investment.

Indices listed are unmanaged and do not reflect fees and expenses and are not available for direct investment.

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