Gold-rated Harbor Capital Appreciation's veteran managers seek firms with strong management, sustainable competitive advantages, and significant runways for growth.
By Robby Greengold
The following is our latest Fund Analyst Report for Harbor Capital Appreciation HACAX.
Harbor Capital Appreciation's HACAX seasoned management team, consistent process, and below-average fees inspire confidence that it will outperform over a full market cycle. The fund earns a Morningstar Analyst Rating of Gold.
At the helm are comanagers Kathleen McCarragher and Sig Segalas, veteran growth-managers who have worked side by side for nearly two decades. Their investment decision-making leans heavily on an experienced analyst team that feeds them ideas that can help distinguish the fund from its Russell 1000 Growth benchmark.
The duo seeks firms it believes have strong runways for growth. The companies should have great management and sustainable competitive advantages and be trading at levels that don’t fully reflect their growth potential. The managers are willing to pay a premium for stocks they like, so the portfolio tends to have higher average price multiples than the index, putting it far out on the growth spectrum.
Most of the team’s recent secular growth ideas have sprung from technology stocks such as Tencent Holdings and NVIDIA NVDA. The portfolio has historically favored tech-related names but not typically to this extent: As of August 2017, technology stocks consumed more than half the portfolio’s assets. That positioning has provided significant tailwinds to the fund’s returns during the first eight months of 2017, during which it did better than 93% of its large-growth Morningstar Category peers. It was a different story in 2016, when the fund failed to deliver positive returns and ranked in the category’s bottom 15%. These short-term streaks and retreats have always been hallmarks of this strategy, which tends to capture more of its benchmark’s upside and downside. Since Segalas took the reins in 1990 through August 2017, the fund’s 11.6% annualized gain outpaced the benchmark’s 9.7% and the large-growth category’s 8.8%.
The management team’s experience and consistent execution through the years help the fund maintain an edge. With its highly competitive fees, this fund remains a standout.
Process Pillar: Positive | Robby Greengold 09/29/2017
Managers Sig Segalas and Kathleen McCarragher scour the market for companies they believe will generate economic value over a multiyear horizon. Applying a bottom-up, fundamental-research-driven approach, the team focuses on the durability of a company's growth by favoring businesses with solid balance sheets, strong research and development capabilities, and defensible franchises. The managers prefer businesses that are dominant in their industries with expected growth rates 50% greater than the market. To find these firms, the managers leverage the fundamental research of Jennison Associates’ talented group of analysts. As sector specialists, the analysts conduct in-depth assessments of the companies’ business models by meeting frequently with company management, suppliers, competitors, and customers.