The manager of Harbor Capital Appreciation discusses why his fund -- historically a top performer among large-company growth funds -- is lagging this year. By Steven Goldberg, Contributing Columnist May 11, 2006 Harbor Capital Appreciation is a great fund to own when large-company growth stocks are in season. Spiros "Sig" Segalas, 72, has piloted the fund successfully for 16 years. Over the past 15 years, the fund has returned an annualized 12% -- putting it in the top 10% among its competitors. So what's up this year? Not Capital Appreciation. At least not much. Year-to-date through May 9, the $9 billion fund is up just 1% -- leaving it nearly six percentage points behind Standard Poor's 500-stock index. Against other large-company growth funds, Harbor ranks in the bottom 11%. "It's still early; it's only spring," Segalas says. "I'm never happy underperforming even for a day, but I think our stocks are going to do fine." He cites two reasons for his lousy start this year. First, the fund had a terrific finish last year. For all of 2005, it gained 14%, putting it in the top 10% of its peers. "We had several really big winners -- a bunch of stocks that went through the roof." He cites Apple, Google, Chico's, Schlumberger and Genentech. "There was profit taking in some of these stocks at the start of the year." Reason number two for this year's shortfall: The strong performance of commodity-related stocks. "Anytime there's a massive move in commodities, I'm going to lag," says Segalas. Growth stocks will always lag in a market like this." Segalas is bullish. "The market looks fine. Profits are great; price-earnings ratios are reasonable. The only thing that concerns me is that we may possibly be laying the seeds for inflation. Perhaps the rise in the price of gold is telling us that." Harbor isn't a fund for the meek. Segalas prefers to invest in superior companies -- and he's willing to pay premium prices for them. That can lead to volatility. In the 2000-02 bear market, the fund plunged 63%. The fund currently has 30% of assets in tech stocks. In measured doses, though, the fund is a fine choice for the large-company growth portion of an aggressive portfolio. The fund's "investor" class (symbol HCAIX) requires a $2,500 minimum investment. The institutional class (HACAX) has slightly lower expenses but requires $50,000 to start. Among Segalas's favorite stocks: Google (GOOG), eBay (EBAY), Procter Gamble (PG), Microsoft (MSFT) and Adobe Systems (ADBE). Segalas says technology hasn't hurt Capital Appreciation's performance this year. His Internet stocks and Microsoft haven't done so well. But other than that, his tech stocks have been winners, he says. "The computer stocks have been bad, but we haven't owned them."