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Kip 25

Harbor International Loses a Manager, but We Stay with the Fund

The late Hakan Castegren leaves his surviving co-managers a successful strategy to continue employing with this Kiplinger 25 fund.

With the death of Hakan Castegren, the mutual fund industry has lost one of its most experienced overseas investors But shareholders of Harbor International (symbol HIINX), the fund Castegren ran since its 1987 launch, should see few changes and should hang on to their positions.

From 2003 until his death, Castegren ran Harbor International, a member of the Kiplinger 25, with the same four co-managers. Ted Wendell, one of the surviving co-managers, says he and his three partners are responsible for all the companies in the portfolio, discussing all buy and sell decisions. The foursome can work this way in part because Harbor owns a relatively manageable 76 stocks and keeps its holdings an average of seven years.

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Wendell, who’s based in Boston along with the rest of the co-managers, says the fund is positioned to tap into China’s economic rise. “China is the world’s main growth engine, bringing 12 million to 15 million rural migrants into its cities every year,” he says. With this rapid urbanization in a land of 1.3 billion people comes surging demand for new housing, infrastructure, factories, autos and other long-lasting consumer products.

The companies that will benefit by slaking this insatiable Chinese appetite come from all over the globe. For instance, Harbor holds Brazil’s Vale (VALE) and Australia’s BHP Billiton (BHP), two of the world’s largest exporters of key natural resources such as iron ore and copper. Atlas Copco Group (ATLKY.PK), of Sweden, another large holding, supplies mining and other heavy equipment, and Japan’s Fanuc (FANUY.PK), a leader in robotics and industrial controls, sells to auto plants and other factories in China. As for Chinese companies themselves, Harbor holds, among others, China Life Insurance (LFC), China Mobile (CHL) and PetroChina (PTR), the dominant players in insurance, wireless phones and petroleum.

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Overall, Wendell says, International keeps 15% to 20% of its assets (now $31 billion) in emerging-markets stocks. He says that Brazil is “moving from an emerging to an emerged market.” Because of the rising standard of living there, Harbor’s managers see opportunity in such banks as Itaú Unibanco (ITUB) and Banco Bradesco (BBD). Wendell also notes that two top European holdings, Nestlé (NSRGY.PK) and British American Tobacco (BTI), generate much of their revenues in emerging markets.

Over the past year through October 7, Harbor International returned 11.6%, four percentage points ahead of the MSCI EAFE index, which measures the performance of stocks in developed foreign markets. Over the past ten years, the fund returned an annualized 8.1%, beating the index by an average of five points. Investors who can meet the $50,000 minimum-investment requirement should buy Harbor International’s institutional class (HAINX), which charges 0.83% a year for expenses, compared with 1.20% for the retail class of shares.

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