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All-Star Managers Make This Firm a Beacon

Harbor Funds charge a fair price for solid strategies.

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Harbor Capital Advisors is known in the mutual fund industry for hiring best-in-class subadvisors to run its mutual funds. The firm has a long history of selecting money managers since it began as the in-house pension manager for  Owens-Illinois Inc. (OI). Starting in 1969, Harbor began managing O-I employees' assets as a benefit offered by the company. In 1983 it was spun out of Owens-Illinois, and in 1987 the firm started running public mutual funds while continuing to manage corporate pension money. Dutch asset manager Robeco Groep N.V. purchased Harbor from Owens-Illinois in 2001. (Robeco Groep is in turn owned by the Netherlands-based bank, Rabobank.)

Under Robeco's ownership, Harbor autonomously manages more than $55 billion in assets (as of Sept. 30, 2010) across its funds and corporate pension plans. While Harbor's CEO and board chairman Dave Van Hooser reports to Robeco's CFO, the parent company's approach is hands-off, and the communication between the two is limited. Robeco will regularly send management board members to sit in on Harbor board meetings, but Harbor says Robeco's attendance is primarily for sharing ideas and best practices. It's also worth noting that Harbor, whose entire lineup is subadvised, doesn't use Robeco to manage any of its funds and says it's never felt any pressure to do so.

Harbor's use of subadvisors is its defining characteristic. Rather than building a staff of investment personnel to manage funds in-house, Harbor's approach is institutional in nature, hiring topnotch managers to run funds for both institutions and individual investors. The firm says the subadvisory approach is an inherently arms-length one--managers are external partners as opposed to colleagues, making it easier to rigorously assess them on an ongoing basis (and fire them if needed). Unlike some firms, Harbor uses one manager or team of managers from the same firm to run each fund. Harbor maintains that this model gives it a better possibility of outperforming because the approach doesn't dilute managers' best ideas. Relying on a single team makes it doubly important to get the right money manager in place at the beginning, especially because Harbor says that a manager change is almost always followed by significant outflows.

Courtney Goethals Dobrow does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.