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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORMN-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07739
Harding, Loevner Funds, Inc.
(Exact name of registrant as specified in charter)
400 Crossing Boulevard
Fourth Floor
Bridgewater, NJ 08807
(Address of principal executive offices) (Zip code)
Marcia Y. Lucas, Esq.
The Northern Trust Company
50 South LaSalle Street
Chicago, IL 60603
With a copy to:
Stephen H. Bier, Esq.
Dechert LLP
1095 Avenue of the Americas
New York, NY 10036
(Name and address of agent for service)
Registrant’s telephone number, including area code: (877)435-8105
Date of fiscal year end: 10/31
Date of reporting period: 04/30/2019
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Item 1. Reports to Stockholders.
(a) | The following is a copy of the report transmitted to shareholders pursuant to Rule30e-1 under the Investment Company Act of 1940 (17 CFR270.30e-1) |
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⬛ | HARDING LOEVNER FUNDS |
Global equity investing for institutions is Harding Loevner’s exclusive focus. Through Harding Loevner Funds it offers distinct global strategies based on itsquality-and-growth investment philosophy. It seeks to purchase shares of growing, financially strong, well-managed companies at favorable prices. Harding Loevner manages each of the Funds’ Portfolios according to a disciplined, research-based investment process. It identifies companies with sustainable competitive advantages and assesses the durability of their earnings growth by conductingin-depth fundamental research into global industries. In constructing portfolios, Harding Loevner diversifies carefully to limit risk.
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International Equity Portfolio
International Small Companies Portfolio
Frontier Emerging Markets Portfolio
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Global Equity Research Portfolio
International Equity Research Portfolio
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Contact
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Harding, Loevner Funds, Inc. | ||||
c/o Northern Trust | ||||
Attn: Funds Center C5S | ||||
801 South Canal Street | ||||
Chicago, IL 60607 | ||||
Phone: (877)435-8105 | ||||
Fax: (312)267-3657 | Must be preceded or accompanied by a current Prospectus. | |||
www.hardingloevnerfunds.com | Quasar Distributors, LLC, Distributor |
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DAVID LOEVNER, CFA, CIC CHAIRMAN OF THE FUNDS AND CEO OF THE ADVISER
SIMON HALLETT, CFA CO-CIO OF THE ADVISER
FERRILL ROLL, CFA CO-CIO OF THE ADVISER |
PETER BAUGHAN, CFA PORTFOLIO MANAGER |
The management of “risk” is central to the practice of portfolio management. Success requires understanding its sources (what you don’t know can hurt you), embracing it (investors are ultimately “paid” for taking risk), and controlling it to remain within desired boundaries.
As we face today varied and unpredictable sources of instability (political and otherwise), we are thinking not just about how to measure and manage risk but also how better to understand its essential nature. In this letter, we offer musings on this topic from Peter Baughan,co-lead portfolio manager of our Global Equity Portfolio. His commentary—originally penned as a letter to one of our institutional clients—draws upon literary metaphor as a complement to a quantitative model to illustrate his framework for thinking about risk and how to manage it.
We are grateful to you for taking the time to read this report and, more importantly, for trusting us to invest on your behalf.
Sincerely,
David R. Loevner, CFA, CIC
Simon Hallett, CFA
Ferrill D. Roll, CFA
I’d like to outline some thoughts about investment risk: how to measure it, how to manage it, and how much of it there may be in our portfolios today. “Riskiness” can be defined in many ways, but here I am using the term to refer to volatility—how frequently and by how much a value, such as a stock’s market price, varies over time.
As growth investors, we at Harding Loevner are particularly interested in how stocks of companies in faster-growing industries (which we tend to favor) behave compared with those in slower-growing industries (which we tend to avoid). One of the tools we use to monitor the investment environment is a multifactor model that generates forecasts of how risky equity investments will be based on their past behavior. For most of the past fifteen years (that is, since thedot-com bust), stocks in the ten fastest-growing industries have not been much riskier (i.e., volatile) than those in the ten slowest-growing industries. Yet starting in late 2017 this has changed. Stocks in the ten fastest-growing industries have become increasingly volatile, and bigger contributors to market volatility than stocks of the slowest-growing industries.
These growth stocks are increasingly exposed to, and at the mercy of, the behavior of the investment crowd that is becoming a very significant—and hard to diversify—risk factor. Active investors, large and small, have been attracted to growth stocks because that’s where the returns are, or at least where the returns have been. Passive investors, naturally, have followed them. We think that, as a result, investing in quality-growth companies now requires a higher tolerance for volatility than in the past. Our risk models are suggesting that our portfolios have a potential to outperform in rising markets—and underperform in a correction—which is contrary to their historical pattern.
As a portfolio manager, this suggestion leaves me looking for more insight into the fundamental sources of systematic risk. Forecast volatility is clearly an output—the simulated result of some input, a “disturbance” of some sort, introduced into the risk-analysis system. Stepping back to survey the state of the world, I submit that the frequency and potential severity of disturbances are rising. We have now experienced ten years of highly stimulative monetary policies and sharply rising passive fund flows into stocks. We see a host of fundamental changes unfolding globally: demographic, political, social, cultural, economic, geopolitical, technological, you name it. How should we approach the uncertainty of this environment?
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Obviously we cannot look to a quantitative risk model for the answers to such a question. I find myself thinking aboutMoby-Dick, Herman Melville’s epic novel about Captain Ahab’s maniacal and, ultimately, fatal pursuit of a great white whale. The story ends with Moby Dick sinking the good shipPequod to the doom of its crew with the sole exception of the tale’s narrator, Ishmael.
Melville’s depiction of Starbuck, thePequod’s chief mate, is an unrivaled portrayal of a risk managerpar excellence.
Melville’s depiction of Starbuck, thePequod’s chief mate, is an unrivaled portrayal of a risk managerpar excellence. Melville describes a whaler who has seen it all and been through it all, a man “embalmed with inner health and strength … prepared to endure for ages to come. … Polar snow or torrid sun … a thousand-fold perils he had calmly confronted through life.” Critically, Starbuck could “restrain the gush of dare-devil daring, so often evinced by others in the more perilous vicissitudes of the fishery.” Starbuck’s primary dictum was: “I will have no man in my boat who is not afraid of a whale.” To him, the only acceptable whaler possessed “reliable and useful courage” that arises from “the fair estimation of the encountered peril.” For Starbuck, an utterly fearless man was a far more dangerous comrade than a coward. Starbuck, I imagine, generated strong risk-adjusted returns for the owners of thePequod.
Consider the following exchange at a tense moment, when Ahab is pressing his fanatical pursuit of the white whale and Starbuck has sharply rising misgivings over the risks involved. Starbuck goes below deck to confront Ahab in his cabin. Ahab reacts furiously, grabbing a loaded musket and pointing it at Starbuck. Starbuck replies:
Thou hast outraged, not insulted me, sir; but for that I ask thee not to beware of Starbuck; thou wouldst but laugh; but let Ahab beware of Ahab; beware of thyself, old man.
Melville gave Starbuck these words in approximately 1851—an early example of “know thyself” risk management behavioral advice.
I think Starbuck had one great advantage in evaluating and managing risk compared with today’s risk-asset managers such as myself: he knew what he was looking for, and what he was looking at. Starbuck intimately knew whales—the risk asset. This included their behaviors when harpooned. He could tell when ripples in the water from a submerged harpooned whale were routine and when they portended imminent danger to the boat. In such cases, the harpoon line had to be cut quickly to release the boat from unacceptably risen uncertainty in the behavior of the whale. Further, he knew that Moby Dick was a uniquely dangerous whale, easily identified by color, and a colossus of unprecedented strength and unmanageable malevolence when encountered. Finally, he knew that thePequod had to go looking for Moby Dick—Moby Dick would not go looking for thePequod.
As a global portfolio manager, I don’t have the same clarity around the nature of a “fundamental disturbance” or the likely behavior of the risky asset in its wake as Starbuck had. Nor do I have only a single whale to worry about. To illustrate the particular multi-dimensional risk-management challenge facing portfolio managers, it’s helpful to look at another boat and another captain. In the early morning of June 17, 2017, the USSFitzgerald, a US$1.8 billion destroyer, collided with a30,000-ton cargo ship, theACX Crystal, 12 miles off the coast of Japan, leading to hundreds of millions of dollars in damage to theFitzgerald and the drowning of seven sailors in their bunk rooms. How did a US naval destroyer manage to collide with awell-lit cargo ship nearly four times its size on a calm and clear, moonlit night?
To make a long and sadly fascinating story short, theFitzgerald would not have collided with theCrystal if Starbuck had been at the helm. Quite unbelievably, but believably, the26-year-oldback-up captain in charge of theFitzgerald that early morning did not take her eyes off the navigation computer screens, which erroneously showed no dangerously converging ship traffic until it was too late. Tragically, when she finally grasped the severity of the imminent danger faced by the ship, in panic she chose the wrong evasive maneuver and swung the shipinto the path of theCrystal (though, reportedly, if theFitzgerald had missed theCrystal, it may well have collided with an even larger ship coming close behind theCrystal.)
The captain did not have the awareness that comes from real-world experience to realize that it was simply not plausible for theFitzgerald to be facing the wide-open, smooth-sailing scenario projected by the ship’s navigation system while sailing through the narrow shipping channel that leads into and out of Tokyo, one of the world’s busiest ports. The captain did not think to double check what the ship’s navigation systems indicated by confirming it with physical observation that was readily available to her by leaving the bridge, walking out onto the deck, and looking around her. Incredibly, due to staff shortage, a physical lookout was only posted on the port side of the vessel; nobody was posted on the starboard side where theCrystal was a brightly lit skyscraper bearing down on theFitzgerald.
So what can we learn from comparing risk management on thePequod and theFitzgerald?
First, in risk management, as in all endeavors, pride goeth before destruction. Starbuck’s exemplary risk awareness and action were overwhelmed by what Melville describes as “the fatal pride’’ of Captain Ahab. Starbuck, too, perishes in the end.
Second,lack of transparency and failures of coordination in capturing and analyzing, and in delivering information to and from key decision-makers, is dangerous. Communication was fragmented on theFitzgerald, where the organization of work was characterized by many silos of specialist activity. This fragmentation enabled the collision.
Third, to the extent that risk is equated with volatility, it can be very hard to identify its underlying sources. All volatility is not
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created equal: some reflects ripples from “disturbances” that are ultimately benign; at other times volatility emanates from malign sources portending imminent danger of serious damage. Starbuck could tell the difference between the two, but unlike Starbuck we operate in a multi-dimensional environment where telling the difference is far more challenging.
Fourth, portfolio managers need the equivalent of both high-tech radar systems and human eyes on deck scanning the horizon in all directions. TheFitzgerald’s captain could only tell what the navigation screen showed her. I would like to think I have the real-world awareness to “look around” to confirm what our system—in this case our multi-factor risk model—is telling us.
Fifth, crowding clouds the picture for the risk manager and raises the peril. Starbuck did not have to worry that the whale he harpooned would turn unmanageable due to the activity of competing whaling ships. By contrast, theFitzgerald very much had to worry about the activity of other ships.
How does one make a “fair estimation of the ‘encountered peril’” if the behavior of the risk assets has become increasingly unpredictable and dangerous?
In this vein, while sailing through the last three months of 2018, when the MSCI All Country World Index fell 12%, I felt as though I were the captain of theFitzgerald, as the behavior of many risk assets in my portfolio diverged sharply from my expectations in response to the unforeseen activities of countless other return-seeking, risk-avoiding market participants crowded into a narrow passage of growth stocks. That we subsequently experienced a sharp reversal in collective action and snap-back in the valuation of global equities gave me little comfort. In fact, the episode serves to highlight what I think is increasing unpredictability of growth stocks. Starbuck would think twice before lowering his whale boats in such waters. How does one make a “fair estimation of the ‘encountered peril’” if the behavior of the risk assets has become increasingly unpredictable and dangerous—with sharply rising potential for severity of consequence?
If, as Solomon wrote in theBook of Proverbs, the fear of God is the beginning of wisdom, perhaps fear of risk is the beginning of good (long-term) investment returns. Following our philosophy, we will retain exposure to many of the strongest-growth sectors despite the increased volatility. But we are also developing more fear (or at least appreciation) of risk as we look around us at disturbing dynamics in the real world and the seeminglyoft-disconnected behavior of the markets. We want to emulate Starbuck by having “reliable and useful courage” that recognizes the importance of guarding against whatever the unpredictable “encountered perils” will be in the future.
Opinions expressed are those of Harding Loevner and are not intended to be forecasts of future events, a guarantee of future results, nor investment advice. Please read the separate disclosure page for important information, including the risks of investing in the Portfolios.Past performance is not a guarantee of future results.
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PORTFOLIO MANAGEMENT TEAM
PETER BAUGHAN, CFA CO-LEAD PORTFOLIO MANAGER
FERRILL ROLL, CFA CO-LEAD PORTFOLIO MANAGER
SCOTT CRAWSHAW PORTFOLIO MANAGER
JINGYI LI PORTFOLIO MANAGER
CHRISTOPHER MACK, CFA PORTFOLIO MANAGER
RICHARD SCHMIDT, CFA PORTFOLIO MANAGER |
⬛ | PERFORMANCE SUMMARY |
For the Global Equity Portfolio, the Institutional Class rose 9.90%, the Institutional Class Z rose 9.90%, and the Advisor Class rose 9.77% (net of fees and expenses) in thesix-month period ended April 30, 2019. The Portfolio’s benchmark, the MSCI All Country World Index (ACWI), rose 9.37% (net of source taxes).
⬛ | MARKET REVIEW |
Global stock marketssold-off in November and December and then rebounded sharply, ending the first half of the fiscal year with a solid net gain. Thesell-off in late 2018 was led by double-digit declines in developed market equities amid worries that a global recession looms, and that theUS-China tariff dispute could escalate. Emerging markets (EMs), weak all year, fell less in the decline than developed markets, aided in part by rebounds in the weakest countries and currencies.
At the turn of the year, investor sentiment was buoyed by progress inUS-China trade negotiations and signals that the US Federal Reserve will pause hiking interest rates. All sectors and regions ended the first half of the fiscal year in positive territory.
Signs of a global economic slowdown appeared throughout the period. In the US, GDP growth forecasts were revised downward. In China, retail sales and manufacturing activity fell amid a sharp decline in bank lending. In Europe, European Union (EU) officials predicted GDP growth would slow this year to 1.3%, from 1.9% in 2018. Germany’s manufacturing sector abruptly contracted, and the country’s export sales and orders declined at the fastest rate since the financial crisis in 2008. In Italy, weak business and consumer confidence, precipitated by its populist government’s budget standoff with the EU, sent the country into recession. European economists were increasingly
FUND FACTS at April 30, 2019
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TOTAL NET ASSETS | $965.5M | |||||||||
SALES CHARGE | NONE | |||||||||
NUMBER OF HOLDINGS | 69 | |||||||||
TURNOVER (5 YR. AVG.) | 35% | |||||||||
REDEMPTION FEE | 2% FIRST 90 DAYS | |||||||||
DIVIDEND POLICY | ANNUAL | |||||||||
| INSTITUTIONAL INVESTORS
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| INDIVIDUAL INVESTORS
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INST CLASS | INST CLASS Z | ADVISOR CLASS | ||||||||
TICKER | HLMVX | HLGZX | HLMGX | |||||||
CUSIP | 412295602 | 412295727 | 412295206 | |||||||
INCEPTION DATE | 11/3/2009 | 8/1/2017 | 12/1/1996 | |||||||
MINIMUM INVESTMENT1 | $100,000 | $10,000,000 | $5,000 | |||||||
NET EXPENSE RATIO | 0.94% | 0.89%2 | 1.14% | |||||||
GROSS EXPENSE RATIO | 0.94% | 0.91% | 1.14% | |||||||
1Lower minimums available through certain brokerage firms;2The net expense ratio is as of April 30, 2019 as the Portfolio is operating below the contractual agreement, which is in effect until February 28, 2020.
All Expense Ratios are as of the Prospectus dated February 28, 2019 unless otherwise noted.
concerned about the bloc slipping, Japan-style, into a liquidity trap, where monetary policy loses its ability to stimulate economic growth becausewould-be lenders fear ultralow rates are unsustainable.
Central banks reacted to the downbeat economic data. After downgrading its GDP forecast for 2019, the Fed signaled that December’s rate hike would be its last for a while, and Chairman Jerome Powell announced a halt to the planned reduction of the Fed’s US$4 trillion balance sheet, supporting market liquidity. Bond yields in both developed and emerging markets fell markedly in response. The European Central Bank followed suit, extending its time horizon for keeping interest rates low and offering additional cheap funding for banks. China, too, announced measures to lower borrowing costs and encourage loan growth.
TheUS-instigated trade war, which left stock markets battered and bruised in 2018, appeared to take a favorable turn. For much of last year, companies fearful of escalation that would disrupt their global supply chains were discouraged from making fixed-capital investments. In a reversal over the past few months, hopes for trade peace have risen, as both the US and China signaled an eagerness to reach an accord and reported progress in their negotiations.
By sector, Information Technology (IT) and Real Estate performed best. Communication Services also did well, especially Asian internet and media stocks, which returned to the winners’ circle after falling steadily for most of last year, helped in part by China’s decision to end its moratorium on new video game approvals. The Energy sector lagged along with oil prices; although the stocks rebounded with the price of oil from December lows.
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PERFORMANCE (% TOTAL RETURN)
for periods ended March 31, 2019 | for periods ended April 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||
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3 YEARS |
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5 YEARS |
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10 YEARS |
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SINCE INCEPTION* |
| 1 YEAR |
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3 YEARS |
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5 YEARS |
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10 YEARS |
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SINCE INCEPTION* |
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Nov-09 | Aug-17 | Dec-96 | Nov-09 | Aug-17 | Dec-96 | |||||||||||||||||||||||||||||||||||||||||||||||
GLOBAL EQUITY PORTFOLIO – INST CLASS | -0.09 | 12.71 | 8.90 | – | 9.81 | 3.73 | 13.34 | 9.56 | – | 10.08 | ||||||||||||||||||||||||||||||||||||||||||
GLOBAL EQUITY PORTFOLIO – INST CLASS Z | -0.07 | – | – | – | 6.05 | 3.78 | – | – | – | 7.68 | ||||||||||||||||||||||||||||||||||||||||||
GLOBAL EQUITY PORTFOLIO - ADVISOR CLASS | -0.36 | 12.43 | 8.63 | 12.78 | 7.10 | 3.49 | 13.07 | 9.29 | 11.99 | 7.23 | ||||||||||||||||||||||||||||||||||||||||||
MSCI ALL COUNTRY WORLD INDEX | 2.60 | 10.67 | 6.45 | 11.98 | 8.71 | 5.57 | – | 5.06 | 11.36 | 6.96 | 11.11 | 9.01 | 7.33 | – | ||||||||||||||||||||||||||||||||||||||
Returns are annualized for periods greater than 1 year. *Inception of the Institutional Class, November 3, 2009. Inception of the Institutional Class Z, August 1, 2017. Inception of the Advisor Class, December 1, 1996. Index performance prior to January 1, 2001 cannot be shown since it relies on back-filled data.
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Portfolio may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling (877)435-8105 or visiting www.hardingloevnerfunds.com. Performance data shown does not reflect the 2.00% redemption fee imposed on shares held 90 days or less; otherwise, total returns would be reduced.
In terms of geography, the strong rebounds in Hong Kong and in China boosted returns in Pacificex-Japan and EM. Japan was the weakest region.
⬛ | PERFORMANCE ATTRIBUTION |
Viewed by sector, our Financials stocks contributed the most to our relative performance, especially Hong Kong-based insurerAIA Group, Indonesia’sBank Central Asia and UK’sStandard Chartered. Stocks in Health Care also contributed, led by Chinese biotech drug manufacturerWuxi Biologics, hearing aid manufacturerSonova Holdings, and USlab-instrument makerWaters. However, our overweight to the lagging Health Care sector detracted.
Weak results in Consumer Discretionary hurt our relative performance. Shares ofEssilorLuxottica fell as boardroom tensions became public at the recently merged eyewear company. Shares ofBooking Holdings, an online travel services company (formerly Priceline.com), andZOZO, a Japanese online retailer, also detracted. In Energy, oilfield services providerSchlumberger dragged on returns.
By geography, our stock selection in the US was helpful, especiallyPayPal,Roper, andMastercard. In EMs strong stocks in South Africa, Indonesia, and Russia, offset declines in our holdings in China and Mexico. Our stocks in the eurozone detracted, especially EssilorLuxottica and Spain’sGrifols.
⬛ | PERSPECTIVE AND OUTLOOK |
We often review in these letters one or two of the tenets of our investment philosophy or aspects of our process, illustrating our points with examples from our recent purchases or current Portfolio holdings. A shortcoming of this didactic approach is that, of course, our process rejects far more companies than it ultimately embraces. So, in this letter, we focus on a pair of companies that you will not find among our holdings: One that has been publicly traded for almost a century while the other made its public debut
just in the last few weeks. Illustrating a few things we try to avoid, food giant Kraft Heinz and ride-sharing service Lyft serve as useful case studies of companies that our investment process has deterred us from owning.
Inmid-February, Kraft Heinz announced a US$15 billion write down of the value of its iconic Kraft and Oscar Mayer brands, telling investors that it needed to spend much more heavily on innovation and marketing of those brands to revive their sales and their power to achieve premium prices. As investors took stock of the implications of much lower profit margins and a slashed dividend, the share price of this ostensibly “defensive” company tumbled more than 25% in one day. The shares now trade at just half the price they did 15 months ago.
Harding Loevner, in the person of ourfood-and-beverage analyst Rick Schmidt, deemed Kraft Heinz unqualified for investment according to our growth and quality criteria, effectively keeping itoff-limits to our portfolio managers. In early 2015, he watched Kraft fall under the control of Heinz and the Brazilian investment group 3G Capital, backed by Warren Buffett’s BerkshireHatha-way. 3G’s playbook was well-known to us from InBev’s (another3G-controlled holding) acquisition of Anheuser Busch (AB). Relying heavily on the enduring strength of AB’s existing brands, its new managers set about ruthlessly cutting costs, taking money out of the business, and distributing it to shareholders (including 3G). The strategy proved fruitful for several years at as gilded a company as AB had been under the control of the Busch family. By 2018, however, AB InBev was losing market share and struggling under debt it had taken on to make further acquisitions. [Disclosure: Harding Loevner’s International strategy owned shares of AB InBev from 2012 to 2016. We bought into the promise of rising profit margins under the aggressive management but sold on realizing that the company was no longer achieving any organic growth.] Kraft Heinz’s write-down vindicated our decision to forego the generous share buybacks and dividends financed by the higher margins that cost-cutting could deliver in the short or even the medium term.
Instead, we have favored Staples companies whose managements still aimed to grow their top lines, by developing their markets
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through marketing, investing in research and development (R&D), and expanding into developing economies. One such company isNestlé, which we have owned in the Portfolio for nearly three decades. Nestlé spends more than US$1.5 billion dollars a year on R&D and has consistently spent almost 2% of revenues on innovation. Nestlé has steadily built its presence in developing markets over many years, and now garners more than 40% of its sales from emerging markets, where the population is generally younger, growing, and enjoying rising disposable incomes—all tailwinds for achieving organic growth. It frequently acquires emergent brands to open new avenues of growth that are complementary to its existing product or distribution strengths, such as the Starbucks brand for packaged coffee sold outside of the eponymous coffee shops. Nestlé has also invested heavily in its online presence and has doubled its sales viae-commerce in the last five years, to almost 7% of its total sales last year. At the cost of more modest operating profit margins, fully a quarter lower than those of Kraft before February’s “reset,” Nestlé has managed to keep growing1its revenues, profits, and dividends. Its share price has ultimately followed, regaining its25-year record of compound returns to its investors above 10%. By comparison, the MSCI All Country World Index has returned just under 7% over the same period.
Our investment process requires we achieve a deep understanding of a company’s business model and long-term growth potential.
The second illustrative event this half of the fiscal year was the successful US$2.3 billion initial public offering (IPO) of Lyft, the company behind the ride-sharing platform. As is our custom, we pay attention to some IPOs and assiduously scour offering documents for industry and business model insights, but we rarely participate in such offerings. Our investment process requires we achieve a deep understanding of a company’s business model and long-term growth potential, based in part on our analysis of a company’s history of disclosures and track record of success. This depth of understanding is generally difficult to achieve for IPOs. Private companies do not hold themselves to the same level of disclosure that laws and customs require of public companies. Thus
GEOGRAPHIC EXPOSURE (%) at April 30, 2019
COUNTRY/REGION | PORTFOLIO | BENCHMARK | 1 | |||||
CANADA
| 0.0 | 3.0 | ||||||
EMERGING MARKETS
| 14.5 | 11.6 | ||||||
EUROPE EMU
| 11.0 | 9.7 | ||||||
EUROPEEX-EMU
| 9.0 | 9.2 | ||||||
FRONTIER MARKETS2
| 0.0 | — | ||||||
JAPAN
| 9.7 | 7.1 | ||||||
MIDDLE EAST
| 1.0 | 0.2 | ||||||
PACIFICEX-JAPAN
| 2.9 | 3.8 | ||||||
UNITED STATES
| 50.0 | 55.4 | ||||||
CASH
| 1.9 | — |
1MSCI All Country World Index;2Includes countries with less-developed markets outside the Index.
SECTOR EXPOSURE (%) at April 30, 2019
SECTOR
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PORTFOLIO
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BENCHMARK
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1
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COMM SERVICES | 7.5 | 8.9 | ||||||
CONSUMER DISCRETIONARY | 13.8 | 11.0 | ||||||
CONSUMER STAPLES | 4.4 | 8.2 | ||||||
ENERGY | 2.3 | 6.1 | ||||||
FINANCIALS | 13.9 | 17.0 | ||||||
HEALTH CARE | 16.6 | 11.0 | ||||||
INDUSTRIALS | 13.7 | 10.5 | ||||||
INFORMATION TECHNOLOGY | 18.6 | 16.1 | ||||||
MATERIALS | 7.3 | 4.8 | ||||||
REAL ESTATE | 0.0 | 3.2 | ||||||
UTILITIES | 0.0 | 3.2 | ||||||
CASH | 1.9 | — | ||||||
1MSCI All Country World Index.
we were not buyers in the IPO, choosing to leave the potentialfirst-day “pop” in the share price to others.
In Lyft’s case, the disclosures the company offered made clear that, however rapid the growth of revenues so far and attractive the model could turn out to be, the business is still loss-making—and substantially so: Lyft lost 43 cents for every dollar of revenue it earned last year. In its quest to grow and to compete against first-mover Uber, Lyft subsidizes fares and shares a larger portion of those reduced ride revenues with drivers in order to keep drivers plentiful and prowling for customers. All that is fine, and it is easy to extrapolate current growth to a point where the company would be highly profitable if things went its way. But it’s not for us. We like to see a track record of profitable growth and make arguments for why that shouldn’t change, instead of a track record of losses with arguments for why it will be different in the future.
Lyft notwithstanding, we do like the value proposition that ride-hailing platforms offer to both customers and independent drivers. And we understand the powerful self-reinforcing benefits that can accrue to platforms as they gain customers. One of our holdings—Russian internet search giantYandex—has built that country’s largest ride-hailing business. Yandex’s strong profitability from online search in Russia, where it has edged out Google as the dominant search engine, allowed it to bankroll Yandex Taxi while still delivering profits overall. The company’s willingness to fight for critical mass and its ability to finance the resulting losses helped it win a brutal battle for dominance of Russia’s ride-hailing market against Uber. When Uber suffered management turmoil at home in the US, Yandex Taxi capitalized on its rival’s setback, merging Uber’s loss-making Russian subsidiary into its own business. Once having vanquished its most formidable competitor, Yandex Taxi stanched its losses by slashing rider subsidies. Scott Crawshaw, co-lead portfolio manager of our Emerging Markets Equity strategy, uncovered on a trip to Moscow in March that the business is already profitable in its home market.
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Nor are we averse to companies that are trying to enable autonomous-driving vehicles, which Lyft and Uber see as the natural evolution of their ride-hailing platforms. But rather than Lyft or Uber, we boughtWABCO, the former Westinghouse Air Brake Company, whose focus on braking and steering components for the trucking industry has led it to develop software for autonomously guided trucks. Yet, unlike Uber and Lyft, WABCO has remained highly profitable, with stable profit margins in the teens. Unfortunately, WABCO has several potent competitors in this field, including Tesla, Uber, andAlphabet’s Waymo. In March, WABCO agreed to be acquired by the German car parts maker ZF Friedrichshafen, citing the need for deeper pockets to sustain the required investment in its new products.
By design, our process requires consummated investments to meet a number of criteria, not just one. Kraft had steady profitability and a reasonably sound balance sheet, but few avenues of growth. Lyft achieves plenty of growth but cannot do so without resorting repeatedly to capital markets to fund the subsidies and advertising needed to drive that growth; it has not yet managed to attain profits from its sole current line of business. We’re seeking growing, sustainably profitable businesses, whose managements have the vision to risk investment in future growth that doesn’t depend on uninterrupted access to fickle capital markets.
⬛ | PORTFOLIO HIGHLIGHTS |
In the 2015 Annual Commentary, we described a “baker’s dozen” of holdings whose businesses were primarily based on online relationships with their customers. Today, we can still point to a dozen or so companies, comprising nearly a quarter of the Portfolio, that are centered on the internet, and the current list is remarkably similar to that one four years ago. These businesses have continued to grow, both by creating new markets (such as Yandex, discussed above, orAmazon.com, whose video streaming business was never contemplated in our original investment thesis), and by taking share from the established, brick-and-mortar incumbents in their various industries (such asMonotaRO, from wholesalers of industrial supplies, orAlibaba, from traditional retailers.)
Google’s sustained revenue and profit growth remains attractive—as does Alphabet’s willingness to invest widely in new business ventures.
In the first half of the fiscal year, were-established a position in Alphabet, believing that the regulatory threats that prompted our sale in 2017 are now fully discounted in its share price. Google’s sustained revenue and profit growth remains attractive—as does Alphabet’s willingness to invest widely in new business ventures. Several of those ventures have the potential to broaden the company’s scope of business, such as autonomous driving at Waymo, or in artificial-intelligence medical diagnosis at Verily.
We also made several new investments in the Health Care sector. We boughtVertex, a leading developer of drugs to treat cystic fibrosis, a
TEN LARGEST HOLDINGS at April 30, 2019 | ||||||||
COMPANY | SECTOR | COUNTRY | % | |||||
PAYPAL | INFO TECHNOLOGY | US | 4.6 | |||||
ROPER | INDUSTRIALS | US | 3.6 | |||||
AIA GROUP | FINANCIALS | HONG KONG | 2.9 | |||||
ALPHABET | COMM SERVICES | US | 2.8 | |||||
VERISK | INDUSTRIALS | US | 2.8 | |||||
FIRST REPUBLIC BANK | FINANCIALS | US | 2.7 | |||||
BOOKING HOLDINGS | CONS DISCRETIONARY | US | 2.7 | |||||
SYMRISE | MATERIALS | GERMANY | 2.5 | |||||
MASTERCARD | INFO TECHNOLOGY | US | 2.2 | |||||
ESSILORLUXOTTICA | CONS DISCRETIONARY | FRANCE | 2.1 | |||||
fatal pulmonary disease. In recent late-stage studies, the company’s therapy led to significant improvement in patients’ lung functions. We believe Vertex’s methods may lead to treatments of other diseases with similar pathologies. Another purchase,Illumina, is a leading producer of genetic sequencing tools. The company’s products are in high demand as life science researchers investigate new gene-based therapies. We also boughtUnitedHealth Group, a US medical insurer, which is using the scale of its medical-payment platform to encourage coordinated care and thus better patient outcomes. We believe the company’s direction may prove to be a fruitful avenue to improve the efficacy and efficiency of US health care delivery. In addition, we added to our position inM3, a Japanese electronic medical information platform, after its share price declined sharply late last year. Partial funding for these investments came from the sale ofAmerisourceBergen, a US drug wholesaler, whose growth prospects are dimmed by reforms in pharmacy rebate practices and the backlash against widespread opioid prescription abuses.
In addition to AmerisourceBergen, our sales in the trailing six months included two other holdings for which our investment theses unraveled.Tenaris, a maker of specialized pipes used in oil and gas wells, has been unable to grow its volumes independent of rising energy prices, as we had once hoped it could due to its advantages in the horizontal applications used in unconventional drilling. We also soldReckitt Benckiser after the sudden departure of its CEO left questions about its recent strategy changes unanswered.
Please read the separate disclosures page for important information, including the risks of investing in the Portfolio.
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PORTFOLIO MANAGEMENT TEAM
FERRILL ROLL, CFA CO-LEAD PORTFOLIO MANAGER
ANDREW WEST, CFA CO-LEAD PORTFOLIO MANAGER
SCOTT CRAWSHAW PORTFOLIO MANAGER
BRYAN LLOYD, CFA PORTFOLIO MANAGER
PATRICK TODD, CFA PORTFOLIO MANAGER
ALEXANDER WALSH, CFA PORTFOLIO MANAGER | ||
⬛ | PERFORMANCE SUMMARY |
For the International Equity Portfolio, the Institutional Class gained 9.38%, the Institutional Class Z gained 9.43%, and the Investor Class rose 9.13% (net of fees and expenses) in thesix-month period ended April 30, 2019. The Portfolio’s benchmark, the MSCI All Country Worldex-US Index, gained 9.12% (net of source taxes).
⬛ | MARKET REVIEW |
International marketssold-off in November and December and then rebounded sharply, ending the first half of the fiscal year with a solid net gain. Thesell-off in late 2018 was led by double-digit declines in developed market equities amid worries that a global recession looms, and that theUS-China tariff dispute could escalate. Emerging markets (EMs), weak all year, fell less in the decline than developed markets, aided in part by rebounds in the weakest countries and currencies.
At the turn of the year, investor sentiment was buoyed by progress inUS-China trade negotiations and signals that the US Federal Reserve will pause hiking interest rates. All sectors and regions ended the first half of the fiscal year in positive territory.
Signs of a global economic slowdown appeared throughout the period. In China, retail sales and manufacturing activity fell amid a sharp decline in bank lending. In Europe, EU officials predicted GDP growth would slow this year to 1.3%, from 1.9% in 2018. Germany’s manufacturing sector abruptly contracted, and the country’s export sales and orders declined at the fastest rate since the financial crisis. In Italy, weak business and consumer confidence, precipitated by its populist government’s budget standoff with the EU, sent the country into recession. European economists were increasingly concerned about the bloc slipping, Japan-style, into a liquidity trap, where monetary policy loses its ability to stimulate economic growth becausewould-be lenders fear ultralow rates are unsustainable.
FUND FACTS at April 30, 2019 |
| |||||||||||
TOTAL NET ASSETS | $15,673.3M | |||||||||||
SALES CHARGE | NONE | |||||||||||
NUMBER OF HOLDINGS | 60 | |||||||||||
TURNOVER (5 YR. AVG.) | 18% | |||||||||||
REDEMPTION FEE | 2% FIRST 90 DAYS | |||||||||||
DIVIDEND POLICY | ANNUAL | |||||||||||
INSTITUTIONAL INVESTORS | INDIVIDUAL INVESTORS | |||||||||||
INST CLASS | INST CLASS Z | INVESTOR CLASS | ||||||||||
TICKER | HLMIX | HLIZX | HLMNX | |||||||||
CUSIP | 412295107 | 412295719 | 412295503 | |||||||||
INCEPTION DATE | 5/11/1994 | 7/17/2017 | 9/30/2005 | |||||||||
MINIMUM INVESTMENT1 | $100,000 | $10,000,000 | $5,000 | |||||||||
NET EXPENSE RATIO | 0.81% | 0.74%2 | 1.14% | |||||||||
GROSS EXPENSE RATIO | 0.81% | 0.74% | 1.14% | |||||||||
1Lower minimums available through certain brokerage firms;2Shown net of Harding Loevner’s contractual agreement through February 28, 2020.
All Expense Ratios are as of the Prospectus dated February 28, 2019 unless otherwise noted.
Central banks reacted to the downbeat economic data. After downgrading its GDP forecast for 2019, the Fed signaled that December’s rate hike would be its last for a while, and Chairman Jerome Powell announced a halt to the planned reduction of the Fed’s US$4 trillion balance sheet, supporting market liquidity. Bond yields in both developed and emerging markets fell markedly in response. The European Central Bank followed suit, extending its time horizon for keeping interest rates low and offering additional cheap funding for banks. China, too, announced measures to lower borrowing costs and encourage loan growth.
TheUS-instigated trade war, which left stock markets battered and bruised in 2018, appeared to take a favorable turn. For much of last year, companies fearful of escalation that would disrupt their global supply chains were discouraged from making fixed-capital investments. In a reversal over the past few months, hopes for trade peace have risen, as both the US and China signaled eagerness to reach an accord and reported progress in their negotiations.
By sector, Real Estate and Information Technology (IT) performed best. Communication Services also did well, especially Asianinter-net and media stocks, which returned to the winners’ circle after falling steadily for most of last year, helped in part by China’s decision to end its moratorium on new video game approvals. The Energy sector lagged along with oil prices; although the stocks rebounded with the price of oil from December lows.
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PERFORMANCE (% TOTAL RETURN) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
for periods ended March 31, 2019 | for periods ended April 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
1 | 3 | 5 | 10 | SINCE INCEPTION* | 1 | 3 | 5 | 10 | SINCE INCEPTION* | |||||||||||||||||||||||||||||||||||||||||||||||
YEAR | YEARS | YEARS | YEARS | May-94 | Jul-17 | Sep-05 | YEAR | YEARS | YEARS | YEARS | May-94 | Jul-17 | Sep-05 | |||||||||||||||||||||||||||||||||||||||||||
INTL EQUITY PORTFOLIO – INST CLASS | -4.86 | 9.26 | 5.09 | 11.00 | 6.09 | -2.01 | 10.09 | 5.58 | 10.51 | 6.23 | ||||||||||||||||||||||||||||||||||||||||||||||
INTL EQUITY PORTFOLIO – INST CLASS Z | -4.77 | — | — | — | 2.47 | -1.92 | — | — | — | 4.47 | ||||||||||||||||||||||||||||||||||||||||||||||
INTL EQUITY PORTFOLIO – INVESTOR CLASS | -5.20 | 8.90 | 4.75 | 10.64 | 6.00 | -2.40 | 9.70 | 5.22 | 10.14 | 6.24 | ||||||||||||||||||||||||||||||||||||||||||||||
MSCI ALL COUNTRY WORLDEX-US INDEX | -4.22 | 8.09 | 2.57 | 8.85 | — | 1.65 | 4.26 | -3.23 | 8.09 | 2.83 | 7.75 | — | 3.06 | 4.43 |
Returns are annualized for periods greater than 1 year. *Inception of the Institutional Class, May 11, 1994. Inception of the Institutional Class Z, July 17, 2017. Inception of the Investor Class, September 30, 2005. Index performance prior to January 1, 2001 cannot be shown since it relies on back-filled data.
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Portfolio may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling (877)435-8105 or visiting www.hardingloevnerfunds.com. Performance data shown does not reflect the 2.00% redemption fee imposed on shares held 90 days or less; otherwise, total returns would be reduced.
In terms of geography, the strong rebounds in Hong Kong and in China boosted returns in Pacificex-Japan and EM. Japan was the weakest region.
⬛ | PERFORMANCE ATTRIBUTION |
Viewed by sector, Financials contributed the biggest gains in the trailing six months as two of our China-focused insurance holdings,AIA Group andPing An Insurance, participated in the strong rebound of stocks tied to China. Our other EM bank shares,ICICIBank andHDFC Bank in India rebounded from prior weakness.
Stocks in Industrials detracted, especially Japanese capital goods companies:JGC,Fanuc, andKubota. Our stocks in Health Care also detracted. Japan’sSysmex, a leading manufacturer of blood-testing equipment and associated consumables, reduced its sales growth forecast for this fiscal year to 6% from 10% as hardware sales weakened.Bayer’s shares fell sharply in March after a second trial jury found that use of its Roundup herbicide caused a man’s blood cancer.
By geography, our poor stocks in Japan (Sysmex, JGC, and Kubota) and in EMs (Baidu,Tencent) partially offset positive selection elsewhere. In Europe outside the eurozone, five out of six of our Swiss holdings contributed to our returns. Pacificex-Japan benefited from financial companies AIA and Singapore-based commercial bankDBS Group. France’sDassault Systèmes andLOréal and Germany’sSAP were our top performers within the eurozone, offset partly by Bayer’s weakness.
⬛ | PERSPECTIVE AND OUTLOOK |
In a famous Monty Python sketch, a customer returns to a pet shop with his recently purchased—and clearly expired—Norwe-gian Blue parrot. The customer, played by John Cleese, complains that the stiff bird is “bereft of life” and “anex-parrot.” But, to Cleese’s rising frustration, the shopkeeper repeatedly disputes his claim, insisting, “It’s not dead, it’s only restin’!”
Recently, we and other investors have had similar exchanges about the once-fast-growing and now seemingly moribund Consumer Staples companies: are their business models truly dead, or are they only resting, preparing to resume their historic rates of growth?
The Staples sector had been a reliable source of returns for investors for many decades thanks to secular growth trends in demand and a favorable competitive structure. In the developing world, industrialization, urbanization, and rising living standards created new and growing markets for packaged goods as people stopped growing their own food and came in time to value the convenience of buying and storing supplies and ingredients and, ultimately, prepared meals in boxes and cans. In developed economies, Staples companies benefited from consumers’ increased ability and willingness to pay for what they perceived to be higher-quality products. The dominant positions of the market leaders—many of them over 100 years old—have been protected by three barriers to entry that have made it difficult for newcomers to challenge them: the high costs of (i) creating and sustaining brand awareness (through advertising and marketing), (ii) achieving the massive scale needed to drive down manufacturing costs; and (iii) obtaining sufficient scarce shelf space in major retail chains. Facing therefore few new entrants and wielding strong influence over their distribution channels, multinational companies likeNestlé,Unilever,Procter & Gamble, Coca-Cola, and others were able to grow steadily both their revenues and margins.
In the last decade or so, however, these historical advantages of the multinationals proved to be insufficient to prevent smaller brands from capturing market share and thereby much of the sector’s incremental growth. In 2017, the consumer-research firm Nielsen estimated that small manufacturers, accounting for only 19% of thefood-and-beverage industry’s global sales, accounted for more than 50% of its growth.
How did small companies overcome the formidable advantages of the giants to capture more than their share of the market’s growth? The explanations share a common element: the internet. One factor is the direct access brands now have to consumers viae-commerce platforms. While that is real, its significance can be overstated:e-commerce’s share of overall Staples sales remains small. Another factor is the internet’s ability to connectsub-scale brands to large outsourced manufacturers, reducing the incumbents’ scale advantage in manufacturing. Though the internet
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no doubt facilitates connections, its role is likely limited asout-sourcing has been a common practice for decades. In our view, the internet’s most significant impact has been in advertising and promotion. Targeted digital ads have supplanted the need for expensive national TV campaigns to introduce new and promote old brands. The internet also enables clever—and often free—viral marketing over social media. Advertising has effectively changed from a fixed to a variable cost, allowing small brands to gain recognition by a large number of consumers cheaply and thereby achieve profitability at smaller scale.
As their recognition of this new competitive landscape grew, the large Staples companies divided into two camps: doubters and believers in growth. The managements of the first group saw no need to invest significantly in innovative products. Instead, they milked the existing business more aggressively, cutting R&D and marketing costs to maximize cash flow to pay dividends to shareholders or make acquisitions, which brought new opportunities to reduce costs and generate cash. The managements of the second group made changes that they hoped would enable their businesses to compete effectively in the new, more fragmented landscape. They streamlined their portfolios by selling brands or businesses that did not generate adequate growth. These managers, unlike those of the first group, did not give up on their revenue growth ambitions. They increased investments in R&D and marketing (including digital media) to make their brands more appealing to ever-changing consumer tastes. Some also acquired smaller, innovative rivals that were taking market share. For years, we and other investors have debated the merits of each approach.
Several corporate announcements in thesix-month period highlighted a significant risk of the cost-cutting strategy. A bevy of well-known companies including Coca-Cola, Pepsi,Colgate-Palmolive, and Kraft Heinz, which had for years prioritized growing profit margins over revenues, posted 2018 results that fell below their forecasts. A number admitted that their margin targets were too high or their cost-cutting efforts too aggressive, acknowledging that they had failed to spend enough on R&D and marketing to sustain current revenues, let alone to grow them with new
GEOGRAPHIC EXPOSURE (%) at April 30, 2019
COUNTRY/REGION | PORTFOLIO | BENCHMARK | 1 | |||||
CANADA | 3.0 | 6.8 | ||||||
EMERGING MARKETS | 23.5 | 26.1 | ||||||
EUROPE EMU | 21.6 | 21.7 | ||||||
EUROPEEX-EMU | 24.7 | 20.7 | ||||||
FRONTIER MARKETS2 | 0.0 | — | ||||||
JAPAN | 11.2 | 15.9 | ||||||
MIDDLE EAST | 2.9 | 0.4 | ||||||
PACIFICEX-JAPAN | 6.4 | 8.4 | ||||||
OTHER3 | 2.8 | — | ||||||
CASH | 3.9 | — | ||||||
1MSCI All Country Worldex-US Index;2Includes countries with less-developed markets outside the Index;3Includes companies classified in countries outside the Index.
SECTOR EXPOSURE (%) at April 30, 2019
SECTOR | PORTFOLIO | BENCHMARK | 1 | |||||
COMM SERVICES | 6.6 | 7.1 | ||||||
CONSUMER DISCRETIONARY | 3.5 | 11.4 | ||||||
CONSUMER STAPLES | 14.9 | 9.8 | ||||||
ENERGY | 3.8 | 7.3 | ||||||
FINANCIALS | 19.1 | 22.0 | ||||||
HEALTH CARE | 10.8 | 8.0 | ||||||
INDUSTRIALS | 11.4 | 11.9 | ||||||
INFORMATION TECHNOLOGY | 18.5 | 8.6 | ||||||
MATERIALS | 7.5 | 7.4 | ||||||
REAL ESTATE | 0.0 | 3.3 | ||||||
UTILITIES | 0.0 | 3.2 | ||||||
CASH | 3.9 | — | ||||||
1MSCI All Country World Index.
products and new customers. Kraft Heinz stood out: it announced a US$15 billion write-down of the value of its iconic Kraft and Oscar Meyer brands, cut its dividend, and vowed to “step up brand support.” Kraft Heinz’s share price plummeted more than 25% on the announcement.
We are not shareholders of Kraft Heinz. Ourfood-and-beverage analyst deemed the company unqualified for investment according to our growth and quality criteria, thereby making it effectivelyoff-limits to our portfolio managers. He judged Kraft Heinz’s business to be one that had few avenues to grow without substantial investment in new products or markets. He also worried about its high level of debt.
While Kraft Heinz and others in its camp have relentlessly cut costs, other Staples giants are developing their franchises through marketing, investing in R&D, and expansion into developing economies. One such company is Nestlé, which has taken the view that the growth in Staples can be recaptured. In recent years, the company has sold or put a “For Sale” sign on several businesses it considered subscale, including its US candy and European cold cuts brands. It acquired new brands and reorganized its R&D process to emphasize speed and foster a culture conducive to risk-taking. As a result, Nestlé has reduced the development time of new products bytwo-thirds, and accelerated its sales growth in each of the last three quarters. Its share price reflects these changes, rising 17% since the start of 2018 and reaching anall-time high in the recent fiscal quarter.
We own several other Staples companies that we believe are responding astutely to the competitive changes in their industries.Diageo sold off itsnon-core assets (hotels and mass-market spirits brands such as Seagram’s and Yukon Jack) and bought faster-growing, more contemporary premium brands like George Clooney’s Casamigos tequila. It also acquired local spirits brands in growth markets like India and China. Unilever, which rejected a merger proposal from Kraft Heinz in 2017, has recalibrated its cost structure, setting high savings targets and a goal of reinvesting
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two-thirds of the newly freed cash back into the business. It has been hiring experts in digital marketing and software engineers to help its existing brands connect better with young consumers and to boost the success rates of new products. Unilever has also significantly shortened product development times: in the last two years, it has launched 28 new brands compared with just three in the entire decade prior to 2017.
So, on balance, and with all due respect to our idol John Cleese, we take thepet-shopkeeper’s side. The growth opportunity is still alive for Staples companies that are investing in their brands and in new ways to connect with their customers. Many have yet to overcome fully the disruption to their business models wrought by the internet, and the required spending will burden their profit margins in the near term and test the patience of some investors. Yet, their initial successes in adaptation encourage us in our belief that sustained investment in revenue growth will ultimately prove more profitable for them than the alternative of endless cost-cutting. The parrot, we insist, is just resting.
⬛ | PORTFOLIO HIGHLIGHTS |
Although not immune from the changing competitive dynamics discussed above, Staples companies tend to be relatively resilient during economic downturns and have steady levels of profitability as measured by returns on invested capital. Because of this, their shares have tended to exhibit lower-than-average volatility, an attractive feature for portfolio construction.
The challenge is finding growing Staples businesses whose stocks are reasonably priced. Because investors value steadiness, the stocks are often fully or more-than-fully priced. In 2017 and most of 2018, we were underweight the sector as we found few companies whose growth we had sufficient confidence in to justify the high prices, given the competitive challenges unfolding. Recently, however, we have had more success, and our sectoral exposure has risen to the point that we are now overweight relative to the index. Though average valuations in the sector remain at a premium to the index, we have found several quality companies with above-average growth prospects at attractive prices. Since April of last year, our Staples weight has more than doubled, from 7% to 15%. Such an overweight position in Staples is not unusual for us historically; in fact, our weight was above that of the benchmark and similar to current levels all through 2007–15.
The rebuilding of our weight in Staples started in 2018 with opportunistic purchases in Latin America, where politics and recession roiled markets. In August, we purchasedAmbev, Brazil’s largest brewer and the largest PepsiCo bottler outside the US. After its stock fell sharply amid Brazil’s economic recession and a contentious presidential election campaign, we pounced on the opportunity to tap Ambev’s steady profit stream at a reasonable price. In November, we purchasedFEMSA, Mexico’s largest convenience stores operator and controlling stakeholder in the country’s largest Coca-Cola bottling business, at a price made attractive by Mexican stock market weakness engendered by investor fears of a more hostile regulatory environment for all businesses after the election of President Andrés Manuel López Obrador.
TEN LARGEST HOLDINGS at April 30, 2019
COMPANY | SECTOR | COUNTRY | % | |||||
NESTLÉ | CONS STAPLES | SWITZERLAND | 3.5 | |||||
AIA GROUP | FINANCIALS | HONG KONG | 3.4 | |||||
TSMC | INFO TECHNOLOGY | TAIWAN | 3.3 | |||||
ALLIANZ | FINANCIALS | GERMANY | 3.2 | |||||
SAP | INFO TECHNOLOGY | GERMANY | 3.1 | |||||
DBS GROUP | FINANCIALS | SINGAPORE | 3.0 | |||||
L’OREAL | CONS STAPLES | FRANCE | 2.9 | |||||
ROCHE | HEALTH CARE | SWITZERLAND | 2.9 | |||||
CHECK POINT | INFO TECHNOLOGY | ISRAEL | 2.8 | |||||
SAMSUNG ELECTRONICS | INFO TECHNOLOGY | SOUTH KOREA | 2.7 | |||||
More recently, we added the world’s largest spirits producer, UK’s Diageo, which owns leading brands such as Johnnie Walker, Smirnoff, Tanqueray, Bailey’s, and Guinness. While most of its revenues come from developed markets, Diageo is now marketing its global brands in faster-growing developing countries. It has also acquired some local spirits brands recently, including sizeable ones in China and India. We anticipate modest but steady revenue growth, while efficiency gains should allow profits to rise at a faster pace than sales.
We also bought Canadian roadside retailerAlimentation Couche-Tard, whose convenience store and gas station operator brands include Circle K and On the Run. The company has pursued a blend of organic andacquisition-led growth and now operates 16,000 stores worldwide. It has consolidated a fragmented and mature industry in Canada, the US, and Europe, integrating smaller retail chains into its major brands while upgrading the customer experience and improving the variety and quality of products. This strategy has led to positive same-store sales growth. Alimentation Couche-Tard’s increasing scale also enhances its bargaining power over suppliers, allowing it to drive down input costs and support margins.
Portfolio Management Team Update
As previously announced, Andrew West, a portfolio manager of the International Equity strategy since 2014, became aco-lead portfolio manager of the strategy on January 2, 2019, replacing Alec Walsh. Ferrill Roll continues as the strategy’s otherco-lead portfolio manager. Alec, along with Scott Crawshaw, Bryan Lloyd, and Patrick Todd, remains a portfolio manager of the strategy. The assignment change was made in preparation for Alec’s retirement at the end of this year.
Please read the separate disclosures page for important information, including the risks of investing in the Portfolio.
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PORTFOLIO MANAGEMENT |
JAFAR RIZVI, CFA |
CO-LEAD PORTFOLIO MANAGER |
ANIX VYAS, CFA |
CO-LEAD PORTFOLIO MANAGER |
⬛ | PERFORMANCE SUMMARY |
For the International Small Companies Portfolio, the Institutional Class gained 9.65% and the Investor Class gained 9.47% (net of fees and expenses) in thesix-month period ended April 30, 2019. The Portfolio’s benchmark, the MSCI All Country Worldex-US Small Cap Index, rose 6.83% (net of source taxes).
⬛ | MARKET REVIEW |
For stocks of international small companies, the period from October 2018 to April 2019 was characterized by a sharp swing downward toward the end of 2018, followed by an even stronger bounce-back in the first few months of 2019.
Signs of a global economic slowdown appeared throughout the period. In the US, GDP growth forecasts were revised downward. EU officials predicted GDP growth in Europe would slow this year to 1.3%, from 1.9% in 2018. Germany’s manufacturing sector abruptly contracted, and the country’s export sales and orders declined at the fastest rate in a decade. In China, retail sales and manufacturing activity fell amid a sharp decline in bank lending, and China’s Purchasing Managers’ Index (PMI) dropped to 49.4 in December, nearing its lowest levels since the global financial crisis.
Central banks reacted to the downbeat economic data. In January, the US Federal Reserve signaled that December’s rate hike would be its last for a while, and Chairman Jerome Powell announced a halt to the planned reduction of the Fed’s US$4 trillion balance sheet, supporting market liquidity. The European Central Bank followed suit, extending its time horizon for keeping interest rates low and offering additional cheap funding for banks. China, too, announced measures to lower borrowing costs and encourage loan growth.
In the early part of 2019, theUS-instigated trade war, which left stock markets battered and bruised in 2018, appeared to take a favorable turn. For much of last year, companies fearful of escalation that would disrupt their global supply chains were discouraged from making fixed-capital investments. In a reversal over the first quarter of 2019 and into April, hopes for trade peace rose, as both the US and China signaled an eagerness to reach an accord and reported progress in their negotiations.
FUND FACTS at April 30, 2019 | ||||
TOTAL NET ASSETS | $212.3M | |||
SALES CHARGE | NONE | |||
NUMBER OF HOLDINGS | 102 | |||
TURNOVER (5 YR. AVG.) | 39% | |||
REDEMPTION FEE | 2% FIRST 90 DAYS | |||
DIVIDEND POLICY | ANNUAL | |||
INSTITUTIONAL INVESTORS | INDIVIDUAL INVESTORS | |||
INSTITUTIONAL CLASS | INVESTOR CLASS | |||
TICKER | HLMRX | HLMSX | ||
CUSIP | 412295875 | 412295883 | ||
INCEPTION DATE | 6/30/2011 | 3/26/2007 | ||
MINIMUM INVESTMENT1 | $100,000 | $5,000 | ||
NET EXPENSE RATIO2 | 1.15% | 1.40% | ||
GROSS EXPENSE RATIO | 1.39% | 1.75% | ||
1Lower minimums available through certain brokerage firms;2Shown net of Harding Loevner’s contractual agreement through February 28, 2020.
Information Technology (IT) was the best-performing sector in the period by a significant margin, with stocks rising 17% despite a sharpsell-off in the last months of 2018. On the other hand,small-cap Energy stocks were by far the worst performing, and the only sector that incurred negative returns, falling 7%. The sector declined with the price of oil, which fell sharply through December and only partially recovered in the succeeding months. The next-worst performing sector was Consumer Staples, which rose less than 1%. In general, market segments hardest hit by last year’s rout led in 2019’s recovery.
Information Technology (IT) was the best-performing sector in the period by a significant margin, with stocks rising 17% despite a sharpsell-off in the last months of 2018.
By region, Emerging Markets (EMs) performed strongly—led by Taiwan, Egypt, and the Czech Republic—as did Pacificex-Japan. Japan lagged the most, rising less than 2% in the period, followed by Canada, whose market is highly correlated to energy prices.
By style, the most-expensive growth stocks outperformed the rest of the market. High-quality stocks also outpaced the overall market in thesix-month period.
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PERFORMANCE (% TOTAL RETURN)
for periods ended March 31, 2019 | for periods ended April 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||
1 | 3 | 5 | 10 | SINCE INCEPTION* | 1 | 3 | 5 | 10 | SINCE INCEPTION* | |||||||||||||||||||||||||||||||||||||||
YEAR | YEARS | YEARS | YEARS | Jun-11 | Mar-07 | YEAR | YEARS | YEARS | YEARS | Jun-11 | Mar-07 | |||||||||||||||||||||||||||||||||||||
INTL SMALL COMPANIES PORTFOLIO – INST CLASS
| -7.46 | 8.41 | 3.99 | – | 6.01 | -2.25 | 9.71 | 4.88 | – | 6.52 | ||||||||||||||||||||||||||||||||||||||
INTL SMALL COMPANIES PORTFOLIO – INVESTOR CLASS
| -7.68 | 8.13 | 3.73 | 14.29 | 5.73 | -2.55 | 9.42 | 4.61 | 13.11 | 6.06 | ||||||||||||||||||||||||||||||||||||||
MSCI ALL COUNTRY WORLDEX-US SMALL CAP INDEX
| -9.49 | 7.01 | 3.26 | 11.86 | 4.28 | – | -8.54 | 6.81 | 3.75 | 10.37 | 4.53 | – |
Returns are annualized for periods greater than 1 year. *Inception of the Institutional Class, June 30, 2011. Inception of the Investor Class, March 26, 2007. Index performance prior to June 1, 2007 cannot be shown since it relies on back-filled data.
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Portfolio may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling (877)435-8105 or visiting www.hardingloevnerfunds.com. Performance data shown does not reflect the 2.00% redemption fee imposed on shares held 90 days or less; otherwise, total returns would be reduced.
⬛ | PERFORMANCE ATTRIBUTION |
By sector, strong stock selection in IT, Industrials, and Health Care boosted the Portfolio’s relative returns. Nearly three quarters of our IT weight is in the software and services industry group, which fared better than the index as a whole. Security software firmCyberArk was a standout performer. In November, the Israeli company reported that its revenues increased 31% year-over-year and its operating margins rose by nearly four percentage points.TOMRA, a Norwegian manufacturer of industrial waste sorting equipment, was a lead contributor to excess returns in the Industrials sector. Despite increasing its spending to expand into new markets such as Western Australia, Scotland, and Portugal, the company reported strong earnings.
Our poor stock selection in Energy hurt relative performance during the period.Nostrum Oil & Gas, which is based in Kazakhstan but listed on the London Stock exchange, was the biggest detractor in the sector. The company’s oil production was lower than expected due to flooding issues in some of its wells and ongoing delays in completing some new projects. In January, we sold the holding due to concerns about the quality of Nostrum’s management. Relative returns were also hurt by our significant underweight in Real Estate; we have identified few quality, growing businesses in this sector, where companies tend to have high levels of debt and low growth.
Our overweight and poor stock selection in Consumer Staples was another detractor from returns.Ariake, a Japanese supplier of natural flavorings, sold its highly profitable US business, surprising us and other investors who had viewed it as a longterm growth opportunity. The company said its American operations were weakening, and the sale will allow it to focus on its fast-growing business in China. We think the company achieved a fair price for its US assets and applaud it for prioritizing long-term growth opportunities in its capital allocation plans.
By region, our strong stock selection within the Middle East (CyberArk) and the European Monetary Union (EMU) contributed the most to relative performance. Within the EMU,Carl Zeiss Meditec, a German medical technology company, andAlten, a French technology consultant, were key contributors.
Alten’s stock rose sharply after the company reported its revenue rose 15% in 2018, its fifth-straight year of double-digit sales growth. Ouroff-benchmark investments in Frontier Markets also contributed to outperformance, primarily due to strong returns from Argentina’sGlobant.
Our modest weight in cash detracted given the strong market performance the past six months.
⬛ | INVESTMENT PERSPECTIVES |
In terms of economic growth, Japan would appear to be one of the least-promising developed markets for investors. Japan’s economy has been largely stagnant for more than two decades: since 1997, GDP growth has averaged just 1% per annum and the country has endured six recessions. Prime Minister Shinzo Abe’s “Three Arrows” stimulus program of fiscal spending, monetary easing, and structural reforms has shown only limited success over the past five years; the country remains in a malaise and now faces a huge debt burden.
Despite Japan’s dismal economic performance, some Japanese companies are managing to grow. Our challenge is to find them.
One impediment is Japan’s aging and shrinking population. Among developed countries, Japan has the highest percentage (27%) of citizens over 65. Last year the population fell by 263,000, around 2%, its eighth consecutive annual decline. Theworking-age population shrank to 75 million, or 60% of the total—its lowest percentage on record.
As investors, we always seek growth, even in places where it is not readily apparent. Despite Japan’s dismal economic performance, some Japanese companies are managing to grow. Our challenge is to find them. At 3,534, the number of small companies in Japan is large relative to the size of its economy—significantly greater, for example, than the UK and Germany combined. Further raising the bar for foreign investors, over three-quarters of Japan’s small companies publish their investor materials only in Japanese, and the vast majority of company managers do not speak English.
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Over the years, we have uncovered numerous quality businesses that are thriving in Japan. While not entirely insulated from the weak economy, their competitive advantages, financial strength, and, most importantly, their skillful managers have enabled them to succeed by growing their share of the market in their industries. One example is M3, which has achieved extraordinary growth by disrupting how pharmaceutical companies market to doctors. For years, drug companies have marketed their products through legions of high-paid sales representatives who call on doctors at their offices. In 2000, M3 launched a platform through which drug companies could share product information with doctors online. Doctors accessed the site for free, while pharmaceutical companies paid to post information but at just a fraction of the cost of sales reps’ salaries. M3’s innovation arrived as drug companies were cutting costs due to revenue pressures from patent expirations, and busy doctors were increasingly turning downin-person marketing meetings.
We began covering M3 in 2005. In an early note, our analyst reported the company had signed up 21 of Japan’s 100 drug companies within its first five years, and believed it could eventually capture another 30. The company had an advantage of being an early mover in a new, growing market. She noted that, with more doctors registered on the platform, there would be additional opportunities for M3 to grow by expanding its services beyond pharmaceutical information. In fact, M3’s portal could become a “must join” for doctors. Once M3 reached critical mass, it would be hard for new entrants to take its market share. By early 2006, nearly half the country’s 257,000 physicians had registered.
Over the last 10 years, M3 has expanded its business to the US, UK, South Korea, and China. It now has access to 4.5 million physicians worldwide and has introduced new services including employee recruitment and career development, electronic medical records management, and support for clinical trials. It has grown its revenues at an annual rate of nearly 20%. In 2015, we sold our position because the company had grown too large for our small-cap portfolio, but we continue to hold it in other strategies.
In 2015, at the suggestion of M3’s founder, we took a look atSMS, a relatively young company providing recruiting services to hospitals and elderly care facilities. Through our research we found that the company was tapping a large but poorly served group:job-seeking nurses. An estimated 10% of Japan’s 1.5 million nurses leave their jobs every year, but at the time very few were working with an online recruitment service. SMS offers its services for free to job seekers; hospitals pay on average 20% of a successful recruit’s annual salary. It also charges hospitals and health facilities to post job openings on its site.
The company quickly established market-leading positions in providing employment services to nurses and senior-care workers, and later developed insurance-billing software for small- andmedium-sized nursing homes. The popularity of its services and loyalty of its customers are reflected in SMS’s high level of cash-flow return on invested capital, which has averaged 31% over the last
SECTOR EXPOSURE (%) at April 30, 2019
|
| |||||||
SECTOR
|
| PORTFOLIO
|
|
| BENCHMARK
| 1
| ||
COMM SERVICES
| 4.9 | 4.6 | ||||||
CONSUMER DISCRETIONARY
| 6.0 | 12.8 | ||||||
CONSUMER STAPLES
| 11.4 | 6.3 | ||||||
ENERGY
| 2.3 | 3.4 | ||||||
FINANCIALS
| 5.8 | 11.1 | ||||||
HEALTH CARE
| 17.1 | 7.4 | ||||||
INDUSTRIALS
| 21.9 | 19.5 | ||||||
INFORMATION TECHNOLOGY
| 20.0 | 10.8 | ||||||
MATERIALS
| 5.9 | 9.9 | ||||||
REAL ESTATE
| 0.5 | 11.1 | ||||||
UTILITIES
| 1.4 | 3.1 | ||||||
CASH
| 2.8 | — | ||||||
1MSCI All Country Worldex-US Small Cap Index. |
| |||||||
GEOGRAPHIC EXPOSURE (%) at April 30, 2019
|
| |||||||
COUNTRY/REGION
|
| PORTFOLIO
|
|
| BENCHMARK
| 1
| ||
CANADA
| 1.2 | 6.6 | ||||||
EMERGING MARKETS
| 19.9 | 20.2 | ||||||
EUROPE EMU
| 22.0 | 17.2 | ||||||
EUROPEEX-EMU
| 23.9 | 24.1 | ||||||
FRONTIER MARKETS2
| 8.4 | — | ||||||
JAPAN
| 14.5 | 21.9 | ||||||
MIDDLE EAST
| 2.5 | 1.3 | ||||||
PACIFICEX-JAPAN
| 3.7 | 8.7 | ||||||
OTHER3
| 1.1 | — | ||||||
CASH
| 2.8 | — | ||||||
1MSCI All Country Worldex-US Small Cap Index;2Includes countries with less-developed markets outside the Index;3Includes countries classified in countries outside the Index.
five years. In that same period, its revenue and operating profit have grown at a compound annual rate of 21%. Currently, about 80% of SMS’s revenues come from Japan, but the company has established a presence in eleven other Asian countries that will eventually face Japan-like demographic trends.
Our analysts, whether focused on an industry or region, are required to investigate companies’ fundamentals in the context of the competitive structures of the global industries in which they participate. This industry-level approach helps us identify broad trends that may represent market opportunities. Our work covering large multinational and regionalfood-and-beverage companies is informed by the perspectives of two analysts, one focused on Consumer Staples and the other on Materials. We have learned thatfood-and-beverage companies are increasingly reliant on specialized ingredient suppliers that help differentiate the taste, color, and smell of a product. These suppliers enjoy strong loyalty as their customers are unlikely to risk altering the taste or smell of their popular products by switching to lower-cost ingredients. A favorable industry structure thus underpins the growth offlavor-and-fragrance companies like Symrise, Givaudan, and International Foods & Fragrances.
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Based on this insight into theflavors-and-fragrances industry, we looked for related investment opportunities in Japan. We found Ariake, the country’s largest maker of meat-extract based natural seasonings. Its products include flavor extracts (meat, seafood, and vegetable), soups, sauces, bouillon, consommé, and vegetable oils. The quality and consistency of its products have secured its longstanding relationships with customers. Rising global appreciation of Japanese flavors and consumers’ increasing preference for natural rather than chemical ingredients are helping propel the company’s growth. Ariake’s major overseas markets include China, Taiwan, Indonesia, and France. Ariake has grown its revenues and earnings at compound annual rates of 10% and 16%, respectively, over the last five years while delivering average cash flow return on invested capital of 14%.
While our Japanese holdings show slightly slower sales growth than our average portfolio company, by expanding their operating margins they have managed to deliver faster than average earnings and cash flow growth—despite operating primarily in an economy that perennially lags the rest of the developed world.
⬛ | PORTFOLIO HIGHLIGHTS |
Our exposure to Japan increased in the period as we established a position inRohto Pharmaceutical, a maker of health and beauty products, and purchased additional shares ofNakanishi, a manufacturer of dental equipment. We sold Japanese payments companyGMO Payment Gateway and trimmed our position inInfomart, in both cases due to high valuations.
Rohto Pharmaceutical, founded in 1899, sells a variety of cosmetics, personal care products, andover-the-counter medications. The company’seye-care business, which includes drops, washes, and contact-lens solutions, enjoys a 40% market share in Japan. However, Rohto’s revenue exposure is balanced geographically and growing, thanks to its continuing expansion into international markets, including North America, Europe, and other countries in Asia.
Shares of Nakanishi fell after the company lowered its profit guidance. We believe the margin weakness will prove temporary, a result of rising costs associated with the upcoming launch of new tools for dental cleanings and restoration procedures. We expect these products will support the company’s growth over the long term.
Our portfolio’s exposure to Emerging and Frontier Markets remains near our self-imposed ceiling of 30%. Our weight in South Africa increased as we boughtDiscovery Holdings, the country’s largest health insurer and one of its largest life insurers. The company is expanding beyond its home market by partnering with other companies. In China, for example, Ping An Insurance agents now sell Discovery’s health insurance products. Discovery’s balance sheet is healthy, with a cash buffer of 3.4 billion rand
TEN LARGEST HOLDINGS at April 30, 2019
|
| |||||||
COMPANY
| SECTOR
| COUNTRY
|
| %
|
| |||
CARL ZEISS MEDITEC
| HEALTH CARE | GERMANY | 3.5 | |||||
BECHTLE
| INFO TECHNOLOGY | GERMANY | 2.5 | |||||
NAKANISHI
| HEALTH CARE | JAPAN | 2.5 | |||||
CYBERARK SOFTWARE
| INFO TECHNOLOGY | ISRAEL | 2.5 | |||||
ABCAM
| HEALTH CARE | UK | 2.4 | |||||
ALTEN
| INFO TECHNOLOGY | FRANCE | 2.4 | |||||
REPLY
| INFO TECHNOLOGY | ITALY | 2.2 | |||||
ARIAKE
| CONS STAPLES | JAPAN | 2.1 | |||||
DECHRA PHARMACEUTICALS
| HEALTH CARE | UK | 1.9 | |||||
SENIOR
| INDUSTRIALS | UK | 1.7 | |||||
(US$240 million), and its management continues to execute well on the global diversification strategy. We thought shares were significantly undervalued at the time of purchase. Another purchase was Africa’s leading pharmacy chain,Clicks Group. With over 800 stores, Clicks has about 23% market share in an otherwise fragmented industry, conferring economies of scale. It also owns a wholesale and distribution business, United Pharmaceutical Distributors (UPD).
Our portfolio’s exposure to Emerging and Frontier Markets remains near our self-imposed ceiling of 30%.
We soldMoscow Exchange, Russia’s largest exchange group. Ongoing risks related to US sanctions and increasingly weak Russian financial markets led our analyst to question whether the company can continue to grow.
By sector, IT remains our portfolio’s largest overweight. Our purchases this period includedRightmove, the UK’s leading online real-estate portal. Over one million UK properties are listed on its platform, which logged nearly 1.6 billion site visits last year. With 75% market share, agents and buyers have little choice but to use Rightmove, and its market dominance is a durable source of pricing power. Last year, it raised its listing fees despite a weak UK housing market and grew its profits by 11%. We also boughtParadox Interactive, a leading Swedish publisher of online strategy games.
Please read the separate disclosures page for important information, including the risks of investing in the Portfolio.
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PORTFOLIO MANAGEMENT TEAM
| ||
SCOTT CRAWSHAW | PRADIPTA CHAKRABORTTY | |
CO-LEAD PORTFOLIO MANAGER | PORTFOLIO MANAGER | |
CRAIG SHAW, CFA | G. RUSTY JOHNSON, CFA | |
CO-LEAD PORTFOLIO MANAGER | PORTFOLIO MANAGER | |
RICHARD SCHMIDT, CFA | ||
PORTFOLIO MANAGER |
The Institutional Emerging Markets Portfolio (Institutional Class and Institutional Class Z) and the Emerging Markets Portfolio (Advisor Class)—collectively, the “Portfolios”—are both managed in strict accordance with Harding Loevner’s Emerging Markets Equity strategy model portfolio. Therefore, the Portfolios have highly similar holdings and characteristics. We have provided a single commentary to cover both Portfolios. The specific performance and characteristics of each are presented separately in the tables that follow.
⬛ | PERFORMANCE SUMMARY |
For the Institutional Emerging Markets Portfolio, the Institutional Class rose 18.57% and Institutional Class Z rose 18.64% (net of fees and expenses) in thesix-month period ended April 30, 2019. For the Emerging Markets Portfolio, the Advisor Class rose 18.64% (net of fees and expenses) in the period. The Portfolios’ benchmark, the MSCI Emerging Markets Index, rose 13.76% (net of source taxes).
⬛ | MARKET REVIEW |
Emerging market (EM) stocks fell at the start of the fiscal year amid fears that a global economic slowdown loomed due to continued monetary tightening and the protracted trade war between the US and China. In October, the US Federal Reserve declared that it planned more hikes in short-term interest rates if economic data continued to be strong; in December, it duly delivered its ninth quarter-point rise. Concerns about China’s slowing economy also weighed on markets, with monthly retail sales growth decelerating to its lowest level since 2003.
As 2019 got underway, however, markets were buoyed by a new dovish tone from the US Federal Reserve. The Fed signaled that last December’s rate hike would be its last for a while, and Chairman Jerome Powell announced a halt to the Fed’s planned reduction of its US$4 trillion balance sheet. Investors also cheered signs of progress inUS-China trade negotiations, as officials on both sides backed off from threats to impose additional tariffs. Moreover, new economic data suggested China’s slowdown was less severe than previously feared. Its manufacturing sector returned to growth and property investment, a key indicator of sentiment, accelerated.
FUND FACTS at April 30, 2019 |
| |||||||||||||||
SALES CHARGE |
| NONE | ||||||||||||||
NUMBER OF HOLDINGS |
| 77 | ||||||||||||||
REDEMPTION FEE |
| 2% FIRST 90 DAYS | ||||||||||||||
DIVIDEND POLICY
|
|
| ANNUAL
|
| ||||||||||||
INSTITUTIONAL INVESTORS | INDIVIDUAL INVESTORS | |||||||||||||||
PORTFOLIO ASSETS | $5,188.5M | $4,244.7M | ||||||||||||||
TURNOVER (5 YR. AVG.) | 22% | 25% | ||||||||||||||
CLASS | INST CLASS | INST CLASS Z | ADVISOR | |||||||||||||
TICKER | HLMEX | HLEZX | HLEMX | |||||||||||||
CUSIP | 412295701 | 412295693 | 412295305 | |||||||||||||
INCEPTION DATE | 10/17/2005 | 3/5/2014 | 11/9/1998 | |||||||||||||
MINIMUM INVESTMENT1 | $500,000 | $10,000,000 | $5,000 | |||||||||||||
NET EXPENSE RATIO | 1.27% | 1.11%2 | 1.40% | |||||||||||||
GROSS EXPENSE RATIO | 1.27% | 1.20% | 1.40% | |||||||||||||
1Lower minimums available through certain brokerage firms;2Shown net of Harding Loevner’s contractual agreement through February 28, 2020.
All Expense Ratios are as of the Prospectus dated February 28, 2019 unless otherwise noted.
In Asia, China’s market soared over 20% in thesix-month period, as company fundamentals remained relatively strong, and several of China’s largest companies reported higher-than-expected fourth-quarter earnings. Health Care and online-game companies in particular were lifted by a pause in the regulatory interventions that had hit their shares last year. Regulators had demanded steeper-than-expected price cuts (some upward of 90%) before drugs could appear in the formularies of government-sponsored health plans. However, the government’s efforts to cut drug prices appeared to move at a slower pace than expected. In December, regulators lifted a moratorium on new online games and resumed issuing approvals. The government also continued to apply stimulus to parts of the economy, providing tax relief to manufacturing and construction companies, while also reducing its reliance on debt in part by clamping down on unregulated “shadow” lending. India and Indonesia also posted strong double-digit returns as a decline in the oil price meant cheaper energy imports.
Latin America was a relative underperformer, with both Brazil and Mexico posting positive returns but lagging the index. Their markets were volatile, reflecting frequent swings in sentiment toward each country’s new political leadership. In Brazil, President JairBol-sonaro, elected in late October, faced his first serious congressional challenge in late March, when lawmakers pushed back on a pension-reform bill. In Mexico, investors reacted to speculation President Andrés Manuel López Obrador’s government planned to impose tight caps on banks’ fees and interest rates; the actual changes turned out to be less severe than feared.
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PERFORMANCE (% TOTAL RETURN)
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
for periods ended March 31, 2019 | for periods ended April 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1 YEAR |
|
| 3 YEARS |
|
| 5 YEARS |
|
| 10 YEARS |
| SINCE INCEPTION* |
| 1 YEAR |
|
| 3 YEARS |
|
| 5 YEARS |
|
| 10 YEARS |
| SINCE INCEPTION* | |||||||||||||||||||||||||||||||
Oct-05 | Mar-14 | Nov-98 | Oct-05 | Mar-14 | Nov-98 | |||||||||||||||||||||||||||||||||||||||||||||||||||
INST EMERGING MARKETS PORTFOLIO – INST CLASS | -10.05 | 10.25 | 3.80 | 10.26 | 6.87 | -3.57 | 11.19 | 4.41 | 9.11 | 7.11 | ||||||||||||||||||||||||||||||||||||||||||||||
INST EMERGING MARKETS PORTFOLIO – INST CLASS Z | -9.90 | 10.51 | 4.00 | — | 4.61 | -3.41 | 11.44 | 4.62 | — | 5.28 | ||||||||||||||||||||||||||||||||||||||||||||||
EMERGING MARKETS PORTFOLIO – ADVISOR CLASS | -10.10 | 10.19 | 3.77 | 10.15 | 11.00 | -3.57 | 11.13 | 4.38 | 9.01 | 11.15 | ||||||||||||||||||||||||||||||||||||||||||||||
MSCI EMERGING MARKETS INDEX | -7.41 | 10.68 | 3.68 | 8.94 | 6.49 | 4.40 | — | -5.04 | 11.25 | 4.04 | 7.50 | 6.61 | 4.75 | — | ||||||||||||||||||||||||||||||||||||||||||
Returns are annualized for periods greater than 1 year. *Inception of the Institutional Class, 10/17/05. Inception of the Institutional Class Z, 3/5/14. Inception of the Advisor Class, 11/9/98. Index performance prior to 1/1/01 cannot be shown since it relies on back-filled data.
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Portfolio may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling (877)435-8105 or visiting www.hardingloevnerfunds.com. Performance data shown does not reflect the 2.00% redemption fee imposed on shares held 90 days or less; otherwise, total returns would be reduced.
South Africa was up sharply, boosted by a strong return contribution fromNaspers, a South African media and internet holding company whose largest asset is a 31% stake in Chinese social media and gaming giantTencent. South African banks were also up, reversing steep losses in the prior six months as sentiment toward political risk remained volatile. Investors looked forward to the May elections and the likelihood of President Cyril Ramaphosa’sre-election.
By sector, Consumer Discretionary and Real Estate performed best. In the former, index heavyweightsAlibaba andJD.com reported stronger-than-expected growth rates and margin improvements in their coree-commerce businesses. In Real Estate, China reduced mortgage rates for first-time buyers to support select regional housing markets, which boosted local property stocks. Communication Services was also strong, with Tencent (another large index holding) bolstered by the resumption of online game approvals.
The period’s weakest sector was Health Care, with declines by large index constituents in South Korea, South Africa, and China. At the start of the fiscal year, shares of Chinese pharmaceuticals were hurt by regulators’ efforts to cut drug prices. Many, but not all, later recovered as the pacing of these cuts appeared slower than feared. Energy and Materials stocks also underperformed.
⬛ | PERFORMANCE ATTRIBUTION |
The Portfolios outperformed the index in the first half of the fiscal year due to strong stock selection. By sector, our holdings in Financials contributed the most to relative returns. Shares of Hong Kong’sAIA Group, a fast-growingpan-Asian insurance group, rose on the back of strong results and China’s announcement that it is advancing the timeline for opening its insurance market to foreign companies, which will allow AIA to expand beyond its current grandfathered territory.
We also had strong relative returns in IT, where digital consultantEPAM reportedyear-on-year revenue growth of almost 30% and a 2.5 percentage-point expansion of operating margins. Taiwanese camera-lens manufacturerLargan Precision rallied after January as smartphone manufacturers launched new models and sales of Apple’s new iPhones in China accelerated following a price reduction.
We lagged in Health Care in part due to our positions early in the fiscal year in three Chinese pharmaceutical manufacturers—CSPC Pharmaceutical Group, Sino Biopharmaceutical, andJiangsu Hengrui Medicine—when the government’s actions to cut drug prices hurt their shares. Our underweight to the strong Communication Services sector also detracted.
Viewed by region, stocks in Asia contributed the most to the Portfolio’s outperformance. In South Korea, consumer-products companyLGHousehold & Health Careenjoyed strong cosmetics sales in China, where its premium products continued to gain market share. In China, ourA-share holdings (surveillance-equipment manufacturerHangzhou Hikvision, appliance manufacturerMidea,andHan’s Laser) contributed strongly amid the domestic market’s rally. However, our underweight to China detracted. In Latin America, returns were boosted in Colombia byBancolombia and in Brazil byBanco Bradesco andB3, the stock exchange.
We lagged the index in Africa due to weak holdings in South Africa. Insurance companyDiscovery Limitedreported a 4% decline in profits due to higher spending on new business and a spike in mortality in its home market. Drug manufacturer Aspen Pharmacare fell after saying it had renegotiated its debt-covenants, which the market interpreted as a sign of weakening cash flow.
⬛ | PERSPECTIVE AND OUTLOOK |
“Digital transformation” has become a ubiquitous rallying cry among corporate managers. Nearly every company, or so it seems, claims to be planning, implementing, or reaping the rewards of integrating digital technologies like cloud computing, artificial intelligence (AI), and Big Data analytics into their daily operations. While these claims often contain a healthy dollop of self-promotion, something undeniably real—and expensive—is happening, and it’s not limited to inherently digitale-commerce or social-media businesses. Last year, companies spent an estimated US$1.1 trillion on digital transformation tools and services, a 17% increase over 2017.1
1Natalie Gagliordi, “Digital Transformation Technology and Services Spending is on the Rise,”ZDNet.com, June 12, 2018.
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Companies worldwide are pursuing digital transformation in an effort to improve their returns on capital, capture new growth opportunities, and fend off rivals. But the returns from such projects may be greatest for companies in developing countries. In regions with large and geographically dispersed populations and less-developed physical infrastructures, digital technology helps companies identify, segment, and thenreach their target markets. South Africa’sStandard Bank, for example, spent over US$1 billion between 2012 and 2017 on upgrading and consolidating its banking systems to improve the efficiency of its core operations and support its expansion across the African continent. Before the upgrade project, the150-year-old bank was struggling to compete with startups that were leveraging technology to offer banking services over mobile phones. Unlike traditional banks, the new competitors were not bogged down by legacy systems, paper forms and records, or the large overhead costs of physical bank branches. Standard Bank’s upgrade has allowed it to increase its volume of transactions, process them in real time, and share data between business units. Standard Bank now provides mobile banking, 24/7 access to account information, and faster and more accurate creditworthiness assessments.
SECTOR EXPOSURE (%) at April 30, 2019
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SECTOR | INSTITUTIONAL HLMEX / HLEZX | ADVISOR HLEMX | BENCHMARK1 | |||||||||
COMM SERVICES | 8.0 | 7.9 | 12.5 | |||||||||
CONSUMER DISCRETIONARY | 16.1 | 16.0 | 13.6 | |||||||||
CONSUMER STAPLES | 8.7 | 8.7 | 6.4 | |||||||||
ENERGY | 7.8 | 7.8 | 7.9 | |||||||||
FINANCIALS | 27.9 | 27.8 | 24.2 | |||||||||
HEALTH CARE | 1.1 | 1.1 | 2.6 | |||||||||
INDUSTRIALS | 6.8 | 6.7 | 5.3 | |||||||||
INFORMATION TECHNOLOGY | 16.7 | 16.7 | 14.8 | |||||||||
MATERIALS | 1.1 | 1.0 | 7.1 | |||||||||
REAL ESTATE | 0.6 | 0.6 | 3.1 | |||||||||
UTILITIES | 1.9 | 1.9 | 2.5 | |||||||||
CASH | 3.3 | 3.8 | — | |||||||||
1MSCI Emerging Markets Index.
Our portfolio includes numerous other companies whose bright growth prospects depend directly on their well-conceived digital initiatives.Ping An Insurance, China’s second-largest insurer, is another striking example. Over the past decade, Ping An has spent US$7 billion to build out its cloud-computing and AI capabilities as well as develop its new information platforms that draw in new customers. It currently employs about 20,000 developers who have built one of China’s largest computing clouds and created intelligent cognition technologies for medical imaging, voice and face recognition, and financial risk control. Ping An’s rich customer data and analytics allow it to develop products and pricing targeted to specific consumers, which improves sales efficiency and customer loyalty.
GEOGRAPHIC EXPOSURE (%) at April 30, 2019
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COUNTRY/REGION | INSTITUTIONAL HLMEX / HLEZX | ADVISOR HLEMX | BENCHMARK1 | |||||||||
BRAZIL | 6.9 | 6.9 | 7.0 | |||||||||
CHINA + HONG KONG2 | 31.6 | 31.5 | 33.0 | |||||||||
INDIA | 5.3 | 5.3 | 9.2 | |||||||||
MEXICO | 4.7 | 4.6 | 2.7 | |||||||||
RUSSIA | 8.1 | 8.1 | 3.8 | |||||||||
SOUTH AFRICA | 4.9 | 4.8 | 6.2 | |||||||||
SOUTH KOREA | 9.1 | 9.1 | 12.8 | |||||||||
TAIWAN | 8.2 | 8.1 | 11.6 | |||||||||
SMALL EMERGING MARKETS3 | 11.2 | 11.1 | 13.7 | |||||||||
FRONTIER MARKETS4 | 2.1 | 2.1 | — | |||||||||
DEVELOPED MARKET LISTED5 | 4.6 | 4.6 | — | |||||||||
CASH | 3.3 | 3.8 | — | |||||||||
1MSCI Emerging Markets Index;2The Harding Loevner Funds Institutional Emerging Markets Portfolio’s end weight in China is 24.3% and Hong Kong is 7.4%. The Harding Loevner Funds Emerging Markets Portfolio’s end weight in China is 24.1% and Hong Kong is 7.4%. The Benchmark does not include Hong Kong;3Includes the remaining emerging markets which, individually, comprise less than 5% of the Index;4Includes countries with less-developed markets outside the Index;5Includes emerging markets or frontier markets companies listed in developed markets, excluding Hong Kong.
At theback-end of the business, Ping An’s dense IT capabilities have lowered the cost and improved the quality of customer service, withAI-powered chatbots now able to handle 85% of inquiries. Of the company’s nearly 4 million life-insurance claims in 2018, almost 60% were settled within 30 minutes with the help of AI systems.
Ping An’s technology reinvention also enables it to pursue growth in areas related to but distinct from its core business. These new areas include online platforms focused on health care, real estate, and automobile information. The company reports that up to 40% of its new insurance or banking customers first encountered Ping An on one of these new platforms.
As the pursuit of digital transformation has assumed the character of a technological arms race, lucrative opportunities have been created for the arms suppliers: IT services businesses that enable such transformations. These include India’sTata Consultancy Services (TCS)—a new holding this period—and EPAM. Both companies are experiencing significant growth as they help enterprises increase the density of digital applications within their operations.
Mumbai-based TCS is one of thetop-three IT Services companies globally by revenues and profits. The company’s origins are in providinglow-cost IT maintenance services, but it has expanded to offer a wide range of other products and services, including custom software development and business-process analysis. TCS has the capabilities that few other IT companies have for executing enterprise-wide projects at a reasonable cost. Over the last three years, the portion of TCS’s revenues generated from digital-transformation projects has more than doubled to 30%. In 2018, digital-services revenue was $5.5 billion, a 39% increase over the previous year. These services include building and supporting cloud-based systems, AI applications, and Internet of Things (IoT) solutions. Clients include Rolls-Royce, which has implemented IoT technology to improve manufacturing efficiency; US craft-supplies retailer Michaels, a user of TCS’s software development platform; and South African telecom company Cell C, for which TCS provided a cloud-based employee training platform.
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While a sprawling enterprise, TCS is intent on maintaining its long-standing culture as an engineering shop first and foremost. The company works hard to retain its engineering talent, in part by providing intensive ongoing training to ensure its 400,000 employees remain up-to-speed on the latest technologies. Its staff attrition rate is only 11% a year, among the lowest in an industry known for high turnover.
With 24,000 employees, EPAM is considerably smaller than TCS. It focuses primarily on high-end systems development. Shortly after its founding in 1993, the company was hired by SAP and other tech giants to assist with application development. While headquartered in Pennsylvania, most of EPAM’s assets (over 90%) are in EM and frontier-market countries. The majority of its engineering talent is based in the Eastern European hubs of Minsk and Kiev.
TEN LARGEST HOLDINGS at April 30, 2019
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COMPANY | SECTOR | COUNTRY | INSTITUTIONAL HLMEX / HLEZX | ADVISOR HLEMX | ||||||||
TSMC | INFO TECHNOLOGY | TAIWAN | 4.7 | 4.7 | ||||||||
TENCENT | COMM SERVICES | CHINA | 4.4 | 4.4 | ||||||||
SAMSUNG ELECTRONICS | INFO TECHNOLOGY | SOUTH KOREA | 4.3 | 4.3 | ||||||||
ALIBABA | CONS DISCRETIONARY | CHINA | 3.8 | 3.8 | ||||||||
LUKOIL | ENERGY | RUSSIA | 2.6 | 2.6 | ||||||||
AIA GROUP | FINANCIALS | HONG KONG | 2.6 | 2.6 | ||||||||
SBERBANK | FINANCIALS | RUSSIA | 2.5 | 2.5 | ||||||||
NOVATEK | ENERGY | RUSSIA | 2.4 | 2.4 | ||||||||
HDFC CORP | FINANCIALS | INDIA | 2.1 | 2.1 | ||||||||
LG HOUSEHOLD & HEALTH CARE | CONS STAPLES | SOUTH KOREA | 2.1 | 2.1 | ||||||||
EPAM business is organized according to the industries it serves, including financial services, travel, health care, and software. The cutting-edge work it does in the latter in particular provides insights on technology trends and advanced applications that it applies to other industries. Digital transformation projects represent the majority of the work EPAM does for clients, which include such Fortune 100 businesses as Barclays, Coca-Cola, Google, and Southwest Airlines. The company’s quarterly revenue growth year-over-year has been in excess of 20% over the past seven years.
⬛ | PORTFOLIO HIGHLIGHTS |
New holdings added this period include TCS, discussed above, andTechtronic Industries (TTI), an innovative cordless-tool maker, headquartered in Hong Kong but whose factories are concentrated in China. The extended transition from corded to cordless power tools, e.g., drills, sanders, and saws, has been a significant source of growth for manufacturers. Thanks to recent innovations inlithium-ion batteries, cordless tools are now powerful and reliable enough for the most demanding construction and industrial tasks. Professional contractors are going cordless. Global sales for battery-powered tools are forecast to increase 6% per year through 2021 compared with 4% for power tools overall.
TTI’s brands include familiar names like Ryobi, Homelite, and Milwaukee. Milwaukee was the first to make tools powered bylithium-ion batteries, in 2005, and it has been improving the technology ever since. Last year, it introduced a battery pack that delivers 50% more power and runs 33% longer on a charge than its previouslytop-of-the-line product. The proprietary battery packs do not just make work easier for contractors but also lock them into Milwaukee’s compatible products.
TTI’s balance sheet has more cash than debt, and revenues have risen at an annual rate of 7% over the past 10 years. Over 75% of its sales are in North America, supported by relationships with major retailers like Home Depot. Developing countries are a small but growing market for TTI, which recently reported sales gains in Russia and China.
We also increased the Portfolio’s position in Mexico’sFEMSA, owner of a 47% stake in Coca-Cola FEMSA, the worlds largest Coke bottler by volume. FEMSA also owns the OXXO convenience store chain, now the third-largest retailer in Mexico with over 11 million customers per day. OXXOs scale gives it buying power similar to Walmart de México, Mexicos largest retailer. OXXO stores are not just shops but also popular service centers where customers can make routine commercial transactions, such as paying utility and phone bills. FEMSA is pursuing various other growth opportunities as well. It launched a joint venture with Amazon so that online shoppers can pick up their orders in OXXO stores. FEMSA is also one of Latin Americas largest drug-store operators with a significant presence in Chile, Colombia, and Peru.
We completed sales of Argentina’sBanco Macroand Chinese pharmaceutical company Jiangsu Hengrui. Banco Macro’s shares rallied in January following polls showing President Mauricio Macri’s public support remained strong despite the country’s deteriorating economy. They were also bolstered by the Fed’s pause in rate-raising, which helped Argentina and other countries burdened by substantial external debt and financing needs. When the shares exceeded the level we felt was reflective of their discounted present value taking into account the lingering political and economic risks, we chose to exit the position.
Jiangsu Hengrui is arguably the highest-quality drug manufacturer in China, but in our view its shares had become too expensive in light of increasing regulatory risks. Although many of the company’s products are innovative and less subject to price competition, they are not entirely insulated from regulators’ brute efforts to lower drug prices. Following a sharp rally in the shares, we exited our position. We continue to hold relatively small positions in two still-attractively valued Chinese pharmaceutical companies, Sino Biopharmaceutical and CSPC Pharmaceutical Group.
Please read the separate disclosures page for important information, including the risks of investing in the Portfolios.
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PORTFOLIO MANAGEMENT TEAM
PRADIPTA CHAKRABORTTY |
CO-LEAD PORTFOLIO MANAGER |
BABATUNDE OJO, CFA |
CO-LEAD PORTFOLIO MANAGER |
⬛ | PERFORMANCE SUMMARY |
For the Frontier Emerging Markets Portfolio, the Institutional Class I rose 9.04%, the Institutional Class II rose 9.33%, and the Investor Class rose 8.84% (net of fees and expenses) in thesix-month period ended April 30, 2019. The Portfolio’s benchmark, the MSCI Frontier Emerging Markets Index, rose 9.91% (net of source taxes).
⬛ | MARKET REVIEW |
Frontier Emerging Market (FEM) stocks sold off in November and December and then bounced back in 2019, posting solid gains for the trailingsix-month period ended April 30. Several of the issues that panicked investors towards the end of 2018 appeared to ease in the beginning of 2019. In Washington and Beijing, trade negotiators backed off threats to impose additional tariffs and described the ongoing talks as promising. The Fed’s decision to slow the pace of rate hikes supported global commodity prices and boosted most FEM currencies.
In Washington and Beijing, trade negotiators backed off threats to impose additional tariffs and described the ongoing talks as promising.
By region, theoil-rich Gulf States performed best amid a 40% jump in the price of Brent crude during the first four months of 2019. In December, Organization of the Petroleum Exporting Countries (OPEC) and a group of 10oil-producing nations agreed to cut daily production by 1.2 million barrels; by February the coalition had largely reached its goal. In addition to the oil price rise, Kuwait continued to enjoy a tailwind from index sponsor FTSE’s upgrading of the market from frontier to emerging status in 2018. MSCI, the other major index sponsor, announced that it may follow FTSE’s lead in 2019. Kuwait accounts for about 80% of the Gulf region’s weight in our benchmark index. Asia also rose with the strong performance of the Philippine market.
FUND FACTS at April 30, 2019
| ||||||
TOTAL NET ASSETS | $371.8M | |||||
SALES CHARGE | NONE | |||||
NUMBER OF HOLDINGS | 64 | |||||
TURNOVER (5 YR. AVG.) | 29% | |||||
REDEMPTION FEE | 2% FIRST 90 DAYS | |||||
DIVIDEND POLICY | ANNUAL | |||||
INSTITUTIONAL INVESTORS
|
INDIVIDUAL INVESTORS
| |||||
INST CLASS I | INST CLASS II | INVESTOR CLASS | ||||
TICKER | HLFMX | HLFFX | HLMOX | |||
CUSIP | 412295867 | 412295735 | 412295859 | |||
INCEPTION DATE | 5/27/2008 | 3/1/2017 | 12/31/2010 | |||
MINIMUM INVESTMENT1 | $100,000 | $10,000,000 | $5,000 | |||
NET EXPENSE RATIO | 1.62% | 1.35%2 | 2.00%2 | |||
GROSS EXPENSE RATIO | 1.62% | 1.56% | 2.06% | |||
1Lower minimums available through certain brokerage firms;2Shown net of Harding Loevner’s contractual agreement through February 28, 2020.
All Expense Ratios are as of the Prospectus dated February 28, 2019 unless otherwise noted.
Europe and the Middle East were the two worst-performing regions. Currency depreciation dragged on Europe’s dollar-based performance; the euro fell 1% against the greenback. Romania’s marketsee-sawed throughout the period as investors reacted to speculative media reports on the government’s negotiations over its proposed new taxes on banks. In late March the government published a new proposal calling for tax rates significantly lower than in its original plan. Stock prices reacted positively, though not enough to offset earlier declines. The Middle East, which accounts for less than 2% of the MSCI FEM index, was the only region to fall in the period. Investors worried about Lebanon’s inability to form a government that can enact much-needed fiscal reforms for the heavily indebted country.
By sector, Information Technology (IT) performed best, mainly due to the 63% rise in the share price ofGlobant, an Argentine information technology services consultant. Amid a surge in demand for Globant’s specialized and sophisticated digital services, it announced better-than-expected profits. Over the past five years, it has grown its revenue and profit at compound annual rates of 27% and 30%, respectively, and it expects growth to remain above 20% for the foreseeable future. Globant benefits from persistent weakness of the Argentine peso: it earns more than 85% of its revenue in US dollars while 25% of its costs are in pesos. Cyclical sectors Real Estate, Industrials, and Financials also outperformed the index.
Energy was the period’s worst-performing sector by far. Brent crude prices plummeted 30% in November and December due to excess supply and fears of weakening demand from China and
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PERFORMANCE (% TOTAL RETURN)
for periods ended March 31, 2019 |
for periods ended April 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
1 | 3 | 5 | 10 | SINCE INCEPTION* | 1 | 3 | 5 | 10 | SINCE INCEPTION* | |||||||||||||||||||||||||||||||||||||||||||||||
YEAR
| YEARS
| YEARS
| YEARS
| May-08
| Mar-17
| Dec-10
| YEAR
| YEARS
| YEARS
| YEARS
| May-08
| Mar-17
| Dec-10
| |||||||||||||||||||||||||||||||||||||||||||
FRONTIER EM PORTFOLIO – INST CLASS I | -12.68 | 5.58 | -0.96 | 8.49 | -0.99 | -8.78 | 4.83 | -1.59 | 7.46 | -0.79 | ||||||||||||||||||||||||||||||||||||||||||||||
FRONTIER EM PORTFOLIO – INST CLASS II | -12.35 | — | — | — | 5.73 | -8.53 | — | — | — | 6.53 | ||||||||||||||||||||||||||||||||||||||||||||||
FRONTIER EM PORTFOLIO – INVESTOR CLASS | -12.86 | 5.19 | -1.33 | — | 1.05 | -9.16 | 4.43 | -1.96 | — | 1.28 | ||||||||||||||||||||||||||||||||||||||||||||||
MSCI FRONTIER EM INDEX | -8.00 | 5.81 | 0.31 | 7.65 | — | 5.76 | 1.52 | -6.93 | 5.02 | -0.61 | 6.57 | –– | 5.74 | 1.55 | ||||||||||||||||||||||||||||||||||||||||||
Returns are annualized for periods greater than 1 year. *Inception of the Institutional Class I, May 27, 2008. Inception of the Institutional Class II, March 1, 2017. Inception of the Investor Class, December 31, 2010. Index performance prior to December 2, 2008 cannot be shown since it relies on back-filled data.
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Portfolio may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling (877)435-8105 or visiting www.hardingloevnerfunds.com. Performance data shown does not reflect the 2.00% redemption fee imposed on shares held 90 days or less; otherwise, total returns would be reduced.
elsewhere. The rebound in crude prices in the first few months of 2019 was not enough to overcome Energy’s losses from earlier in thesix-month period. Utilities posted negative returns in the period, largely attributed to significant declines in Argentine utility companies due to the peso’s weakness.
⬛ | PERFORMANCE ATTRIBUTION |
By sector, our good stock selection in Consumer Discretionary contributed the most to relative performance.Jarir Marketing, a Saudi-based retailer of books, office supplies, and consumer electronics, saw increased demand in the last six months of 2018. Jarir has also successfully reduced its costs by favorably renegotiating supplier contracts. Philippine restaurant chain operatorJollibee Foodsreported strong sales, particularly outside its home market. Our overweight to the outperforming IT sector also helped relative performance.
Our stock selection in Materials was poor. Vietnamese steel producerHoa Phat Groupreported that its input costs rose significantly due to the surging price of iron ore. Our underweight and poor stock selection in the strongly performing Real Estate sector also detracted.
By region, stocks in Latin America helped relative returns, especially Globant. Good returns were slightly offset by Colombian oil producerEcopetrol.
Stocks in Africa also contributed. Egyptian snack food makerEdita Food Industries performed well as the company’s croissant and rusk businesses reported strong volume growth. Kenyan wireless telecom operatorSafaricom also performed well despite sluggish voice growth. Its MPesa mobile payment business reported strong results due to growth in transactions and average revenue per user.
Nostrum Oil & Gas, which is based in Kazakhstan but listed in the UK, was a significant detractor in the period. The company produced less oil than expected due to technical problems in some of its wells. Poor stock selection in Asia also hurt performance, primarily due to Hoa Phat Group.
⬛ | PERSPECTIVE AND OUTLOOK |
The Philippines’Consumption-Led Growth Appears Durable
Since 2010, the Philippine economy has grown about 6% a year on average, boosting living standards and personal incomes throughout the country. Sensible government policies laid the foundation for this economic growth and are sustaining it. Over 30 years, successive administrations privatized state-owned industries, invested in education and health care, and spent heavily to modernize and maintain infrastructure. In 2018, government spending on infrastructure reached 5% of GDP, up from only 2% in 2010. The International Monetary Fund (IMF) projects that rapid economic growth will continue for at least the next five years as infrastructure spending rises to 6% of GDP and government initiatives to encourage private investment in rural development bear fruit. In January 2018, lawmakers cut personal tax rates, further boosting households’ disposable incomes.
Growth of the economy has raised per capita income, from US$1,000 in 1998 to over US$3,000 in 2018, and spurred consumption. About 70% of the country’s GDP is represented by private consumption, which has grown 6% annually over the last five years. Filipinos are spending their higher incomes on more restaurant dining, branded clothing, cars, and home improvements. They increasingly favor shopping malls and supermarkets for their quality and variety of products over traditional wet markets and neighborhood convenience stores. And Filipinos are opening bank accounts and taking out loans forbig-ticket items. Over 18% of our Portfolio is currently invested in the Philippines, where we have identified many high-quality companies that are likely to benefit from consumption growth as the economy continues to develop.
Over the last five years, for example, quick-service restaurant chain Jollibee Foods has grown its revenue and profit at annual rates of 15% and 12%, respectively. The company, which has about 60% share of the fast-food market, commands strong loyalty from young Filipinos––a large group in a population whose median age is 24. Jollibee offers Filipinos’ palettes a diverse menu at affordable prices. One of its most popular dishes is its“Chicken-joy” spicy fried chicken. The company’s financial strength allows it
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to invest to capture an even greater share of the food-service market. It’s opening new restaurants, renovating existing ones, and building infrastructure to support them all. Management expects to continue to grow same-store sales by two percentage points above inflation each year by renovating restaurants and innovating menu choices to increase store traffic.
Currently, modern shops account for only 30% of the Philip-pines’ total retail sales, far lower than the 70% for developed Asian economies like South Korea and Japan. The figures will surely converge over time, to the benefit ofRobinsons Retail, which operates a wide variety of branded stores, including supermarkets, hardware stores, pharmacies, and department stores. Its large scale is a competitive advantage: with 2,000 stores, it can negotiate large discounts from suppliers and offer its customers a wider variety of quality products at better prices than traditional retail formats. Robinsons Retail works closely with Robinsons Land, its real estate affiliate, to secure attractive new store locations. Robinsons Retail’s sales and profit have grown at compounded annual average rates of 14% and 13%, respectively, over the last five years, propelled by both same-store sales growth and expansion of its store network, which the company plans to continue.
Property developers are another category benefiting from rising household incomes. The industry is highly concentrated, with the top six developers accounting for 80% of residential property sales, which has not only helped keep supply in balance with demand but also limited competition on price. Residential properties in the Philippines are built by the developers for outright sales. We choseSM Prime Holdingsover its rivals because we prefer the higher mix of commercial assets, which are built to lease, in its portfolio. Shopping malls, offices, and convention centers account for 80% of the company’s operating profit. Such properties provide stable growth and recurring cash flows compared with the residential properties sold by its rivals. SM Prime dominates the country’s malls segment, with 50% market share in terms of gross floor area. SM Prime has grown its revenue and profit at compounded annual average rates of 12% and 15%, respectively, over the last five years. The company plans to increase mall gross floor area by an average of 6% over the next
GEOGRAPHIC EXPOSURE (%) at April 30, 2019
|
| |||||||
REGION | PORTFOLIO | BENCHMARK1 | ||||||
AFRICA | 17.4 | 14.6 | ||||||
ASIA | 31.6 | 36.1 | ||||||
EUROPE | 6.4 | 4.9 | ||||||
GULF STATES | 18.6 | 16.1 | ||||||
LATIN AMERICA | 24.3 | 26.7 | ||||||
MIDDLE EAST | 0.0 | 1.6 | ||||||
DEVELOPED MRKTS LISTED2 | 0.5 | — | ||||||
CASH | 1.2 | — | ||||||
1MSCI Frontier Emerging Markets Index;2Includes frontier or small emerging markets companies listed in developed markets.
SECTOR EXPOSURE (%) at April 30, 2019
|
| |||||||
SECTOR | PORTFOLIO | BENCHMARK1 | ||||||
COMMUNICATION SERVICES | 6.8 | 7.5 | ||||||
CONSUMER DISCRETIONARY | 10.5 | 1.8 | ||||||
CONSUMER STAPLES | 15.5 | 6.1 | ||||||
ENERGY | 5.0 | 5.0 | ||||||
FINANCIALS | 34.4 | 46.4 | ||||||
HEALTH CARE | 4.7 | 1.5 | ||||||
INDUSTRIALS | 5.2 | 8.6 | ||||||
INFORMATION TECHNOLOGY | 3.8 | 1.2 | ||||||
MATERIALS | 6.9 | 6.5 | ||||||
REAL ESTATE | 6.0 | 11.8 | ||||||
UTILITIES | 0.0 | 3.6 | ||||||
CASH | 1.2 | — | ||||||
1MSCI Frontier Emerging Markets Index.
two years, including opening malls in underserved provinces. It is also pioneeringe-commerce, which is in its infancy in the Philippines. SM Prime has developed technology that will allow customers to order online for pickup at a store; management expects the service to be complementary rather than disruptive to its malls. Residential property developers are also reporting higher sales for houses and apartments as the number of workers and their incomes rise. As many as 90% of new buyers take out mortgages to finance their new homes, representing a huge opportunity for banks.
We own three banks in the Philippines—BDO Unibank, BPI, andSecurity Bank. Their loan books are growing, not just for homes but also for cars and other large purchases such as appliances. All have strong management teams experienced in assessing credit risks. Each will likely participate in financing some of the infrastructure projects that are part of the government’s public-private-partnership campaign. While their extensive branch networks are the source of their cheap current account and saving deposits today, all are investing in digital technologies such as mobile banking apps to serve their customers better and to attract a new generation of customers. We expect their profits to continue to grow at double-digit rates for the foreseeable future.
⬛ | PORTFOLIO HIGHLIGHTS |
We are careful about the prices we pay for the quality-growth companies we identify, sometimes waiting years for share prices to fall below our estimates of fair value before buying. Consumer-facing companies in rapidly growing markets have been particularly expensive in recent years. Thesell-off in 2018 created an opportunity to increase our exposure to them.
In January, we initiated a position in Edita Food Industries, Egypt’s leading producer of packaged cakes, croissants, and rusks. We began covering the company in 2015 but were unwilling
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to pay the premium valuation commanded by the shares. Edita, which has been in business for more than two decades, sells Twinkies, Molto, and other snacks that are in high demand among Egypt’s young, fast-growing population of 97 million people. Edita has a strong track record of generating strong earnings growth even during difficult economic times. Amid soaring inflation and a currency devaluation in 2016, it maintained its margins by cutting costs and raising prices. We believe a rebound in consumer spending will propel Edita’s future growth.
We also added to our position inHerfy Food Services, Saudi Arabia’s leading hamburger chain. In December, its shares plummeted 50% from their high in May 2015 due to the severe impact of low oil prices on Saudi household consumption. We are seeing signs of a turnaround in consumer spending, thanks to rising oil prices, increased government spending, and higher rates of employment of Saudi nationals, including women.
In Financials, we increased our positions in Nigeria’sGuaranty Trust Bank (GTB) andZenith Bank. Shares of these high-quality banks appear to us to be bargains, trading at 5x and 4x earnings, respectively. Nigeria offers significant opportunity for credit growth: private sector outstanding loans account for only 15% of GDP, compared with the EM average of 104%. GTB and Zenith have strong balance sheets and appear poised to capitalize on this growth opportunity.
We sold two companies this period out of concern with management quality. In Nigeria, we soldAccess Bankafter the company prioritized market share over profitability. In December, Access announced its intention to buy Diamond Bank to become the largest bank in the country. We believe Diamond’s insufficient capital base and highnon-performing loans will strain Access Bank’s balance sheet. We also exited our position in Nostrum Oil & Gas, a Kazakhstan-based energy company whose shares trade in London. Its management has guided down production targets repeatedly and delayed the commissioning of a gas treatment unit that was expected to double production volumes. They also appear to lack the capabilities to resolve technical issues like water flooding oil wells.
We significantly reduced our position in Dubai’sEmaar Properties. Although Emaar continues to take market share from its rivals due to its superior brand and capacity to provide flexible financing terms, we believe that growth will be increasingly difficult to achieve. Demand for real estate is likely to remain weak in the United Arab Emirates (UAE) due to the impact of low oil prices on business activity, and because many high-earning expatriate workers have lost their jobs and left the country.
TEN LARGEST HOLDINGS at April 30, 2019
|
| |||||
COMPANY | COUNTRY | % | ||||
JARIR MARKETING | SAUDI ARABIA | 4.9 | ||||
AL RAJHI BANK | SAUDI ARABIA | 4.5 | ||||
SM PRIME HOLDINGS | PHILIPPINES | 4.5 | ||||
SAFARICOM | KENYA | 4.3 | ||||
JOLLIBEE FOODS | PHILIPPINES | 4.2 | ||||
CREDICORP | PERU | 3.9 | ||||
HOA PHAT GROUP | VIETNAM | 3.7 | ||||
NATIONAL BANK OF KUWAIT | KUWAIT | 3.6 | ||||
GLOBANT | ARGENTINA | 3.3 | ||||
ALICORP | PERU | 3.2 | ||||
Please read the separate disclosures page for important information, including the risks of investing in the Portfolio.
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PORTFOLIO MANAGEMENT TEAM
MOON SURANA, CFA
PORTFOLIO MANAGER
ANDREW WEST, CFA
PORTFOLIO MANAGER
⬛ | PERFORMANCE SUMMARY |
For the Global Equity Research Portfolio, the Institutional Class rose 12.26% (net of fees and expenses) in thesix-month period ended April 30, 2019. The Portfolio’s benchmark, the MSCI All Country World Index (ACWI), rose 9.37% (net of source taxes).
⬛ | MARKET REVIEW |
Global stock marketssold-off in November and December and then rebounded sharply, ending the first half of the fiscal year with a solid net gain. Thesell-off in late 2018 was led by double-digit declines in developed market equities amid worries that a global recession looms, and that theUS-China tariff dispute could escalate. Emerging markets (EMs), weak all year, fell less in the decline than developed markets, aided in part by rebounds in the weakest countries and currencies.
At the turn of the year, investor sentiment was buoyed by progress inUS-China trade negotiations and signals that the US Federal Reserve will pause hiking interest rates. All sectors and regions ended the first half of the fiscal year in positive territory.
Signs of a global economic slowdown appeared throughout the period. In the US, GDP growth forecasts were revised downward. In China, retail sales and manufacturing activity fell amid a sharp decline in bank lending. In Europe, EU officials predicted GDP growth would slow this year to 1.3%, from 1.9% in 2018. Germany’s manufacturing sector abruptly contracted, and the country’s export sales and orders declined at the fastest rate since the financial crisis in 2008. In Italy, weak business and consumer confidence, precipitated by its populist government’s budget standoff with the EU, sent the country into recession. European economists were increasingly concerned about the bloc slipping, Japan-style, into a liquidity trap, where monetary policy loses its ability to stimulate economic growth becausewould-be lenders fear ultralow rates are unsustainable.
Central banks reacted to the downbeat economic data. After downgrading its GDP forecast for 2019, the Fed signaled that December’s rate hike would be its last for a while, and Chairman Jerome Powell
FUND FACTS at April 30, 2019 | ||||
TOTAL NET ASSETS | $6.8M | |||
SALES CHARGE | NONE | |||
NUMBER OF HOLDINGS | 261 | |||
TURNOVER (5 YR. AVG.) | - | |||
REDEMPTION FEE | 2% FIRST 90 DAYS | |||
DIVIDEND POLICY | ANNUAL | |||
INSTITUTIONAL INVESTORS | ||||
INSTITUTIONAL CLASS | ||||
TICKER | HLRGX | |||
CUSIP | 412295792 | |||
INCEPTION DATE | 12/19/2016 | |||
MINIMUM INVESTMENT1 | $100,000 | |||
NET EXPENSE RATIO2 | 0.80% | |||
GROSS EXPENSE RATIO | 2.54% | |||
1Lower minimums available through certain brokerage firms;2Shown net of Harding Loevner’s contractual agreement through February 28, 2020.
All Expense Ratios are as of the Prospectus dated February 28, 2019 unless otherwise noted.
announced a halt to the planned reduction of the Fed’s US$4 trillion balance sheet, supporting market liquidity. Bond yields in both developed and emerging markets fell markedly in response. The European Central Bank followed suit, extending its time horizon for keeping interest rates low and offering additional cheap funding for banks. China, too, announced measures to lower borrowing costs and encourage loan growth.
TheUS-instigated trade war, which left stock markets battered and bruised in 2018, appeared to take a favorable turn. For much of last year, companies fearful of escalation that would disrupt their global supply chains were discouraged from making fixed-capital investments. In a reversal over the past few months, hopes for trade peace have risen, as both the US and China signaled an eagerness to reach an accord and reported progress in their negotiations.
By sector, Information Technology (IT) and Real Estate performed best. Communication Services also did well, especially Asian internet and media stocks, which returned to the winners’ circle after falling steadily for most of last year, helped in part by China’s decision to end its moratorium on new video game approvals. The Energy sector lagged along with oil prices; although the stocks rebounded with the price of oil from December lows.
In terms of geography, the strong rebounds in Hong Kong and in China boosted returns in Pacificex-Japan and EM. Japan was the weakest region.
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PERFORMANCE (% TOTAL RETURN)
for periods ended March 31, 2019 | for periods ended April 30, 2019 | |||||||||||||||||||||||
|
CALENDAR YTD |
|
|
1 YEAR |
|
|
SINCE INCEPTION |
* |
|
CALENDAR YTD |
|
|
1 YEAR |
|
|
SINCE INCEPTION |
* | |||||||
GLOBAL EQUITY RESEARCH PORTFOLIO – INSTITUTIONAL CLASS | 12.92 | 4.36 | 14.41 | 17.19 | 8.92 | 15.68 | ||||||||||||||||||
MSCI ALL COUNTRY WORLD INDEX | 12.17 | 2.60 | 10.57 | 15.96 | 5.06 | 11.75 | ||||||||||||||||||
Returns are annualized for periods greater than 1 year. *Inception date: December 19, 2016.
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Portfolio may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling (877)435-8105 or visiting www.hardingloevnerfunds.com. Performance data shown does not reflect the 2.00% redemption fee imposed on shares held 90 days or less; otherwise, total returns would be reduced.
⬛ | PERFORMANCE ATTRIBUTION |
Stock selection, dictated as always by our analysts’ recommendations, was the main source of outperformance in the trailing six months. We had particularly strong relative returns in Financials, IT, Consumer Staples, and Materials.
In Financials,Bank Central Asiareported near the beginning of the period strong corporate and commercial loan growth, andAIA Groupand Ping An Insurance participated in the strong rebound of stocks tied to China. In IT, Argentine tech services consultantGlobantannounced better-than-expected profits amid a surge in demand for its specialized and sophisticated digital services. Canadian roadside retailerAlimentation Couche-Tardand Bel-gium-basedAnheuser-Busch InBev contributed to our returns in Consumer Staples. In Materials, US industrial gases companyAir Products and Chemicals contributed to relative returns.
In Energy, many of our stocks detracted as they had yet to regain from declines in oil prices in late 2018. Canadian natural gas producerEncana detracted the most. Our modest weight in cash also hurt relative returns in the period.
By geography, the Portfolio benefited most from strong stock selection in the US. Top contributors includedColgate Palmolive andWorkday. Shares of water, hygiene, and energy technology and services companyEcolab also rose after investors reacted positively to the announcement that the company would exit its upstream energy business in order to limit the cyclical risk from energy exposure.
Stocks in Pacificex-Japan also contributed to outperformance. Hong-Kong holdingsSands China andTechtronic Industries led relative returns. Our EM holdings also helped in the period. In China, private education providerNew Oriental Education reported better-than-expected sales and enrollment growth for its tutoring programs.ICTSIand Bank Central Asia boosted returns in the Philippines and Indonesia, respectively.
In Europe outside the eurozone, Swiss hearing aid manufacturerSonova and consumer good companyNestlé contributed to our relative outperformance.UK-based steam systems specialistSpirax-SarcoEngineering also contributed, after reporting
solid growth in organic sales and operating profit. The Portfolio’s overweight to Pakistan detracted in the period. Stocks in the country (Pakistan Petroleum, Oil & Gas Development Co., andEngro) fell amid economic weakness and difficult negotiations with the IMF over its bailout package.
⬛ | PERSPECTIVE AND OUTLOOK |
We often review in these letters one or two of the tenets of our investment philosophy or aspects of our process, illustrating our points with examples from our recent purchases or current portfolio holdings. A shortcoming of this didactic approach is that, of course, our process rejects far more companies than it ultimately embraces. So, in this letter, we focus on a pair of companies that you willnot find among our holdings: One that has been publicly traded for almost a century while the other made its public debut just in the last few weeks. Illustrating a few things we try to avoid, food giant Kraft Heinz and ride-sharing service Lyft serve as useful case studies of companies that our investment process has deterred us from owning.
Inmid-February, Kraft Heinz announced a US$15 billion write down of the value of its iconic Kraft and Oscar Mayer brands, telling investors that it needed to spend much more heavily on innovation and marketing of those brands to revive their sales and their power to achieve premium prices. As investors took stock of the implications of much lower profit margins and a slashed dividend, the share price of this ostensibly “defensive” company tumbled more than 25% in one day. The shares now trade at just half the price they did 15 months ago.
Harding Loevner, in the person of ourfood-and-beverage analyst Rick Schmidt, deemed Kraft Heinz unqualified for investment according to our growth and quality criteria. In early 2015, he watched Kraft fall under the control of Heinz and the Brazilian investment group 3G Capital, backed by Warren Buffett’s Berk-shire Hathaway. 3G’s playbook involves relying on the strength of its holdings’ existing brands, and ruthlessly cutting costs, taking money out of the business, and distributing it to shareholders. While this strategy may prove fruitful initially, Kraft’s brands lost market share and found it difficult to grow and launch new innovations, struggling under debt Kraft had taken on to make further
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acquisitions. Kraft Heinz’s write-down vindicated our decision to forego the generous share buybacks and dividends financed by the higher margins that cost-cutting could deliver in the short or even the medium term.
Instead, we have favored Staples companies whose managements still aimed to grow their top lines, by developing their markets through marketing, investing in R&D, and expanding into developing economies. One such company is Nestlé, which we have owned in the Portfolio since the inception of the strategy. Nestlé spends more than US$1.5 billion dollars a year on R&D and has consistently spent almost 2% of revenues on innovation. Nestlé has steadily built its presence in developing markets over many years, and now garners more than 40% of its sales from emerging markets, where the population is generally younger, growing, and enjoying rising disposable incomes—all tailwinds for achieving organic growth. It frequently acquires emergent brands to open new avenues of growth that are complementary to its existing product or distribution strengths, such as the Starbucks brand for packaged coffee sold outside of the eponymous coffee shops. Nestlé has also invested heavily in its online presence and has doubled its sales viae-commerce in the last five years, to almost 7% of its total sales last year. At the cost of more modest operating profit margins, fully a quarter lower than those of Kraft before February’s “reset,” Nestlé has managed to keep growing its revenues, profits, and dividends. Its share price has ultimately followed, regaining its25-year record of compound returns to its investors above 10%. By comparison, the MSCI All Country World Index has returned just under 7% over the same period.
The second illustrative event this half of the fiscal year was the successful US$2.3 billion initial public offering (IPO) of Lyft, the company behind the ride-sharing platform. As is our custom, we pay attention to some IPOs and assiduously scour offering documents for industry and business model insights, but we rarely participate in such offerings. Our investment process requires we achieve a deep understanding of a company’s business model and long-term growth potential, based in part on our analysis of a company’s history of disclosures and track record of success. This depth of understanding is generally difficult to achieve for IPOs.
GEOGRAPHIC EXPOSURE (%) at April 30, 2019
COUNTRY/REGION | PORTFOLIO | BENCHMARK | 1 | |||||
CANADA | 1.9 | 3.0 | ||||||
EMERGING MARKETS | 19.7 | 11.6 | ||||||
EUROPE EMU | 8.5 | 9.7 | ||||||
EUROPEEX-EMU | 12.8 | 9.2 | ||||||
FRONTIER MARKETS2 | 0.2 | — | ||||||
JAPAN | 9.3 | 7.1 | ||||||
MIDDLE EAST | 0.8 | 0.2 | ||||||
PACIFICEX-JAPAN | 3.9 | 3.8 | ||||||
UNITED STATES | 40.6 | 55.4 | ||||||
CASH | 2.3 | — | ||||||
1MSCI All Country World Index;2Includes countries with less-developed markets outside the Index.
SECTOR EXPOSURE (%) at April 30, 2019
SECTOR | PORTFOLIO | BENCHMARK | 1 | |||||
COMM SERVICES | 6.0 | 8.9 | ||||||
CONSUMER DISCRETIONARY | 11.1 | 11.0 | ||||||
CONSUMER STAPLES | 12.2 | 8.2 | ||||||
ENERGY | 3.2 | 6.1 | ||||||
FINANCIALS | 15.3 | 17.0 | ||||||
HEALTH CARE | 10.9 | 11.0 | ||||||
INDUSTRIALS | 13.0 | 10.5 | ||||||
INFORMATION TECHNOLOGY | 19.0 | 16.1 | ||||||
MATERIALS | 6.1 | 4.8 | ||||||
REAL ESTATE | 0.5 | 3.2 | ||||||
UTILITIES | 0.4 | 3.2 | ||||||
CASH | 2.3 | — | ||||||
1MSCI All Country World Index.
Private companies do not hold themselves to the same level of disclosure that laws and customs require of public companies. Thus we were not buyers in the IPO, choosing to leave the potentialfirst-day “pop” in the share price to others.
In Lyft’s case, the disclosures the company offered made clear that, however rapid the growth of revenues so far and attractive the model could turn out to be, the business is still loss-making—and substantially so: Lyft lost 43 cents for every dollar of revenue it earned last year. In its quest to grow and to compete against first-mover Uber, Lyft subsidizes fares and shares a larger portion of those reduced ride revenues with drivers in order to keep drivers plentiful and prowling for customers. All that is fine, and it is easy to extrapolate current growth to a point where the company would be highly profitable if things went its way. But it’s not for us. We like to see a track record of profitable growth and make arguments for why that shouldn’t change, instead of a track record of losses with arguments for why it will be different in the future.
Lyft notwithstanding, we do like the value proposition that ride-hailing platforms offer to both customers and independent drivers. And we understand the powerful self-reinforcing benefits that can accrue to platforms as they gain customers. One of our holdings—Russian internet search giantYandex—has built that country’s largest ride-hailing business. Yandex’s strong profitability from online search in Russia, where it has edged out Google as the dominant search engine, allowed it to bankroll Yandex Taxi while still delivering profits overall. The company’s willingness to fight for critical mass and its ability to finance the resulting losses helped it win a brutal battle for dominance of Russia’s ride-hailing market against Uber. When Uber suffered management turmoil at home in the US, Yandex Taxi capitalized on its rival’s setback, merging Uber’s loss-making Russian subsidiary into its own business. Once having vanquished its most formidable competitor, Yandex Taxi stanched its losses by slashing rider subsidies. Scott Crawshaw,co-lead portfolio manager of our Emerging Markets Equity strategy, uncovered on a trip to Moscow in March that the business is already profitable in its home market.
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Nor are we averse to companies that are trying to enable autonomous-driving vehicles, which Lyft and Uber see as the natural evolution of their ride-hailing platforms. But rather than Lyft or Uber, we boughtWABCO, the former Westinghouse Air Brake Company, whose focus on braking and steering components for the trucking industry has led it to develop software for autonomously guided trucks. Yet, unlike Uber and Lyft, WABCO has remained highly profitable, with stable profit margins in the teens. Unfortunately, WABCO has several potent competitors in this field, including Tesla, Uber, andAlphabet’sWaymo. In March, WABCO agreed to be acquired by the German car parts maker ZF Friedrichshafen, citing the need for deeper pockets to sustain the required investment in its new products.
By design, our process requires consummated investments to meet a number of criteria, not just one. Kraft had steady profitability and a reasonably sound balance sheet, but few avenues of growth. Lyft achieves plenty of growth but cannot do so without resorting repeatedly to capital markets to fund the subsidies and advertising needed to drive that growth; it has not yet managed to attain profits from its sole current line of business. We’re seeking growing, sustainably profitable businesses, whose managements have the vision to risk investment in future growth that doesn’t depend on uninterrupted access to fickle capital markets.
⬛ | PORTFOLIO HIGHLIGHTS |
The Global Equity Research Portfolio’s holdings are directly determined by analysts’ recommendations among Harding Loevner’s collection of researched companies. During the trailing six months, which were marked by periods of significant market decline, our analysts recommended buying 45 companies and selling 43 holdings. In addition to responding to changes in the analysts’ ratings, we also adjusted individual position weights periodically to maintain our desired risk profile (moderately below-market volatility and moderate tracking error).
New analyst recommendations (both upgrades and downgrades) resulted in a modest increase in the allocation to IT in the Portfolio and a reduction in our Health Care and Consumer Discretionary investments compared with end of the last fiscal year.
Several of our new IT holdings are domiciled in EMs, includingTata Consultancy Services (TCS). The Indian technology company enjoys a strong reputation for its ability to execute large-scale IT projects, and its workforce of over 400,000 people provides it with scale advantages unmatched by most peers. As businesses worldwide in all industries initiate large and complex digital initiatives, we expect demand for TCS’s services to continue to grow. We also established positions in electronics contract-manufacturerHon Hai Precision and analog chip-makerSilergy (both of Taiwan). In developed markets, we boughtInfomart, a Japanesee-commerce company that serves the restaurant industry. We sold two IT companies whose shares had become overly expensive: Argentine technology consultant Globant and Netherlands-based payment-services providerAdyen.
TEN LARGEST HOLDINGS at April 30, 2019
|
| |||||||
COMPANY
|
SECTOR
|
COUNTRY
| %
| |||||
PROCTER & GAMBLE | CONS STAPLES | US | 1.2 | |||||
DISNEY | COMM SERVICES | US | 1.2 | |||||
MCDONALD’S | CONS DISCRETIONARY | US | 1.1 | |||||
ROPER | INDUSTRIALS | US | 1.1 | |||||
JPMORGAN CHASE | FINANCIALS | US | 1.1 | |||||
ECOLAB | MATERIALS | US | 1.1 | |||||
ALLEGION | INDUSTRIALS | US | 1.1 | |||||
GARTNER | INFO TECHNOLOGY | US | 1.1 | |||||
RESMED INC | HEALTH CARE | US | 1.0 | |||||
FIRST REPUBLIC BANK | FINANCIALS | US | 1.0 |
In the period, our weight in Health Care fell 300 basis points, moving the Portfolio from an overweight to a slight underweight position relative to the benchmark. We sold German dialysis companyFresenius SE. The company’s profits have been hurt by new hospital regulations in Germany that require more nurses to be present during dialysis procedures. We also sold AmerisourceBergen, a US drug wholesaler, whose growth prospects are dimmed by reforms in pharmacy rebate practices and the backlash against widespread opioid prescription abuses. We purchasedDechra Pharmaceuticals, aUK-based maker of veterinary drugs. The company’s competitive advantages include its strong R&D capabilities, regulatory expertise, and brand recognition among vets. We expect Dechra will benefit as owners continue to increase spending on their pets.
In Consumer Discretionary, we sold four Chinese companies—tutoring services providerTAL Education, branded sportswear companyANTA Sports,e-commerce retailerJD.com, and online job portal51job Inc.—due to high valuation after a period of outperformance.
By geography, our weight in Frontier and Emerging Markets and the US declined while our weight increased in Pacificex-Japan and the eurozone. In the eurozone, we added to our positions inFuchs Petrolub,Henkel, andBanco Santander. We also purchased French biopharma-equipment supplierSartorius Stedim Biotech.
Please read the separate disclosures page for important information, including the risks of investing in the Portfolio.
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PORTFOLIO MANAGEMENT TEAM
|
MOON SURANA, CFA |
PORTFOLIO MANAGER |
ANDREW WEST, CFA |
PORTFOLIO MANAGER |
⬛ | PERFORMANCE SUMMARY |
For the International Equity Research Portfolio, the Institutional Class gained 11.33% (net of fees and expenses) in thesix-month period ended April 30, 2019. The Portfolio’s benchmark, the MSCI All Country Worldex-US Index, gained 9.12% (net of source taxes).
FUND FACTS at April 30, 2019
| ||||
TOTAL NET ASSETS | $12.2M | |||
SALES CHARGE | NONE | |||
NUMBER OF HOLDINGS | 191 | |||
TURNOVER (5 YR. AVG.) | — | |||
REDEMPTION FEE | 2% FIRST 90 DAYS | |||
DIVIDEND POLICY
| ANNUAL
| |||
| INSTITUTIONAL INVESTORS | |||
INST CLASS | INST CLASS Z | |||
TICKER | HLIRX | HLMZX | ||
CUSIP | 412295826 | 412295743 | ||
INCEPTION DATE | 12/17/2015 | — | ||
MINIMUM INVESTMENT1 | $100,000 | $10,000,000 | ||
NET EXPENSE RATIO | 0.75% | 0.75%2 | ||
GROSS EXPENSE RATIO | 1.73% | 1.83% |
1Lower minimums available through certain brokerage firms;2Shown net of Harding Loevner’s contractual agreement through February 28, 2020.
All Expense Ratios are as of the Prospectus dated February 28, 2019 unless otherwise noted.
⬛ | MARKET REVIEW |
International stock marketssold-off in November and December and then rebounded sharply, ending the first half of the fiscal year with a solid net gain. Thesell-off in late 2018 was led by double-digit declines in developed market equities amid worries that a global recession looms, and that theUS-China tariff dispute could escalate. Emerging markets (EMs), weak all year, fell less in the decline than developed markets, aided in part by rebounds in the weakest countries and currencies.
At the turn of the year, investor sentiment was buoyed by progress inUS-China trade negotiations and signals that the US Federal Reserve will pause hiking interest rates. All sectors and regions ended the first half of the fiscal year in positive territory.
Signs of a global economic slowdown appeared throughout the period. In China, retail sales and manufacturing activity fell amid a sharp decline in bank lending. In Europe, EU officials predicted GDP growth would slow this year to 1.3%, from 1.9% in 2018. Germany’s manufacturing sector abruptly contracted, and the country’s export sales and orders declined at the fastest rate since the financial crisis. In Italy, weak business and consumer confidence, precipitated by its populist government’s budget standoff with the EU, sent the country into recession. European economists were increasingly concerned about the bloc slipping, Japan-style, into a liquidity trap, where monetary policy loses its ability to stimulate economic growth becausewould-be lenders fear ultralow rates are unsustainable.
Central banks reacted to the downbeat economic data. After downgrading its GDP forecast for 2019, the Fed signaled that
December’s rate hike would be its last for a while, and Chairman Jerome Powell announced a halt to the planned reduction of the Fed’s US$4 trillion balance sheet, supporting market liquidity. Bond yields in both developed and emerging markets fell markedly in response. The European Central Bank followed suit, extending its time horizon for keeping interest rates low and offering additional cheap funding for banks. China, too, announced measures to lower borrowing costs and encourage loan growth.
TheUS-instigated trade war, which left stock markets battered and bruised in 2018, appeared to take a favorable turn. For much of last year, companies fearful of escalation that would disrupt their global supply chains were discouraged from making fixed-capital investments. In a reversal over the past few months, hopes for trade peace have risen, as both the US and China signaled eagerness to reach an accord and reported progress in their negotiations.
For much of last year, companies fearful of escalation that would disrupt their global supply chains were discouraged from making fixed-capital investments.
By sector, Real Estate and Information Technology (IT) performed best. Communication Services also did well, especially Asian internet and media stocks, which returned to the winners’ circle after falling steadily for most of last year, helped in part by China’s decision to end its moratorium on new video game approvals. The Energy sector lagged along with oil prices; although the stocks rebounded with the price of oil from December lows.
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PERFORMANCE (% TOTAL RETURN)
|
| |||||||||||||||||||||||
|
for periods ended March 31, 2019 |
|
|
for periods ended April 30, 2019 |
| |||||||||||||||||||
| 1 YEAR
|
|
| 3 YEARS
|
|
| SINCE INCEPTION
| *
|
| 1 YEAR
|
|
| 3 YEARS
|
|
| SINCE INCEPTION
| *
| |||||||
INTL EQUITY RESEARCH PORTFOLIO – INSTITUTITONAL CLASS | -4.42 | 9.85 | 9.87 | -0.44 | 10.39 | 10.82 | ||||||||||||||||||
MSCI ALL COUNTRY WORLDEX-US INDEX | -4.22 | 8.09 | 7.45 | -3.23 | 8.09 | 8.10 | ||||||||||||||||||
Returns are annualized for periods greater than 1 year. *Inception date: December 17, 2015.
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Portfolio may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling (877)435-8105 or visiting www.hardingloevnerfunds.com. Performance data shown does not reflect the 2.00% redemption fee imposed on shares held 90 days or less; otherwise, total returns would be reduced.
In terms of geography, the strong rebounds in Hong Kong and in China boosted returns in Pacificex-Japan and EM. Japan was the weakest region.
⬛ | PERFORMANCE ATTRIBUTION |
Stock selection, dictated as always by our analysts’ recommendations, was the main source of outperformance in the trailing six months. We had particularly strong relative returns in Financials, Industrials, IT, and Consumer Staples. In Financials,Bank Central Asia reported near the beginning of the period strong corporate and commercial loan growth, andAIA Group andPing An Insurance participated in the strong rebound of stocks tied to China. Philippines-based port operatorICTSI led Industrials after its operating margins improved due to increased volumes and efficiencies in Argentinian, Colombian, and Australian ports. In IT, Argentine tech services consultantGlobant announced better-than-expected profits amid a surge in demand for its specialized and sophisticated digital services. Canadian roadside retailerAlimentation Couche-Tard and Belgium-basedAnheuser-Busch InBev contributed to our returns in Consumer Staples. The Portfolio’s stock selection in Consumer Discretionary detracted in the period. Shares of London-based online retailerASOS fell after it lowered its revenue guidance in December amid weakening consumer confidence and other economic indicators.
By geography, the Portfolio benefited most from strong stock selection in Pacificex-Japan. Hong-Kong holdingsTechtronic Industries,ASM Pacific Technology, and AIA led relative returns. Our EM holdings also helped in the period. In China, private education providerNew Oriental Education reported better-than-expected sales and enrollment growth for its tutoring programs. ICTSI and Bank Central Asia boosted returns in the Philippines and Indonesia, respectively. In Europe outside the eurozone, Swiss hearing aid manufacturerSonova andUK-based steam systems specialistSpirax-Sarco Engineering contributed to our relative outperformance, with the latter reporting solid growth in organic sales and operating profit. The Portfolio’s overweight to Pakistan detracted in the period. Stocks in the country (PakistanPetroleum, Oil & Gas Development Co., andEngro) fell amid economic weakness and difficult negotiations with the IMF over its bailout package.
⬛ | PERSPECTIVE AND OUTLOOK |
In a famous Monty Python sketch, a customer returns to a pet shop with his recently purchased—and clearly expired—Norwegian Blue parrot. The customer, played by John Cleese, complains that the stiff bird is “bereft of life” and “anex-parrot.” But, to Cleese’s rising frustration, the shopkeeper repeatedly disputes his claim, insisting, “It’s not dead, it’s only restin’!”
Recently, we and other investors have had similar exchanges about the once-fast-growing and now seemingly moribund Consumer Staples companies: are their business models truly dead, or are they only resting, preparing to resume their historic rates of growth?
The Staples sector had been a reliable source of returns for investors for many decades thanks to secular growth trends in demand and a favorable competitive structure. In the developing world, industrialization, urbanization, and rising living standards created new and growing markets for packaged goods as people stopped growing their own food and came in time to value the convenience of buying and storing supplies and ingredients and, ultimately, prepared meals in boxes and cans. In developed economies, Staples companies benefited from consumers’ increased ability and willingness to pay for what they perceived to be higher-quality products. The dominant positions of the market leaders—many of them over 100 years old—have been protected by three barriers to entry that have made it difficult for newcomers to challenge them: the high costs of (i) creating and sustaining brand awareness (through advertising and marketing), (ii) achieving the massive scale needed to drive down manufacturing costs; and (iii) obtaining sufficient scarce shelf space in major retail chains. Facing therefore few new entrants and wielding strong influence over their distribution channels, multinational companies likeNestlé,Unilever, Procter & Gamble, Coca-Cola, and others were able to grow steadily both their revenues and margins.
In the last decade or so, however, these historical advantages of the multinationals proved to be insufficient to prevent smaller brands from capturing market share and thereby much of the sector’s incremental growth. In 2017, the consumer-research firm Nielsen estimated that small manufacturers, accounting for only 19% of thefood-and-beverage industry’s global sales, accounted for more than 50% of its growth.
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How did small companies overcome the formidable advantages of the giants to capture more than their share of the market’s growth? The explanations share a common element: the internet. One factor is the direct access brands now have to consumers viae-commerce platforms. While that is real, its significance can be overstated:e-commerce’s share of overall Staples sales remains small. Another factor is the internet’s ability to connectsub-scale brands to large outsourced manufacturers, reducing the incumbents’ scale advantage in manufacturing. Though the internet no doubt facilitates connections, its role is likely limited as outsourcing has been a common practice for decades. In our view, the internet’s most significant impact has been in advertising and promotion. Targeted digital ads have supplanted the need for expensive national TV campaigns to introduce new and promote old brands. The internet also enables clever—and often free—viral marketing over social media. Advertising has effectively changed from a fixed to a variable cost, allowing small brands to gain recognition by a large number of consumers cheaply and thereby achieve profitability at smaller scale.
In our view, the internet’s most significant impact has been in advertising and promotion.
As their recognition of this new competitive landscape grew, the large Staples companies divided into two camps: doubters and believers in growth. The managements of the first group saw no need to invest significantly in innovative products. Instead, they milked the existing business more aggressively, cutting R&D and marketing costs to maximize cash flow to pay dividends to shareholders or make acquisitions, which brought new opportunities to reduce costs and generate cash. The managements of the second group made changes that they hoped would enable their businesses to compete effectively in the new, more fragmented landscape. They streamlined their portfolios by selling brands or businesses that did not generate adequate growth. These managers, unlike those of the first group, did not give up on their revenue growth ambitions. They increased investments in R&D and marketing
GEOGRAPHIC EXPOSURE (%) at April 30, 2019
COUNTRY/REGION
|
|
PORTFOLIO
|
|
|
BENCHMARK
|
1
| ||
CANADA | 2.6 | 6.8 | ||||||
EMERGING MARKETS | 29.7 | 26.1 | ||||||
EUROPE EMU | 16.1 | 21.7 | ||||||
EUROPEEX-EMU | 24.4 | 20.7 | ||||||
FRONTIER MARKETS2 | 0.2 | — | ||||||
JAPAN | 16.3 | 15.9 | ||||||
MIDDLE EAST | 1.0 | 0.4 | ||||||
PACIFICEX-JAPAN | 7.3 | 8.4 | ||||||
CASH | 2.4 | — | ||||||
1MSCI All Country World Index;2Includes countries with less-developed markets outside the Index.
SECTOR EXPOSURE (%) at April 30, 2019
SECTOR
|
|
PORTFOLIO
|
|
|
BENCHMARK
|
1
| ||
COMM SERVICES | 5.0 | 7.1 | ||||||
CONSUMER DISCRETIONARY | 12.5 | 11.4 | ||||||
CONSUMER STAPLES | 14.0 | 9.8 | ||||||
ENERGY | 4.3 | 7.3 | ||||||
FINANCIALS | 18.5 | 22.0 | ||||||
HEALTH CARE | 8.3 | 8.0 | ||||||
INDUSTRIALS | 13.5 | 11.9 | ||||||
INFORMATION TECHNOLOGY | 11.7 | 8.6 | ||||||
MATERIALS | 7.1 | 7.4 | ||||||
REAL ESTATE | 1.9 | 3.3 | ||||||
UTILITIES | 0.8 | 3.2 | ||||||
CASH | 2.4 | — | ||||||
1MSCI All Country World Index.
(including digital media) to make their brands more appealing to ever-changing consumer tastes. Some also acquired smaller, innovative rivals that were taking market share. For years, we and other investors have debated the merits of each approach.
Several corporate announcements in the trailing six months highlighted a significant risk of the cost-cutting strategy. A bevy of well-known companies including Coca-Cola, Pepsi,Colgate-Pal-molive, and Kraft Heinz, which had for years prioritized growing profit margins over revenues, posted 2018 results that fell below their forecasts. A number admitted that their margin targets were too high or their cost-cutting efforts too aggressive, acknowledging that they had failed to spend enough on R&D and marketing to sustain current revenues, let alone to grow them with new products and new customers. Kraft Heinz stood out: it announced a US$15 billion write-down of the value of its iconic Kraft and Oscar Meyer brands, cut its dividend, and vowed to “step up brand support.” Kraft Heinz’s share price plummeted more than 25% on the announcement.
We are not shareholders of Kraft Heinz. Ourfood-and-beverage analyst deemed the company unqualified for investment according to our growth and quality criteria, thereby making it effectivelyoff-limits to our portfolio managers. He judged Kraft Heinz’s business to be one that had few avenues to grow without substantial investment in new products or markets. He also worried about its high level of debt.
While Kraft Heinz and others in its camp have relentlessly cut costs, other Staples giants are developing their franchises through marketing, investing in R&D, and expansion into developing economies. One such company is Nestlé, which has taken the view that the growth in Staples can be recaptured. In recent years, the company has sold or put a For Sale sign on several businesses it considered subscale, including its US candy and European cold cuts brands. It acquired new brands and reorganized its R&D process to emphasize speed and foster a culture conducive to risk-taking. As a result, Nestlé has reduced the development time of new
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products bytwo-thirds, and accelerated its sales growth in each of the last three quarters. Its share price reflects these changes, rising 17% since the start of 2018 and reaching anall-time high in the recent fiscal quarter.
We own several other Staples companies that we believe are responding astutely to the competitive changes in their industries.Diageo sold off itsnon-core assets (hotels and mass-market spirits brands such as Seagram’s and Yukon Jack) and bought faster-growing, more contemporary premium brands like George Clooney’s Casamigos tequila. It also acquired local spirits brands in growth markets like India and China. Unilever, which rejected a merger proposal from Kraft Heinz in 2017, has recalibrated its cost structure, setting high savings targets and a goal of reinvestingtwo-thirds of the newly freed cash back into the business. It has been hiring experts in digital marketing and software engineers to help its existing brands connect better with young consumers and to boost the success rates of new products. Unilever has also significantly shortened product development times: in the last two years, it has launched 28 new brands compared with just three in the entire decade prior to 2017.
So, on balance, and with all due respect to our idol John Cleese, we take thepet-shopkeeper’s side. The growth opportunity is still alive for Staples companies that are investing in their brands and in new ways to connect with their customers. Many have yet to overcome fully the disruption to their business models wrought by the internet, and the required spending will burden their profit margins in the near term and test the patience of some investors. Yet, their initial successes in adaptation encourage us in our belief that sustained investment in revenue growth will ultimately prove more profitable for them than the alternative of endless cost-cutting. The parrot, we insist, is just resting.
⬛ | PORTFOLIO HIGHLIGHTS |
The International Equity Research Portfolio’s holdings are directly determined by analysts’ recommendations among Harding Loevner’s collection of researched companies. As we executed these Portfolio changes in response to analyst ratings, we also adjusted individual position weights periodically to maintain our desired risk profile (moderately below-market volatility and moderate tracking error).
New analyst recommendations (both upgrades and downgrades) resulted in a modest increase in the Portfolio’s allocation to IT and a reduction in our Industrials and Financials investments compared with end of the last fiscal year.
Several of our new IT holdings are domiciled in EMs, includingTata Consultancy Services (TCS). The Indian technology company enjoys a strong reputation for its ability to execute large-scale IT projects, and its workforce of over 400,000 people provides it with scale advantages unmatched by most peers. As businesses worldwide in all industries initiate large and complex digital initiatives, we expect demand for TCS’s services to continue to grow. We also established positions in electronics contract-
TEN LARGEST HOLDINGS at April 30, 2019
COMPANY
|
SECTOR
|
COUNTRY
|
|
%
|
| |||
SAP | INFO TECHNOLOGY | GERMANY | 1.2 | |||||
ANHEUSER-BUSCH INBEV | CONS STAPLES | BELGIUM | 1.2 | |||||
ALLIANZ | FINANCIALS | GERMANY | 1.1 | |||||
UNILEVER | CONS STAPLES | UK | 1.1 | |||||
TATA CONSULTANCY SERVICES | INFO TECHNOLOGY | INDIA | 1.0 | |||||
CANADIAN NATIONAL RAILWAY | INDUSTRIALS | CANADA | 1.0 | |||||
DBS GROUP | FINANCIALS | SINGAPORE | 1.0 | |||||
NESTLÉ | CONS STAPLES | SWITZERLAND | 1.0 | |||||
BANCO SANTANDER | FINANCIALS | SPAIN | 1.0 | |||||
ALIMENTATION COUCHE-TARD | CONS STAPLES | CANADA | 1.0 | |||||
manufacturerHon Hai Precision and analog chip-makerSilergy (both of Taiwan). In developed markets, we boughtInfomart, a Japanesee-commerce company that serves the restaurant industry. We sold two IT companies whose shares had become overly expensive: Argentine technology consultant Globant and Netherlands-based payment-services providerAdyen.
In Industrials, high valuations prompted our sale of two Japanese companies (factory-materials supplierMonotaRO and parking lot operatorPark24) and Taiwan’sAirTAC, a pneumatic equipment manufacturer. In addition, we sold Panamanian airlineCopa Holdings. Economic weakness in its key markets of Brazil and Argentina is dampening demand, while rising fuel prices are negatively impacting margins. We also sold ceramic insulator makerNGK Insulators and refrigeration-equipment manufacturerHoshizaki(both of Japan). After Hoshizaki missed a deadline for filing its third-quarter results and delayed its quarterly financial report our analyst determined that the company no longer meets our corporate-governance standards.
In the period, our underweight in Financials expanded by 80 basis points. We sold Argentina’sBanco Macro after its shares rose sharply on stronger-than-expected earnings, and our analyst determined the price exceeded her estimate of fair value. Similarly, we soldQatar National Bankdue to valuation. In the UK, we sold London-basedJardine Lloyd Thompson in advance of the company’s sale to Marsh & McLennan. The deal completed in April.
By geography, our weight in Frontier and Emerging Markets declined while our weight increased in Pacificex-Japan and the eurozone. In the eurozone, we added to our positions inAB InBev,Fuchs Petrolub,Henkel, andBanco Santander. We also purchased French biopharma-equipment supplierSartorius Stedim Biotech.
Please read the separate disclosures page for important information, including the risks of investing in the Portfolio.
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PORTFOLIO MANAGEMENT TEAM |
MOON SURANA, CFA |
PORTFOLIO MANAGER |
ANDREW WEST, CFA |
PORTFOLIO MANAGER |
⬛ | PERFORMANCE SUMMARY |
The Emerging Markets Research Portfolio (Institutional Class) rose 16.26% (net of fees and expenses) in thesix-month period ended April 30, 2019. The Portfolios’ benchmark, the MSCI Emerging + Frontier Markets Index, rose 13.59% (net of source taxes).
⬛ | MARKET REVIEW |
Emerging market (EM) stocks fell at the start of the fiscal year amid fears that a global economic slowdown loomed due to continued monetary tightening and the protracted trade war between the US and China. In October, the US Federal Reserve declared that it planned more hikes in short-term interest rates if economic data continued to be strong; in December, it duly delivered its ninth quarter-point rise. Concerns about China’s slowing economy also weighed on markets, with monthly retail sales growth decelerating to its lowest level since 2003.
As 2019 got underway, however, markets were buoyed by a new dovish tone from the US Federal Reserve. The Fed signaled that last December’s rate hike would be its last for a while, and Chairman Jerome Powell announced a halt to the Fed’s planned reduction of its US$4 trillion balance sheet. Investors also cheered signs of progress inUS-China trade negotiations, as officials on both sides backed off from threats to impose additional tariffs. Moreover, new economic data suggested China’s slowdown was less severe than previously feared. Its manufacturing sector returned to growth and property investment, a key indicator of sentiment, accelerated.
In Asia, China’s market soared over 20% in thesix-month period, as company fundamentals remained relatively strong, and several of China’s largest companies reported higher-than-expected fourth-quarter earnings. Health Care and online-game companies in particular were lifted by a pause in the regulatory interventions that had hit their shares last year. Regulators had demanded steeper-than-expected price cuts (some upward of 90%) before drugs could appear in the formularies of government-sponsored health plans. However, the government’s efforts to cut drug prices
FUND FACTS at April 30, 2019 | ||||
TOTAL NET ASSETS | $7.3M | |||
SALES CHARGE | NONE | |||
NUMBER OF HOLDINGS | 114 | |||
TURNOVER (5 YR. AVG.) | - | |||
REDEMPTION FEE | 2% FIRST 90 DAYS | |||
DIVIDEND POLICY | ANNUAL | |||
| INSTITUTIONAL INVESTORS | |||
| INSTITUTIONAL CLASS | |||
TICKER | HLREX | |||
CUSIP | 412295776 | |||
INCEPTION DATE | 12/19/2016 | |||
MINIMUM INVESTMENT1 | $100,000 | |||
NET EXPENSE RATIO2 | 1.15% | |||
GROSS EXPENSE RATIO | 2.75% | |||
1Lower minimums available through certain brokerage firms;2Shown net of Harding Loevner’s contractual agreement through February 28, 2020.
All Expense Ratios are as of the Prospectus dated February 28, 2019 unless otherwise noted.
appeared to move at a slower pace than expected. In December, regulators lifted a moratorium on new online games and resumed issuing approvals. The government also continued to apply stimulus to parts of the economy, providing tax relief to manufacturing and construction companies, while also reducing its reliance on debt in part by clamping down on unregulated “shadow” lending. India and Indonesia also posted strong double-digit returns as the decline in the oil price meant cheaper energy imports.
Latin America was a relative underperformer, with both Brazil and Mexico posting positive returns but lagging the index. Their markets were volatile, reflecting frequent swings in sentiment toward each country’s new political leadership. In Brazil, President Jair Bolsonaro, elected in late October, faced his first serious congressional challenge in late March, when lawmakers pushed back on a pension-reform bill. In Mexico, investors reacted to speculation President Andrés Manuel López Obrador’s government planned to impose tight caps on banks’ fees and interest rates; the actual changes turned out to be less severe than feared.
South Africa was up sharply, boosted by a strong return contribution from Naspers, a South African media and internet holding company whose largest asset is a 31% stake in Chinese social media and gaming giantTencent. South African banks were also up, reversing steep losses in the prior six months as sentiment toward political risk remained volatile. Investors looked forward to the May elections and the likelihood of President Cyril Ramaphosa’sre-election.
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PERFORMANCE (% TOTAL RETURN)
|
for periods ended March 31, 2019 |
|
|
for periods ended April 30, 2019 |
| |||||||||||||||||||
1 YEAR | 3 YEARS | SINCE INCEPTION | * | 1 YEAR | 3 YEARS | SINCE INCEPTION* | ||||||||||||||||||
EMERGING MARKETS RESEARCH PORTFOLIO – INSTL CLASS
| -6.49 | — | 12.95 | -1.26 | — | 13.82 | ||||||||||||||||||
MSCI EMERGING + FRONTIER MARKETS INDEX | -7.59 | — | 12.44 | -5.20 | — | 12.96 | ||||||||||||||||||
Returns are annualized for periods greater than 1 year. *Inception date: December 19, 2016.
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Portfolio may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling (877)435-8105 or visiting www.hardingloevnerfunds.com. Performance data shown does not reflect the 2.00% redemption fee imposed on shares held 90 days or less; otherwise, total returns would be reduced.
By sector, Consumer Discretionary and Real Estate performed best. In the former, index heavyweightsAlibaba andJD.com reported stronger-than-expected growth rates and margin improvements in their coree-commerce businesses. In Real Estate, China reduced mortgage rates for first-time buyers to support select regional housing markets, which boosted local property stocks. Communication Services was also strong, with Tencent (another large index holding) bolstered by the resumption of online game approvals.
The period’s weakest sector was Health Care, with declines by large index constituents in South Korea, South Africa, and China. At the start of the fiscal year, shares of Chinese pharmaceuticals were hurt by regulators’ efforts to cut drug prices. Many, but not all, later recovered as the pacing of these cuts appeared slower than feared. Energy and Materials stocks also underperformed.
⬛ | PERFORMANCE ATTRIBUTION |
The Portfolio outperformed the index in the first half of the fiscal year primarily due to strong stock selection. By sector, our holdings in Financials and Industrials contributed the most to relative returns.Bank Central Asia, one of Indonesia’s largest banks, reported that loans rose 13% year-over-year in the first quarter of 2019 due to an increase in corporate lending for capital investment projects. Hong Kong-basedPing An Insurance participated in the strong rebound of stocks tied to China. In Industrials,Shanghai International Airportwas a key contributor. The company reported strong first-quarter results largely due to higher revenues from its duty-free shopping stores in Shanghai’s Pudong Airport. Relative returns were also helped byAirTAC, a Taiwanese manufacturer of pneumatic equipment used in various industries.
The Portfolio’s overweight in the outperforming Consumer Discretionary sector and underweight in Materials were also helpful.
Weak stocks in Communication Services and Real Estate hurt performance relative to the index. Online game giant Tencent was a case of being hurt by not holding a position. It was a strong stock the entiresix-month period but we only held it through January. Our analyst downgraded the stock over concerns about slowing growth in the gaming industry and increasing competition from
social-media companies. Mexican broadcasterTelevisawas also a detractor; the company’s revenues have suffered as advertisers have increasingly migrated away from the broad reach of TV toward highly targeted advertising on Google, Facebook, and other digital platforms. In Real Estate, shares of Dubai’sEmaar Properties fell as the fall in the oil price hurt demand for real estate in the UAE.
Viewed by region, stocks in Asia contributed the most to the Portfolio’s outperformance, with the largest boost coming from a number of strong Chinese holdings including Ping An andNew Oriental Education. The latter, which operates over 1,000 education centers throughout China, reported that in 2019 sales were up over 30% year-over-year and margins also expanded. Growth was particularly strong in its K–12 tutoring business. We outperformed in Latin America thanks in part to two banks: Colombia’sBancolombiaand Brazil’s BancoBradesco.
We lagged the index in Africa due to poor returns from SouthAf-rican insurance companyDiscovery Holdings, which reported a 4% decline in profits due to higher spending on new business and a spike in mortality in its home market. Our underweight to the surging Chinese market also detracted.
⬛ | INVESTMENT PERSPECTIVES |
“Digital transformation” has become a ubiquitous rallying cry among corporate managers. Nearly every company, or so it seems, claims to be planning, implementing, or reaping the rewards of integrating digital technologies like cloud computing, artificial intelligence (AI), and Big Data analytics into their daily operations. While these claims often contain a healthy dollop of self-promotion, something undeniably real—and expensive—is happening, and it’s not limited to inherently digitale-commerce or social-media businesses. Last year, companies spent an estimated US$1.1 trillion on digital transformation tools and services, a 17% increase over 2017.1
1Natalie Gagliordi, “Digital Transformation Technology and Services Spending is on the Rise,”ZDNet.com, June 12, 2018.
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Companies worldwide are pursuing digital transformation to improve their returns on capital, capture new growth opportunities, and fend off rivals. But the returns from such projects may be greatest for companies in developing countries. In regions with large and geographically dispersed populations and less-developed physical infrastructures, digital technology helps companies identify, segment, and thenreach their target markets. South Africa’sStandard Bank, for example, spent over US$1 billion between 2012 and 2017 on upgrading and consolidating its banking systems to improve the efficiency of its core operations and support its expansion across the African continent. Before the upgrade project, the150-year-old bank was struggling to compete with startups that were leveraging technology to offer banking services over mobile phones. Unlike traditional banks, the new competitors were not bogged down by legacy systems, paper forms and records, or the large overhead costs of physical bank branches. Standard Bank’s upgrade has allowed it to increase its volume of transactions, process them in real time, and share data between business units. It also significantly reduced the time employees spent managing documents so they could devote more time to customers. Standard Bank now provides mobile banking, 24/7 access to account information, and faster and more accurate creditworthiness assessments.
Our portfolio includes numerous other companies whose bright growth prospects depend directly on their well-conceived digital initiatives. Ping An Insurance, China’s second-largest insurer, is another striking example. The Hong Kong-based company has used digital technologies not only to strengthen its core insurance and financial-services business but also to pursue new growth opportunities. Over the past decade, Ping An has spent US$7 billion to build out its cloud-computing and AI capabilities as well as develop its new information platforms that draw in new customers. It currently employs about 20,000 developers who have built one of China’s largest computing clouds and created intelligent cognition technologies for medical imaging, voice and face recognition,
GEOGRAPHIC EXPOSURE (%) at April 30, 2019
COUNTRY/REGION | PORTFOLIO | BENCHMARK | 1 | |||||
BRAZIL | 5.2 | 6.9 | ||||||
CHINA | 27.3 | 32.3 | ||||||
INDIA | 10.9 | 9.0 | ||||||
MEXICO | 6.1 | 2.7 | ||||||
RUSSIA | 6.0 | 3.7 | ||||||
SOUTH AFRICA | 3.5 | 6.1 | ||||||
SOUTH KOREA | 6.1 | 12.5 | ||||||
TAIWAN | 7.7 | 11.3 | ||||||
SMALL EMERGING MARKETS2 | 15.3 | 13.4 | ||||||
FRONTIER MARKETS | 8.1 | 2.1 | ||||||
DEVELOPED MARKET LISTED3 | 0.4 | — | ||||||
CASH | 3.4 | — | ||||||
1MSCI Emerging + Frontier Markets Index;2Includes the remaining emerging markets which, individually, comprise less than 5% of the Index;3Includes emerging markets or frontier markets companies listed in developed markets.
SECTOR EXPOSURE (%) at April 30, 2019
SECTOR | PORTFOLIO | BENCHMARK | 1 | |||||
COMM SERVICES | 6.9 | 12.5 | ||||||
CONSUMER DISCRETIONARY | 16.3 | 13.4 | ||||||
CONSUMER STAPLES | 15.6 | 6.5 | ||||||
ENERGY | 7.8 | 7.9 | ||||||
FINANCIALS | 25.9 | 24.6 | ||||||
HEALTH CARE | 1.9 | 2.6 | ||||||
INDUSTRIALS | 3.6 | 5.2 | ||||||
INFORMATION TECHNOLOGY | 12.3 | 14.5 | ||||||
MATERIALS | 2.9 | 7.1 | ||||||
REAL ESTATE | 2.0 | 3.2 | ||||||
UTILITIES | 1.4 | 2.5 | ||||||
CASH | 3.4 | — | ||||||
1MSCI Emerging + Frontier Markets Index.
and financial risk control. Ping An’s rich customer data and analytics allow it to develop products and pricing targeted to specific consumers, which improves sales efficiency and customer loyalty.In-person contact remains key for “making the sale” of insurance products. Ping An’s 1.4 million agents are now armed with detailed information that identifies the most-appropriate products for each prospective customer and guides the agent on the most-effective sales approach. At theback-end of the business, Ping An’s dense information technology (IT) capabilities have lowered the cost and improved the quality of customer service, withAI-powered chatbots now able to handle 85% of inquiries. Of the company’s nearly 4 million life-insurance claims in 2018, almost 60% were settled within 30 minutes with the help of AI systems.
Ping An’s technology reinvention also enables it to pursue growth in areas related to but distinct from its core business. These new areas include online platforms focused on health care, real estate, and automobile information. The company reports that up to 40% of its new insurance or banking customers first encountered Ping An on one of these new platforms. For example, many shoppers seeking a new vehicle on the company’s auto information website are presented with links tocar-insurance options. Ping An’s pool of prospective customers is vast: nearly 500 million people are interacting with its systems, including 250 million on its “Good Doctor” health portal.
As the pursuit of digital transformation has assumed the character of a technological arms race, lucrative opportunities have been created for the arms suppliers: IT services businesses that enable such transformations. These include India’sTata Consultancy Services (TCS)—a new holding this period. TCS is experiencing significant growth as it helps enterprises increase the density of digital applications within their operations.
Mumbai-based TCS is one of thetop-three IT Services companies globally by revenues and profits. The company’s origins are in providinglow-cost IT maintenance services, but it has expanded to offer a wide range of other products and services, including custom
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software development and business-process analysis. TCS has the capabilities that few other IT companies have for executing enterprise-wide projects at a reasonable cost. Over the last three years, the portion of TCS’s revenues generated from digital-transformation projects has more than doubled to 30%. In 2018, digital-services revenue was $5.5 billion, a 39% increase over the previous year. These services include building and supporting cloud-based systems, AI applications, and Internet of Things (IoT) solutions. Clients include Rolls-Royce, which has implemented IoT technology to improve manufacturing efficiency; US craftsupplies retailer Michaels, a user of TCS’s software development platform; and South African telecom company Cell C, for which TCS provided a cloud-based employee training platform.
While a sprawling enterprise, TCS is intent on maintaining its long-standing culture as an engineering shop first and foremost. The company works hard to retain its engineering talent, in part by providing intensive ongoing training to ensure its 400,000 employees remainup-to-speed on the latest technologies. Its staff attrition rate is only 11% a year, among the lowest in an industry known for high turnover.
⬛ | PORTFOLIO HIGHLIGHTS |
The Emerging Markets Equity Research Portfolio’s holdings are directly determined by analysts’ purchase recommendations among Harding Loevner’s collection of researched companies. In addition to responding to changes in the analysts’ ratings, we also adjusted individual position weights periodically to maintain our desired risk profile (moderately below-market volatility and moderate tracking error).
Over the past six months the Portfolio’s weight in IT rose significantly, although it still remains below the index’s weight. New holdings added this period included Indian IT consultant TCS, discussed above, and two Taiwanese businesses: electronics contracts manufacturerHon Hai Precision and analog chipmakerSilergy. We also boughtNetEase, a large Chinese online game company that both develops its own titles for PC and mobile formats and also licenses games from Activision Blizzard (a Nasdaq-listed US gaming company). While games represent over 60% of sales, NetEase also generates significant revenues from itse-commerce platforms. In addition, the company is developing an education business focused on online education for K–12 students.
In Financials, we completed the sale of Argentina’sBanco Macro after shares rallied in January following polls showing President Mauricio Macri’s public support remained strong despite the country’s deteriorating economy. They were also bolstered by the Fed’s pause in rate-raising, which helped Argentina and other countries burdened by substantial external debt and financing needs. The analyst downgraded the shares to sell when they appeared overvalued taking into account the lingering political and economic risks.
In Industrials, we swapped two companies in the airport industry. We purchased Shanghai International Airport, which provides
TEN LARGEST HOLDINGS at April 30, 2019
COMPANY | SECTOR | COUNTRY | % | |||||
TATA CONSULTANCY SERVICES | INFO TECHNOLOGY | INDIA | 2.3 | |||||
TSMC | INFO TECHNOLOGY | TAIWAN | 2.2 | |||||
PING AN INSURANCE | FINANCIALS | CHINA | 2.1 | |||||
HON HAI PRECISION | INFO TECHNOLOGY | TAIWAN | 2.1 | |||||
AL RAJHI BANK | FINANCIALS | SAUDI ARABIA | 2.1 | |||||
HDFC CORP | FINANCIALS | INDIA | 2.0 | |||||
CREDICORP | FINANCIALS | PERU | 2.0 | |||||
ALIBABA | CONS DISCRETIONARY | CHINA | 2.0 | |||||
NOVATEK | ENERGY | RUSSIA | 2.0 | |||||
LUKOIL | ENERGY | RUSSIA | 1.9 | |||||
ground-handling and passenger services to Shanghai’s Pudong International Airport, including duty-free stores. The analyst believes the company should benefit over the long term from the shift of duty-free shopping among Chinese nationals from the informal “daigou” channel—where shoppers purchase luxury goods at duty-free stores abroad and bring them back to China for local clients in return for a commission—to legitimate domestic channels. We sold Panamanian airlineCopa Holdings. Economic weakness in its key markets of Brazil and Argentina has been dampening demand.
Analysts recommended a variety of Consumer Discretionary businesses that we added to the Portfolio this period, includingHero Motocorp an Indian motorcycle manufacturer, andSongcheng, which operates 30 theme parks across China. We sold Mexican broadcaster Televisa, however, after our analyst decided the company no longer met our growth and financial strength criteria due to its inability to manage the threat from online media and digital advertising.
The Portfolio’s China weight increased in the period, in part due to the strong performance of this market (and many of our holdings there) relative to other markets. But we also added a number of new holdings in China, including NetEase, Shanghai International Airport, and Songcheng mentioned above. We also sold branded sportswear companyANTA Sports following the analyst’s downgrade of the stock due to its high valuation after a period of outperformance.
Please read the separate disclosures page for important information, including the risks of investing in the Portfolio.
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⬛ | DISCLOSURES |
The Portfolios invest in foreign securities, which will involve greater volatility and political, economic, and currency risks and differences in accounting methods. They also invest in emerging markets, which involve unique risks, such as exposure to economies less diverse and mature than the US or other more established foreign markets. Economic and political instability may cause larger price changes in emerging markets securities than other foreign securities.
Investments in small- andmid-cap companies involve additional risks such as limited liquidity and greater volatility.
Diversification does not guarantee a profit or prevent a loss in a declining market.
Long-term earnings growth and earnings per share growth are not a forecast of the Portfolios’ future performance.
Companies held in the Portfolios during the first half of the fiscal year appear in bold type; only the first reference to a particular holding appears in bold. The Portfolios are actively managed; therefore holdings shown may not be current. Portfolio holdings and sector and geographic allocations should not be considered recommendations to buy or sell any security. Please refer to the Portfolios of Investments in this report for complete Portfolio holdings. Current and future Portfolio holdings are subject to risk.
While the Portfolios have no sales charge, management fees and other expenses still apply. Please see the Prospectus for further details.
Sector & Geographic Exposure data is sourced from: FactSet, Harding Loevner Funds Portfolios, and MSCI Barra. Differences may exist between this source data and similar information reported in the financial statements due to timing differences and/or adjustments required pursuant to Generally Accepted Accounting Principles (GAAP).
Expense Ratios: Differences may exist between the commentary data and similar information reported in the financial statements due to timing differences. Unless otherwise stated, the expense ratios presented are shown as of the most recent Prospectus date, February 28, 2019.
Five year average turnover data is calculated using a simple average of annual turnover figures for the past five fiscal years. These annual turnover figures utilize purchase, sales, and market value data which is not reflective of adjustments required pursuant to Generally Accepted Accounting Principles (GAAP). Accordingly, differences may exist between this data and similar information reported in the financial statements.
Quasar Distributors, LLC, Distributor.
INDEX DEFINITIONS
The MSCI All Country World Index is a freefloat-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets. The Index consists of 47 developed and emerging market countries. Net dividends reinvested.
The MSCI All Country Worldex-US Index is a freefloat-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets, excluding the US. The Index consists of 46 developed and emerging market countries. Net dividends reinvested.
The MSCI All Country Worldex-US Small Cap Index is a free-float market capitalization index that is designed to measure small cap developed and emerging market equity performance. The Index consists of 46 developed and emerging markets countries and targets companies within a market capitalization range of USD 87–12,489 million (as of March 31, 2019) in terms of the companies’ full market capitalization. Net dividends reinvested.
The MSCI Emerging Markets Index is a freefloat-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Index consists of 24 emerging market countries. Net dividends reinvested.
The MSCI Emerging + Frontier Markets Index is a freefloat-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets and frontier markets. The Index consists of 24 emerging markets countries and 29 frontier markets countries. Net dividends reinvested.
The MSCI Frontier Emerging Markets Index is a freefloat-adjusted market capitalization index designed to measure equity market performance in all countries from the MSCI Frontier Markets Index and the lower size spectrum of the MSCI Emerging Markets Index. The Index consists of 29 frontier markets and 5 emerging markets. Net dividends reinvested.
You cannot invest directly in these Indexes.
TERM DEFINITIONS
Basis Points are a common measurement used chiefly for interest rates and other percentages in finance. A basis point is one hundredth of one percent.
Cash Flow measures the cash generating capability of a company by addingnon-cash charges (e.g. depreciation) and interest expense to pretax income.
Cash Flow Return on Invested Capital is a method of calculation that compares a company’s cash return to its equity.
Economies of scale is the cost advantage that arises with increased output of a product.
Gross Domestic Product (GDP) is the monetary value of all finished goods and services produced within a country’s borders in a specific time period (usually calculated on an annual basis).
Market Capitalization is the total dollar market value of all of a company’s outstanding shares.
The Purchasing Managers Index (PMI) is an indicator of the economic health of the manufacturing sector. The index is based on five major indicators: new orders, inventory levels, production, supplier deliveries, and the employment environment.
Return on Capital (ROC) is a calculation used to assess a company’s efficiency at allocating the capital under its control to profitable investments.
Tracking Error is a measure of how closely a portfolio follows the index to which it is benchmarked.
Turnover is calculated by dividing the lesser of Purchases or Sales by Average Capital.
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For use only when preceded or accompanied by a prospectus. Read the prospectus carefully before you invest or send money.
Table of Contents
Expense Example
April 30, 2019(unaudited)
As a shareholder of a Harding Loevner Portfolio, you incur ongoing costs, including management fees; and to the extent applicable, distribution(12b-1) fees, and/or shareholder services fees and other fund expenses. The following examples are intended to help you understand your ongoing costs (in dollars and cents) of investing in a Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of a six month period and held through the period ended April 30, 2019.
Actual Expenses
The first line under each Portfolio in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line for your Portfolio under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line under each Portfolio in the table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line under each Portfolio in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
Portfolio | Beginning Account Value November 1, 2018 | Ending Account Value April 30, 2019 | Annualized Expense Ratio | Expenses Paid 2018 to April 30, | ||||||||||||
Global Equity Portfolio — Institutional Class | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,099.00 | 0.93 | % | $ | 4.84 | ||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,020.18 | 0.93 | 4.66 | ||||||||||||
Global Equity Portfolio — Institutional Class Z | ||||||||||||||||
Actual | 1,000.00 | 1,099.00 | 0.89 | 4.63 | ||||||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,020.38 | 0.89 | 4.46 | ||||||||||||
Global Equity Portfolio — Advisor Class | ||||||||||||||||
Actual | 1,000.00 | 1,097.70 | 1.13 | 5.88 | ||||||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,019.19 | 1.13 | 5.66 | ||||||||||||
International Equity Portfolio — Institutional Class | ||||||||||||||||
Actual | 1,000.00 | 1,093.80 | 0.81 | 4.21 | ||||||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,020.78 | 0.81 | 4.06 | ||||||||||||
International Equity Portfolio — Institutional Class Z | ||||||||||||||||
Actual | 1,000.00 | 1,094.30 | 0.75 | 3.89 | ||||||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,021.08 | 0.75 | 3.76 | ||||||||||||
International Equity Portfolio — Investor Class | ||||||||||||||||
Actual | 1,000.00 | 1,091.30 | 1.15 | 5.96 | ||||||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,019.09 | 1.15 | 5.76 | ||||||||||||
International Small Companies Portfolio — Institutional Class | ||||||||||||||||
Actual | 1,000.00 | 1,096.50 | 1.15 | 5.98 | ||||||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,019.09 | 1.15 | 5.76 |
* Expenses are calculated using each Portfolio’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (181 days), and divided by the number of days in the year (365 days).
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Table of Contents
Harding, Loevner Funds, Inc.
Expense Example (continued)
April 30, 2019(unaudited)
Portfolio | Beginning Account Value November 1, 2018 | Ending Account Value April 30, 2019 | Annualized Expense Ratio | Expenses Paid 2018 to April 30, 2019) | ||||||||||||
International Small Companies Portfolio — Investor Class | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,094.70 | 1.40 | % | $ | 7.27 | ||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,017.85 | 1.40 | 7.00 | ||||||||||||
Institutional Emerging Markets Portfolio — Institutional Class | ||||||||||||||||
Actual | 1,000.00 | 1,185.70 | 1.27 | 6.88 | ||||||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,018.50 | 1.27 | 6.36 | ||||||||||||
Institutional Emerging Markets Portfolio — Institutional Class Z | ||||||||||||||||
Actual | 1,000.00 | 1,186.40 | 1.12 | 6.07 | ||||||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,019.24 | 1.12 | 5.61 | ||||||||||||
Emerging Markets Portfolio — Advisor Class | ||||||||||||||||
Actual | 1,000.00 | 1,186.40 | 1.39 | 7.54 | ||||||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,017.90 | 1.39 | 6.95 | ||||||||||||
Frontier Emerging Markets Portfolio — Institutional Class I | ||||||||||||||||
Actual | 1,000.00 | 1,090.40 | 1.65 | 8.55 | ||||||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,016.61 | 1.65 | 8.25 | ||||||||||||
Frontier Emerging Markets Portfolio — Institutional Class II | ||||||||||||||||
Actual | 1,000.00 | 1,093.30 | 1.35 | 7.01 | ||||||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,018.10 | 1.35 | 6.76 | ||||||||||||
Frontier Emerging Markets Portfolio — Investor Class | ||||||||||||||||
Actual | 1,000.00 | 1,088.40 | 2.00 | 10.36 | ||||||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,014.88 | 2.00 | 9.99 | ||||||||||||
Global Equity Research Portfolio — Institutional Class | ||||||||||||||||
Actual | 1,000.00 | 1,122.60 | 0.86 | 4.53 | ||||||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,020.53 | 0.86 | 4.31 | ||||||||||||
International Equity Research Portfolio — Institutional Class | ||||||||||||||||
Actual | 1,000.00 | 1,113.30 | 0.84 | 4.40 | ||||||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,020.63 | 0.84 | 4.21 | ||||||||||||
Emerging Markets Research Portfolio — Institutional Class | ||||||||||||||||
Actual | 1,000.00 | 1,162.60 | 1.24 | 6.65 | ||||||||||||
Hypothetical (5% annual return before expenses) | 1,000.00 | 1,018.65 | 1.24 | 6.21 |
* Expenses are calculated using each Portfolio’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (181 days), and divided by the number of days in the year (365 days).
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Table of Contents
Global Equity Portfolio
April 30, 2019 (unaudited)
Shares | Value | |||||||
COMMON STOCKS - 95.9% | ||||||||
China - 5.2% | ||||||||
AAC Technologies Holdings Inc. (Technology Hardware & Equipment)† | 1,339,500 | $8,676,644 | ||||||
Alibaba Group Holding Ltd. - Sponsored ADR (Retailing)* | 95,531 | 17,727,688 | ||||||
Baidu Inc. - Sponsored ADR (Media & Entertainment)* | 45,642 | 7,587,070 | ||||||
Wuxi Biologics Cayman Inc. (Pharmaceuticals, Biotechnology & Life Sciences)*† | 1,566,500 | 15,772,920 | ||||||
49,764,322 | ||||||||
Denmark - 1.4% | ||||||||
Chr Hansen Holding A/S (Materials)† | 133,213 | 13,605,861 | ||||||
Finland - 1.5% | ||||||||
Kone OYJ, Class B (Capital Goods)† | 254,481 | 13,947,611 | ||||||
France - 4.2% | ||||||||
Air Liquide SA (Materials)† | 72,996 | 9,707,429 | ||||||
EssilorLuxottica SA (Consumer Durables & Apparel)† | 169,448 | 20,623,934 | ||||||
L’Oreal SA (Household & Personal Products)† | 38,030 | 10,455,913 | ||||||
40,787,276 | ||||||||
Germany - 3.3% | ||||||||
Bayerische Motoren Werke AG (Automobiles & Components)† | 88,592 | 7,558,402 | ||||||
Symrise AG (Materials)† | 254,079 | 24,440,530 | ||||||
31,998,932 | ||||||||
Hong Kong - 2.9% | ||||||||
AIA Group Ltd. (Insurance)† | 2,736,405 | 27,932,651 | ||||||
India - 2.7% | ||||||||
HDFC Bank Ltd. - ADR (Banks) | 86,519 | 9,919,404 | ||||||
ICICI Bank Ltd. - Sponsored ADR (Banks) | 1,367,434 | 15,657,119 | ||||||
25,576,523 | ||||||||
Indonesia - 1.5% | ||||||||
Bank Central Asia Tbk PT (Banks)† | 7,325,654 | 14,779,459 | ||||||
Israel - 1.0% | ||||||||
Check Point Software Technologies Ltd. (Software & Services)* | 80,113 | 9,674,446 | ||||||
Japan - 9.7% | ||||||||
FANUC Corp. (Capital Goods)† | 37,451 | 7,019,338 | ||||||
Keyence Corp. (Technology Hardware & Equipment)† | 26,202 | 16,329,574 | ||||||
Kubota Corp. (Capital Goods)† | 667,023 | 10,038,497 | ||||||
M3 Inc. (Health Care Equipment & Services)† | 1,123,390 | 19,985,612 |
Shares | Value | |||||||
COMMON STOCKS - 95.9% (continued) |
| |||||||
Japan - 9.7% (continued) | ||||||||
Makita Corp. (Capital Goods)† | 268,163 | $9,793,621 | ||||||
MonotaRO Co., Ltd. (Capital Goods)† | 532,260 | 12,315,244 | ||||||
Park24 Co., Ltd. (Commercial & Professional Services)† | 42,100 | 886,050 | ||||||
Sysmex Corp. (Health Care Equipment & Services)† | 175,965 | 10,074,227 | ||||||
ZOZO Inc. (Retailing)† | 420,800 | 7,456,917 | ||||||
93,899,080 | ||||||||
Russia - 1.4% | ||||||||
Yandex NV, Class A (Media & Entertainment)* | 364,331 | 13,636,909 | ||||||
South Africa - 1.8% | ||||||||
Naspers Ltd., Class N (Retailing)† | 39,639 | 10,125,062 | ||||||
Sasol Ltd. (Materials)† | 222,795 | 7,379,865 | ||||||
17,504,927 | ||||||||
South Korea - 0.9% | ||||||||
Samsung Electronics Co., Ltd. - GDR (Technology Hardware & Equipment)† | 9,128 | 9,011,107 | ||||||
Spain - 0.9% | ||||||||
Banco Bilbao Vizcaya Argentaria SA | 1,398,099 | 8,521,412 | ||||||
Sweden - 0.9% | ||||||||
Intrum AB (Commercial & Professional Services)† | 325,961 | 8,290,938 | ||||||
Switzerland - 4.5% | ||||||||
Lonza Group AG, Reg S (Pharmaceuticals, Biotechnology & Life Sciences)*† | 65,260 | 20,160,094 | ||||||
Nestle SA - Sponsored ADR (Food Beverage & Tobacco) | 131,573 | 12,700,741 | ||||||
Sonova Holding AG, Reg S (Health Care Equipment & Services)† | 50,933 | 10,298,249 | ||||||
43,159,084 | ||||||||
United Kingdom - 2.2% | ||||||||
Abcam plc (Pharmaceuticals, Biotechnology & Life Sciences)† | 534,553 | 9,087,569 | ||||||
Standard Chartered plc (Banks)† | 1,359,981 | 12,434,676 | ||||||
21,522,245 | ||||||||
United States - 49.9% | ||||||||
3M Co. (Capital Goods) | 39,206 | 7,429,929 | ||||||
Abbott Laboratories (Health Care Equipment & Services) | 154,719 | 12,309,444 | ||||||
Alphabet Inc., Class A (Media & Entertainment)* | 22,775 | 27,306,314 | ||||||
Amazon.com Inc. (Retailing)* | 8,448 | 16,275,241 | ||||||
Apple Inc. (Technology Hardware & Equipment) | 80,547 | 16,163,366 |
See Notes to Financial Statements
4
Table of Contents
Harding, Loevner Funds, Inc.
Global Equity Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 95.9% (continued) | ||||||||
United States - 49.9% (continued) | ||||||||
Booking Holdings Inc. (Retailing)* | 14,141 | $26,231,414 | ||||||
Cognex Corp. (Technology Hardware & Equipment) | 186,776 | 9,419,114 | ||||||
Cognizant Technology Solutions Corp., Class A (Software & Services) | 128,386 | 9,367,043 | ||||||
Colgate-Palmolive Co. (Household & Personal Products) | 160,227 | 11,662,923 | ||||||
eBay Inc. (Retailing) | 237,184 | 9,190,880 | ||||||
Exxon Mobil Corp. (Energy) | 162,331 | 13,031,933 | ||||||
Facebook Inc., Class A (Media & Entertainment)* | 60,680 | 11,735,512 | ||||||
First Republic Bank (Banks) | 249,066 | 26,306,351 | ||||||
Illumina Inc. (Pharmaceuticals, Biotechnology & Life Sciences)* | 29,799 | 9,297,288 | ||||||
IPG Photonics Corp. (Technology Hardware & Equipment)* | 58,669 | 10,251,234 | ||||||
Linde plc (Materials)† | 83,888 | 15,083,586 | ||||||
Mastercard Inc., Class A (Software & Services) | 82,310 | 20,926,494 | ||||||
Microsoft Corp. (Software & Services) | 91,593 | 11,962,046 | ||||||
NIKE Inc., Class B (Consumer Durables & Apparel) | 198,968 | 17,475,359 | ||||||
NVIDIA Corp. (Semiconductors & Semiconductor Equipment) | 75,719 | 13,705,139 | ||||||
PayPal Holdings Inc. (Software & Services)* | 393,078 | 44,327,406 | ||||||
Regeneron Pharmaceuticals Inc. (Pharmaceuticals, Biotechnology & Life Sciences)* | 41,898 | 14,376,880 | ||||||
Roper Technologies Inc. (Capital Goods) | 97,627 | 35,116,432 | ||||||
Schlumberger Ltd. (Energy) | 222,609 | 9,500,952 | ||||||
SVB Financial Group (Banks)* | 35,585 | 8,957,456 | ||||||
UnitedHealth Group Inc. (Health Care Equipment & Services) | 32,955 | 7,680,822 | ||||||
Verisk Analytics Inc. (Commercial & Professional Services) | 193,398 | 27,296,194 | ||||||
Vertex Pharmaceuticals Inc. (Pharmaceuticals, Biotechnology & Life Sciences)* | 44,930 | 7,592,271 | ||||||
Walgreens Boots Alliance Inc. (Food & Staples Retailing) | 146,488 | 7,847,362 | ||||||
Walt Disney Co. (Media & Entertainment) | 87,076 | 11,926,800 |
Shares | Value | |||||||
COMMON STOCKS - 95.9% (continued) |
| |||||||
United States - 49.9% (continued) |
| |||||||
Waters Corp. (Pharmaceuticals, Biotechnology & Life Sciences)* | 58,236 | $12,435,715 | ||||||
| 482,188,900 |
| ||||||
Total Common Stocks (Cost $619,476,051) |
| $925,801,683 | ||||||
PREFERRED STOCKS - 2.2% | ||||||||
Brazil - 1.0% | ||||||||
Itau Unibanco Holding SA - Sponsored ADR, 0.55% (Banks)+ | 1,153,242 | 9,975,543 | ||||||
Spain - 1.2% | ||||||||
Grifols SA - ADR, 2.41% (Pharmaceuticals, Biotechnology & Life Sciences)+ | 582,237 | 11,144,016 | ||||||
Total Preferred Stocks (Cost $15,817,506) |
| $21,119,559 | ||||||
SHORT TERM INVESTMENTS - 1.8% |
| |||||||
Northern Institutional Funds - Prime Obligations Portfolio, 2.49% (Money Market Funds) | 440 | 440 | ||||||
Northern Institutional Funds - Treasury Portfolio, 2.29% (Money Market Funds) | 17,192,048 | 17,192,048 | ||||||
Total Short Term Investments (Cost $17,192,488) |
| $17,192,488 | ||||||
Total Investments -— 99.9% | ||||||||
(Cost $652,486,045) | $964,113,730 | |||||||
Other Assets Less Liabilities - 0.1% | 1,359,717 | |||||||
Net Assets — 100.0% | $965,473,447 |
Summary of Abbreviations
ADR | American Depositary Receipt. |
GDR | Global Depository Receipt. |
Reg S | Security sold outside United States without registration under the Securities Act of 1933. |
† | Investment categorized as level 2 security as disclosed in Note 2 of the Notes to Financial Statements. |
* | Non-income producing security. |
+ | Current yield is disclosed. Dividends are calculated based on a percentage of the issuer’s net income. |
See Notes to Financial Statements
5
Table of Contents
Harding, Loevner Funds, Inc.
Global Equity Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Industry |
Percentage of | |||
Automobiles & Components | 0.8 | % | ||
Banks | 11.0 | |||
Capital Goods | 9.9 | |||
Commercial & Professional Services | 3.8 | |||
Consumer Durables & Apparel | 4.0 | |||
Energy | 2.3 | |||
Food & Staples Retailing | 0.8 | |||
Food Beverage & Tobacco | 1.3 | |||
Health Care Equipment & Services | 6.3 | |||
Household & Personal Products | 2.3 | |||
Insurance | 2.9 | |||
Materials | 7.3 | |||
Media & Entertainment | 7.5 | |||
Pharmaceuticals, Biotechnology & Life Sciences | 10.3 | |||
Retailing | 9.0 | |||
Semiconductors & Semiconductor Equipment | 1.4 | |||
Software & Services | 10.0 | |||
Technology Hardware & Equipment | 7.2 | |||
Money Market Funds | 1.8 | |||
Total Investments | 99.9 | |||
Other Assets Less Liabilities | 0.1 | |||
Net Assets | 100.0 | % |
See Notes to Financial Statements
6
Table of Contents
International Equity Portfolio
Portfolio of Investments
April 30, 2019 (unaudited)
Shares | Value | |||||||
COMMON STOCKS - 92.2% | ||||||||
Brazil - 1.6% | ||||||||
Ambev SA - ADR (Food Beverage & Tobacco) | 54,253,562 | $255,534,277 | ||||||
Canada - 3.0% | ||||||||
Alimentation Couche-Tard Inc., Class B (Food & Staples Retailing) | 2,905,800 | 171,328,762 | ||||||
Canadian National Railway Co. (Transportation) | 3,239,685 | 300,577,974 | ||||||
471,906,736 | ||||||||
China - 6.7% | ||||||||
Baidu Inc. - Sponsored ADR (Media & Entertainment)* | 1,762,261 | 292,940,646 | ||||||
China Mobile Ltd. - Sponsored ADR (Telecommunication Services) | 5,372,512 | 256,107,647 | ||||||
Ping An Insurance Group Co. of China Ltd., Class H (Insurance)† | 26,153,000 | 315,121,824 | ||||||
Tencent Holdings Ltd. (Media & Entertainment)† | 3,720,900 | 184,343,637 | ||||||
1,048,513,754 | ||||||||
Denmark - 0.9% | ||||||||
Novozymes A/S, Class B (Materials)† | 2,899,263 | 135,259,405 | ||||||
France - 5.4% | ||||||||
Air Liquide SA (Materials)† | 1,072,981 | 142,691,200 | ||||||
Dassault Systemes SE (Software & | 1,556,046 | 246,981,956 | ||||||
L’Oreal SA (Household & Personal | 1,668,237 | 458,662,644 | ||||||
848,335,800 | ||||||||
Germany - 12.2% | ||||||||
adidas AG (Consumer Durables & Apparel)† | 926,414 | 238,091,918 | ||||||
Allianz SE, Reg S (Insurance)† | 2,055,396 | 495,406,724 | ||||||
Bayerische Motoren Werke AG (Automobiles & Components)† | 1,819,644 | 155,246,540 | ||||||
FUCHS PETROLUB SE (Materials)† | 140,930 | 5,610,978 | ||||||
Infineon Technologies AG (Semiconductors & Semiconductor Equipment)† | 13,399,133 | 315,733,409 | ||||||
SAP SE - Sponsored ADR (Software & Services) | 3,765,805 | 485,261,632 | ||||||
Symrise AG (Materials)† | 2,317,884 | 222,963,381 | ||||||
1,918,314,582 | ||||||||
Hong Kong - 3.5% | ||||||||
AIA Group Ltd. (Insurance)† | 52,885,074 | 539,839,790 | ||||||
India - 2.7% | ||||||||
HDFC Bank Ltd. - ADR (Banks) | 1,852,137 | 212,347,507 |
Shares | Value | |||||||
COMMON STOCKS - 92.2% (continued) |
| |||||||
India - 2.7% (continued) | ||||||||
ICICI Bank Ltd. - Sponsored ADR (Banks) | 18,715,527 | $214,292,784 | ||||||
426,640,291 | ||||||||
Israel - 2.8% | ||||||||
Check Point Software Technologies Ltd. (Software & Services)* | 3,679,386 | 444,322,653 | ||||||
Japan - 11.1% | ||||||||
Chugai Pharmaceutical Co., Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 3,352,000 | 211,349,993 | ||||||
Dentsu Inc. (Media & Entertainment)† | 2,972,700 | 120,554,397 | ||||||
FANUC Corp. (Capital Goods)† | 836,700 | 156,820,387 | ||||||
Keyence Corp. (Technology Hardware & Equipment)† | 434,027 | 270,493,703 | ||||||
Komatsu Ltd. (Capital Goods)† | 6,083,900 | 158,283,201 | ||||||
Kubota Corp. (Capital Goods)† | 15,976,600 | 240,443,068 | ||||||
M3 Inc. (Health Care Equipment & Services)† | 13,806,509 | 245,623,985 | ||||||
Park24 Co., Ltd. (Commercial & Professional Services)† | 997,675 | 20,997,389 | ||||||
Sysmex Corp. (Health Care Equipment & Services)† | 2,925,607 | 167,494,832 | ||||||
Unicharm Corp. (Household & Personal Products)† | 4,650,700 | 152,933,972 | ||||||
1,744,994,927 | ||||||||
Mexico - 1.0% | ||||||||
Fomento Economico Mexicano SAB de CV - Sponsored ADR (Food Beverage & Tobacco) | 1,603,905 | 156,525,089 | ||||||
Russia - 2.3% | ||||||||
LUKOIL PJSC - Sponsored ADR (Energy) | 2,139,049 | 182,888,689 | ||||||
Yandex NV, Class A (Media & | 4,797,306 | 179,563,164 | ||||||
362,451,853 | ||||||||
Singapore - 3.0% | ||||||||
DBS Group Holdings Ltd. (Banks)† | 22,327,983 | 464,063,204 | ||||||
South Africa - 1.9% | ||||||||
Aspen Pharmacare Holdings Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 2,718,148 | 19,551,290 | ||||||
Naspers Ltd., Class N (Retailing)† | 573,133 | 146,396,410 | ||||||
Sasol Ltd. (Materials)† | 4,045,113 | 133,990,374 | ||||||
299,938,074 |
See Notes to Financial Statements
7
Table of Contents
Harding, Loevner Funds, Inc.
International Equity Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 92.2% (continued) |
| |||||||
South Korea - 1.4% | ||||||||
Samsung Electronics Co., Ltd. - GDR (Technology Hardware & Equipment)† | 214,320 | $211,575,428 | ||||||
Spain - 2.9% | ||||||||
Banco Bilbao Vizcaya Argentaria SA | 64,225,408 | 391,453,790 | ||||||
Grifols SA (Pharmaceuticals, Biotechnology & Life Sciences)† | 2,465,713 | 68,430,297 | ||||||
459,884,087 | ||||||||
Sweden - 4.8% | ||||||||
Alfa Laval AB (Capital Goods)† | 9,325,390 | 216,356,622 | ||||||
Atlas Copco AB, Class A (Capital Goods)† | 12,329,770 | 383,096,121 | ||||||
Epiroc AB, Class A (Capital Goods)*† | 14,334,015 | 148,272,051 | ||||||
747,724,794 | ||||||||
Switzerland - 11.5% | ||||||||
Lonza Group AG, Reg S (Pharmaceuticals, Biotechnology & Life Sciences)*† | 828,242 | 255,860,198 | ||||||
Nestle SA - Sponsored ADR (Food Beverage & Tobacco) | 5,673,943 | 547,705,718 | ||||||
Roche Holding AG, Genusschein (Pharmaceuticals, Biotechnology & Life Sciences)† | 1,728,385 | 455,681,013 | ||||||
SGS SA, Reg S (Commercial & Professional Services)† | 61,531 | 162,606,932 | ||||||
Sonova Holding AG, Reg S (Health Care Equipment & Services)† | 985,180 | 199,195,588 | ||||||
Temenos AG, Reg S (Software & | 1,117,919 | 185,905,593 | ||||||
1,806,955,042 | ||||||||
Taiwan - 3.3% | ||||||||
Taiwan Semiconductor Manufacturing Co., Ltd. (Semiconductors & Semiconductor Equipment)† | 10,837,125 | 91,542,002 | ||||||
Taiwan Semiconductor Manufacturing Co., Ltd. - Sponsored ADR (Semiconductors & Semiconductor Equipment) | 9,742,776 | 426,928,444 | ||||||
518,470,446 | ||||||||
United Kingdom - 7.4% | ||||||||
Diageo plc (Food Beverage & Tobacco)† | 7,300,699 | 307,876,544 | ||||||
HSBC Holdings plc (Banks)† | 20,187,538 | 175,845,701 | ||||||
Rio Tinto plc (Materials)† | 2,714,947 | 158,400,899 | ||||||
Royal Dutch Shell plc, Class B (Energy)† | 7,768,745 | 249,064,357 |
Shares | Value | |||||||
COMMON STOCKS - 92.2% (continued) |
| |||||||
United Kingdom - 7.4% (continued) | ||||||||
Unilever plc (Household & Personal Products)† | 4,441,950 | $269,726,078 | ||||||
1,160,913,579 | ||||||||
United States - 2.8% | ||||||||
Linde plc (Materials)† | 1,568,682 | 282,058,816 | ||||||
Schlumberger Ltd. (Energy) | 3,583,288 | 152,934,732 | ||||||
434,993,548 | ||||||||
Total Common Stocks (Cost $11,631,796,453) |
|
|
$14,457,157,359 |
| ||||
PREFERRED STOCKS - 3.4% | ||||||||
Brazil - 1.1% | ||||||||
Itau Unibanco Holding SA - Sponsored ADR, 0.55% (Banks)+ | 20,086,600 | 173,749,090 | ||||||
Germany - 0.5% | ||||||||
FUCHS PETROLUB SE, 2.49% (Materials)+† | 1,959,348 | 85,216,724 | ||||||
South Korea - 1.4% | ||||||||
Samsung Electronics Co., Ltd. - GDR, Reg S, 3.93% (Technology Hardware & Equipment)+† | 267,554 | 212,672,221 | ||||||
Spain - 0.4% | ||||||||
Grifols SA - ADR, 2.41% (Pharmaceuticals, Biotechnology & Life Sciences)+ | | 3,286,406 | | | 62,901,811 | | ||
Total Preferred Stocks (Cost $412,613,792) |
|
|
$534,539,846 |
| ||||
|
| |||||||
SHORT TERM INVESTMENTS - 4.2% |
| |||||||
Northern Institutional Funds - Prime Obligations Portfolio, 2.49% (Money Market Funds) | 350,000,000 | 350,000,000 | ||||||
Northern Institutional Funds - Treasury Portfolio, 2.29% (Money Market Funds) | | 308,059,475 | | | 308,059,475 | | ||
Total Short Term Investments (Cost $658,059,475) | $658,059,475 | |||||||
Total Investments — 99.8% | ||||||||
(Cost $12,702,469,720) | $15,649,756,680 | |||||||
Other Assets Less Liabilities - 0.2% | 23,530,849 | |||||||
Net Assets — 100.0% | $15,673,287,529 |
See Notes to Financial Statements
8
Table of Contents
Harding, Loevner Funds, Inc.
International Equity Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Summary of Abbreviations
ADR | American Depositary Receipt. |
GDR | Global Depository Receipt. |
Reg S | Security sold outside United States without registration under the Securities Act of 1933. |
* | Non-income producing security. |
† | Investment categorized as level 2 security as disclosed in Note 2 of the Notes to Financial Statements. |
+ | Current yield is disclosed. Dividends are calculated based on a percentage of the issuer’s net income. |
Industry |
Percentage of Net Assets | |||
Automobiles & Components | 1.0 | % | ||
Banks | 10.4 | |||
Capital Goods | 8.3 | |||
Commercial & Professional Services | 1.2 | |||
Consumer Durables & Apparel | 1.5 | |||
Energy | 3.7 | |||
Food & Staples Retailing | 1.1 | |||
Food Beverage & Tobacco | 8.1 | |||
Health Care Equipment & Services | 3.9 | |||
Household & Personal Products | 5.6 | |||
Insurance | 8.6 | |||
Materials | 7.5 | |||
Media & Entertainment | 5.0 | |||
Pharmaceuticals, Biotechnology & Life Sciences | 6.9 | |||
Retailing | 0.9 | |||
Semiconductors & Semiconductor Equipment | 5.3 | |||
Software & Services | 8.7 | |||
Technology Hardware & Equipment | 4.4 | |||
Telecommunication Services | 1.6 | |||
Transportation | 1.9 | |||
Money Market Funds | 4.2 | |||
Total Investments | 99.8 | |||
Other Assets Less Liabilities | 0.2 | |||
Net Assets | 100.0 | % |
See Notes to Financial Statements
9
Table of Contents
International Small Companies Portfolio
Portfolio of Investments
April 30, 2019 (unaudited)
Shares | Value | |||||||
COMMON STOCKS - 96.0%
| ||||||||
Argentina - 2.1% | ||||||||
Globant SA (Software & Services)* | 34,398 | $2,889,088 | ||||||
Loma Negra Cia Industrial Argentina SA - Sponsored ADR (Materials)* | 158,618 | 1,586,180 | ||||||
4,475,268 | ||||||||
Australia - 1.5% | ||||||||
DuluxGroup Ltd. (Materials)† | 452,245 | 3,109,782 | ||||||
Bangladesh - 0.4% | ||||||||
Square Pharmaceuticals Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 291,142 | 896,208 | ||||||
Canada - 1.2% | ||||||||
Kinaxis Inc. (Software & Services)* | 46,800 | 2,557,459 | ||||||
China - 2.6% | ||||||||
51job Inc. - ADR (Commercial & Professional Services)* | 17,458 | 1,612,072 | ||||||
Haitian International Holdings Ltd. (Capital Goods)† | 1,147,000 | 2,881,653 | ||||||
Suofeiya Home Collection Co., Ltd., Class A (Consumer Durables & Apparel)† | 297,740 | 983,791 | ||||||
5,477,516 | ||||||||
Denmark - 0.7% | ||||||||
Chr Hansen Holding A/S (Materials)† | 14,748 | 1,506,304 | ||||||
Egypt - 1.4% | ||||||||
Integrated Diagnostics Holdings plc (Health Care Equipment & Services)† | 589,126 | 2,872,085 | ||||||
Finland - 1.5% | ||||||||
Vaisala OYJ, Class A (Technology Hardware & Equipment)† | 144,391 | 3,141,251 | ||||||
France - 5.7% | ||||||||
Alten SA (Software & Services)† | 47,345 | 5,188,866 | ||||||
Chargeurs SA (Consumer Durables & Apparel)† | 34,292 | 732,605 | ||||||
IPSOS (Media & Entertainment)† | 32,710 | 949,216 | ||||||
LISI (Capital Goods)† | 69,161 | 2,315,559 | ||||||
Rubis SCA (Utilities)† | 53,791 | 2,944,348 | ||||||
12,130,594 | ||||||||
Germany - 10.8% | ||||||||
Bechtle AG (Software & Services)† | 51,699 | 5,308,645 | ||||||
Bertrandt AG (Commercial & Professional Services)† | 15,795 | 1,231,798 | ||||||
Carl Zeiss Meditec AG (Bearer) (Health Care Equipment & Services)† | 75,692 | 7,439,191 |
Shares | Value | |||||||
COMMON STOCKS - 96.0% (continued)
|
| |||||||
Germany - 10.8% (continued) | ||||||||
FUCHS PETROLUB SE (Materials)† | 35,848 | $1,427,250 | ||||||
KWS Saat SE (Food Beverage & Tobacco)† | 31,931 | 2,166,710 | ||||||
Pfeiffer Vacuum Technology AG (Capital Goods)† | 11,885 | 1,993,203 | ||||||
Rational AG (Capital Goods)† | 726 | 489,688 | ||||||
STRATEC SE (Health Care Equipment & Services)† | 41,945 | 2,949,550 | ||||||
23,006,035 | ||||||||
Hong Kong - 2.2% | ||||||||
ASM Pacific Technology Ltd. (Semiconductors & Semiconductor Equipment)† | 134,300 | 1,556,181 | ||||||
Pico Far East Holdings Ltd. (Media & Entertainment)† | 6,077,000 | 2,222,612 | ||||||
Vitasoy International Holdings Ltd. (Food Beverage & Tobacco)† | 198,900 | 1,002,518 | ||||||
4,781,311 | ||||||||
India - 3.1% | ||||||||
Bharti Infratel Ltd. (Telecommunication Services)† | 208,531 | 788,049 | ||||||
Emami Ltd. (Household & Personal | 81,762 | 455,023 | ||||||
Max Financial Services Ltd. (Insurance)*† | 605,523 | 3,637,443 | ||||||
SH Kelkar & Co., Ltd. (Materials)† | 753,344 | 1,623,972 | ||||||
6,504,487 | ||||||||
Indonesia - 0.6% | ||||||||
Tower Bersama Infrastructure Tbk PT (Telecommunication Services)† | 4,834,600 | 1,340,927 | ||||||
Israel - 2.5% | ||||||||
CyberArk Software Ltd. (Software & Services)* | 40,959 | 5,280,844 | ||||||
Italy - 3.0% | ||||||||
Danieli & C Officine Meccaniche SpA (RSP) (Capital Goods)† | 46,143 | 668,581 | ||||||
DiaSorin SpA (Health Care Equipment & Services)† | 11,775 | 1,150,212 | ||||||
Reply SpA (Software & Services)† | 70,933 | 4,613,758 | ||||||
6,432,551 | ||||||||
Japan - 14.5% | ||||||||
ABC-Mart Inc. (Retailing)† | 5,600 | 348,740 | ||||||
Ariake Japan Co., Ltd. (Food Beverage & Tobacco)† | 78,000 | 4,551,462 | ||||||
BML Inc. (Health Care Equipment & Services)† | 64,100 | 1,810,988 |
See Notes to Financial Statements
10
Table of Contents
Harding, Loevner Funds, Inc.
International Small Companies Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 96.0% (continued)
|
| |||||||
Japan - 14.5% (continued) | ||||||||
Cosmos Pharmaceutical Corp. (Food & Staples Retailing)† | 12,400 | $1,982,503 | ||||||
FINDEX Inc. (Health Care Equipment & Services)† | 72,700 | 549,052 | ||||||
Infomart Corp. (Software & Services)† | 208,000 | 3,047,854 | ||||||
MISUMI Group Inc. (Capital Goods)† | 38,600 | 991,909 | ||||||
MonotaRO Co., Ltd. (Capital Goods)† | 25,300 | 585,382 | ||||||
Nakanishi Inc. (Health Care Equipment & Services)† | 276,300 | 5,304,052 | ||||||
Nihon M&A Center Inc. (Commercial & Professional Services)† | 80,900 | 2,302,140 | ||||||
Pigeon Corp. (Household & Personal Products)† | 19,200 | 817,188 | ||||||
Rinnai Corp. (Consumer Durables & Apparel)† | 8,600 | 576,111 | ||||||
Rohto Pharmaceutical Co., Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 55,100 | 1,534,015 | ||||||
SMS Co., Ltd. (Commercial & Professional Services)† | 161,700 | 3,110,499 | ||||||
Stanley Electric Co., Ltd. (Automobiles & Components)† | 121,600 | 3,298,665 | ||||||
30,810,560 | ||||||||
Kenya - 0.3% | ||||||||
East African Breweries Ltd. (Food Beverage & Tobacco)† | 326,300 | 715,351 | ||||||
Kuwait - 0.5% | ||||||||
Mabanee Co. SAK (Real Estate)† | 530,126 | 1,088,261 | ||||||
Malaysia - 1.1% | ||||||||
Dialog Group Bhd. (Energy)† | 2,912,640 | 2,270,263 | ||||||
Mexico - 1.5% | ||||||||
Grupo Herdez SAB de CV (Food Beverage & Tobacco) | 1,012,338 | 2,169,630 | ||||||
Megacable Holdings SAB de CV (Media & Entertainment) | 212,400 | 935,634 | ||||||
3,105,264 | ||||||||
Netherlands - 1.0% | ||||||||
ASM International NV (Semiconductors & Semiconductor Equipment)† | 21,891 | 1,495,598 | ||||||
Brunel International NV (Commercial & Professional Services)† | 34,069 | 552,983 | ||||||
2,048,581 | ||||||||
Nigeria - 0.5% | ||||||||
Nestle Nigeria plc (Food Beverage & Tobacco) | 276,510 | 1,165,059 |
Shares | Value | |||||||
COMMON STOCKS - 96.0% (continued)
|
| |||||||
Norway - 1.7% | ||||||||
Tomra Systems ASA (Commercial & Professional Services)† | 119,805 | $3,607,580 | ||||||
Peru - 0.3% | ||||||||
Alicorp SAA (Food Beverage & Tobacco) | 196,125 | 634,670 | ||||||
Philippines - 1.7% | ||||||||
International Container Terminal Services Inc. (Transportation)† | 1,183,910 | 2,875,084 | ||||||
Security Bank Corp. (Banks)† | 184,790 | 638,314 | ||||||
3,513,398 | ||||||||
Romania - 0.5% | ||||||||
Societatea Nationala de Gaze Naturale ROMGAZ SA (Energy)† | 129,577 | 1,003,976 | ||||||
South Africa - 1.8% | ||||||||
Clicks Group Ltd. (Food & Staples | 47,179 | 645,094 | ||||||
Discovery Ltd. (Insurance)† | 195,044 | 1,964,140 | ||||||
Oceana Group Ltd. (Food Beverage & Tobacco)† | 15,486 | 75,702 | ||||||
Tiger Brands Ltd. (Food Beverage & Tobacco)† | 59,863 | 1,041,490 | ||||||
3,726,426 | ||||||||
South Korea - 1.6% | ||||||||
Cheil Worldwide Inc. (Media & Entertainment)† | 60,095 | 1,309,301 | ||||||
Hankook Tire Co., Ltd. (Automobiles & Components)† | 41,483 | 1,411,712 | ||||||
Woongjin Coway Co., Ltd. (Consumer Durables & Apparel)† | 8,181 | 614,857 | ||||||
3,335,870 | ||||||||
Sweden - 3.1% | ||||||||
Alfa Laval AB (Capital Goods)† | 86,873 | 2,015,524 | ||||||
Intrum AB (Commercial & Professional Services)† | 116,513 | 2,963,551 | ||||||
Paradox Interactive AB (Media & Entertainment)† | 56,184 | 861,827 | ||||||
Thule Group AB (Consumer Durables & Apparel)† | 36,375 | 846,059 | ||||||
6,686,961 | ||||||||
Switzerland - 3.6% | ||||||||
Bossard Holding AG, Class A, Reg S (Capital Goods)† | 16,042 | 2,615,660 | ||||||
LEM Holding SA, Reg S (Technology Hardware & Equipment)† | 1,894 | 2,594,660 | ||||||
Temenos AG, Reg S (Software & Services)*† | 7,162 | 1,191,013 |
See Notes to Financial Statements
11
Table of Contents
Harding, Loevner Funds, Inc.
International Small Companies Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 96.0% (continued)
|
| |||||||
Switzerland - 3.6% (continued) | ||||||||
VAT Group AG (Capital Goods)*† | 10,416 | $1,293,506 | ||||||
7,694,839 | ||||||||
Taiwan - 2.3% | ||||||||
Advantech Co., Ltd. (Technology Hardware & Equipment)† | 65,517 | 529,780 | ||||||
Chipbond Technology Corp. (Semiconductors & Semiconductor Equipment)† | 1,029,700 | 2,330,297 | ||||||
Eclat Textile Co., Ltd. (Consumer Durables & Apparel)† | 83,909 | 1,193,437 | ||||||
Silergy Corp. (Semiconductors & Semiconductor Equipment)† | 51,000 | 835,336 | ||||||
4,888,850 | ||||||||
Turkey - 1.4% | ||||||||
Anadolu Hayat Emeklilik AS (Insurance)† | 1,304,056 | 1,195,395 | ||||||
Ulker Biskuvi Sanayi AS (Food Beverage & Tobacco)† | 568,502 | 1,812,085 | ||||||
3,007,480 | ||||||||
Ukraine - 1.1% | ||||||||
Kernel Holding SA (Food Beverage & Tobacco)† | 171,449 | 2,377,350 | ||||||
United Arab Emirates - 0.8% | ||||||||
Agthia Group PJSC (Food Beverage & Tobacco)† | 1,587,127 | 1,690,434 | ||||||
United Kingdom - 14.7% | ||||||||
Abcam plc (Pharmaceuticals, Biotechnology & Life Sciences)† | 305,612 | 5,195,500 | ||||||
Bank of Georgia Group plc (Banks)† | 95,380 | 2,138,340 | ||||||
BBA Aviation plc (Transportation)† | 616,967 | 2,192,267 | ||||||
Britvic plc (Food Beverage & Tobacco)† | 75,032 | 893,789 | ||||||
Clarkson plc (Transportation)† | 81,007 | 2,749,230 | ||||||
Dechra Pharmaceuticals plc (Pharmaceuticals, Biotechnology & Life Sciences)† | 115,460 | 4,005,365 | ||||||
Diploma plc (Capital Goods)† | 147,764 | 3,082,828 | ||||||
EMIS Group plc (Health Care Equipment & Services)† | 171,227 | 2,495,901 | ||||||
Rathbone Brothers plc (Diversified Financials)† | 85,210 | 2,801,752 | ||||||
Rightmove plc (Media & Entertainment)† | 283,063 | 1,998,831 | ||||||
Senior plc (Capital Goods)† | 1,214,092 | 3,674,852 | ||||||
31,228,655 | ||||||||
United States - 1.1% | ||||||||
Core Laboratories NV (Energy) | 26,905 | 1,705,508 |
Shares | Value | |||||||
COMMON STOCKS - 96.0% (continued)
|
| |||||||
United States - 1.1% (continued) | ||||||||
Sensata Technologies Holding plc (Capital Goods)* | 12,984 | $648,421 | ||||||
2,353,929 | ||||||||
Vietnam - 1.6% | ||||||||
Hoa Phat Group JSC (Materials)*† | 2,336,346 | 3,382,364 | ||||||
Total Common Stocks (Cost $166,954,632) |
| $203,848,743 | ||||||
PARTICIPATION NOTES - 1.3%
| ||||||||
Saudi Arabia - 1.3% | ||||||||
Jarir Marketing Co., Issued by HSBC BANK PLC, Maturity Date 1/19/21 (Retailing)*^† | 56,354 | 2,659,723 | ||||||
Total Participation Notes (Cost $2,002,567) |
| $2,659,723 | ||||||
SHORT TERM INVESTMENTS - 2.4% |
| |||||||
Northern Institutional Funds - Treasury Portfolio, 2.29% (Money Market Funds) | 5,119,421 | 5,119,421 | ||||||
Total Short Term Investments (Cost $5,119,421) |
| $5,119,421 | ||||||
Total Investments — 99.7% | ||||||||
(Cost $174,076,620) | $211,627,887 | |||||||
Other Assets Less Liabilities - 0.3% | 649,775 | |||||||
Net Assets — 100.0% | $212,277,662 |
Summary of Abbreviations
ADR | American Depositary Receipt. |
Reg S | Security sold outside United States without registration under the Securities Act of 1933. |
* | Non-income producing security. |
† | Investment categorized as level 2 security as disclosed in Note 2 of the Notes to Financial Statements. |
^ | Security exempt from registration pursuant to Rule 144A of the Securities Act of 1933. These securities, which represent 1.3% of net assets as of April 30, 2019, are considered liquid and may be resold in transactions exempt from registration, normally to qualified buyers. |
See Notes to Financial Statements
12
Table of Contents
Harding, Loevner Funds, Inc.
International Small Companies Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Industry |
Percentage of Net Assets | |||
Automobiles & Components | 2.2 | % | ||
Banks | 1.3 | |||
Capital Goods | 11.0 | |||
Commercial & Professional Services | 7.2 | |||
Consumer Durables & Apparel | 2.3 | |||
Diversified Financials | 1.3 | |||
Energy | 2.3 | |||
Food & Staples Retailing | 1.2 | |||
Food Beverage & Tobacco | 9.6 | |||
Health Care Equipment & Services | 11.6 | |||
Household & Personal Products | 0.6 | |||
Insurance | 3.2 | |||
Materials | 6.0 | |||
Media & Entertainment | 3.9 | |||
Pharmaceuticals, Biotechnology & Life Sciences | 5.5 | |||
Real Estate | 0.5 | |||
Retailing | 1.4 | |||
Semiconductors & Semiconductor Equipment | 2.9 | |||
Software & Services | 14.2 | |||
Technology Hardware & Equipment | 3.0 | |||
Telecommunication Services | 1.0 | |||
Transportation | 3.7 | |||
Utilities | 1.4 | |||
Money Market Fund | 2.4 | |||
Total Investments | 99.7 | |||
Other Assets Less Liabilities | 0.3 | |||
Net Assets | 100.0 | % |
See Notes to Financial Statements
13
Table of Contents
Institutional Emerging Markets Portfolio
Portfolio of Investments
April 30, 2019 (unaudited)
Shares | Value | |||||||
COMMON STOCKS - 91.1% | ||||||||
Brazil - 3.4% | ||||||||
Ambev SA - ADR (Food Beverage & Tobacco) | 10,166,486 | $47,884,149 | ||||||
B3 SA - Brasil Bolsa Balcao (Diversified Financials)* | 3,989,500 | 35,050,949 | ||||||
Localiza Rent a Car SA (Transportation)* | 2,354,712 | 21,738,944 | ||||||
Raia Drogasil SA (Food & Staples Retailing)* | 1,329,000 | 23,434,001 | ||||||
WEG SA (Capital Goods) | 9,996,670 | 47,368,883 | ||||||
175,476,926 | ||||||||
Chile - 0.4% | ||||||||
Banco Santander Chile - ADR (Banks) | 791,007 | 22,148,196 | ||||||
China - 24.2% | ||||||||
51job Inc. - ADR (Commercial & Professional Services)* | 827,399 | 76,402,024 | ||||||
AAC Technologies Holdings Inc. (Technology Hardware & Equipment)† | 4,082,000 | 26,441,256 | ||||||
Alibaba Group Holding Ltd. - Sponsored ADR (Retailing)* | 1,051,105 | 195,053,555 | ||||||
Autohome Inc. - ADR (Media & Entertainment)* | 295,981 | 34,182,846 | ||||||
Baidu Inc. - Sponsored ADR (Media & Entertainment)* | 242,329 | 40,282,350 | ||||||
CNOOC Ltd. - Sponsored ADR (Energy) | 446,440 | 81,109,219 | ||||||
CSPC Pharmaceutical Group Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 19,116,000 | 36,737,829 | ||||||
Ctrip.com International Ltd. - ADR | 746,582 | 32,886,937 | ||||||
ENN Energy Holdings Ltd. (Utilities)† | 10,459,200 | 98,854,832 | ||||||
Hangzhou Hikvision Digital Technology Co., Ltd., Class A (Technology Hardware & Equipment)† | 12,413,170 | 60,215,042 | ||||||
Han’s Laser Technology Industry Group Co., Ltd., Class A (Capital Goods)† | 5,345,577 | 31,050,304 | ||||||
JD.com Inc. - ADR (Retailing)* | 680,979 | 20,613,234 | ||||||
Midea Group Co., Ltd., Class A (Consumer Durables & Apparel)† | 9,518,898 | 74,025,421 | ||||||
Ping An Insurance Group Co. of China Ltd., Class H (Insurance)† | 4,868,500 | 58,661,362 | ||||||
Shenzhou International Group Holdings Ltd. (Consumer Durables & Apparel)† | 4,857,361 | 65,058,995 | ||||||
Sino Biopharmaceutical Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 15,497,757 | 14,856,808 |
Shares | Value | |||||||
COMMON STOCKS - 91.1% (continued) |
| |||||||
China - 24.2% (continued) | ||||||||
Sunny Optical Technology Group Co., Ltd. (Technology Hardware & Equipment)† | 4,506,300 | $54,743,823 | ||||||
Tencent Holdings Ltd. (Media & Entertainment)† | 4,584,000 | 227,103,989 | ||||||
Weibo Corp. - Sponsored ADR (Media & Entertainment)* | 414,430 | 28,388,455 | ||||||
1,256,668,281 | ||||||||
Czech Republic - 0.9% | ||||||||
Komercni banka AS (Banks)† | 1,241,828 | 47,089,111 | ||||||
Egypt - 0.8% | ||||||||
Commercial International Bank Egypt SAE - GDR, Reg S (Banks)† | 8,851,630 | 38,732,503 | ||||||
Hong Kong - 7.4% | ||||||||
AIA Group Ltd. (Insurance)† | 13,202,415 | 134,767,495 | ||||||
ASM Pacific Technology Ltd. (Semiconductors & Semiconductor Equipment)† | 3,128,269 | 36,248,339 | ||||||
Hong Kong Exchanges & Clearing Ltd. (Diversified Financials)† | 2,460,649 | 85,434,275 | ||||||
Sands China Ltd. (Consumer Services)† | 17,452,138 | 95,884,397 | ||||||
Techtronic Industries Co., Ltd. (Consumer Durables & Apparel)† | 4,260,000 | 30,832,322 | ||||||
383,166,828 | ||||||||
India - 5.3% | ||||||||
Housing Development Finance Corp., Ltd. (Banks)† | 3,852,308 | 110,493,092 | ||||||
Kotak Mahindra Bank Ltd. (Banks)† | 3,040,367 | 60,616,875 | ||||||
Maruti Suzuki India Ltd. (Automobiles & Components)† | 493,907 | 47,342,309 | ||||||
Tata Consultancy Services Ltd. (Software & Services)† | 1,770,910 | 57,557,569 | ||||||
276,009,845 | ||||||||
Indonesia - 3.4% | ||||||||
Astra International Tbk PT (Automobiles & Components)† | 78,363,500 | 41,928,998 | ||||||
Bank Central Asia Tbk PT (Banks)† | 25,085,933 | 50,610,705 | ||||||
Bank Rakyat Indonesia Persero Tbk PT (Banks)*† | 277,792,000 | 85,185,117 | ||||||
177,724,820 | ||||||||
Italy - 1.2% | ||||||||
Tenaris SA - ADR (Energy) | 2,301,210 | 63,835,565 | ||||||
Kenya - 1.3% | ||||||||
East African Breweries Ltd. (Food Beverage & Tobacco)† | 6,041,665 | 13,245,206 |
See Notes to Financial Statements
14
Table of Contents
Harding, Loevner Funds, Inc.
Institutional Emerging Markets Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 91.1% (continued) |
| |||||||
Kenya - 1.3% (continued) | ||||||||
Safaricom plc (Telecommunication Services)† | 188,768,827 | $52,536,382 | ||||||
65,781,588 | ||||||||
Mexico - 4.7% | ||||||||
Fomento Economico Mexicano SAB de CV - Sponsored ADR (Food Beverage & Tobacco) | 541,740 | 52,868,407 | ||||||
Grupo Aeroportuario del Sureste SAB de CV - ADR (Transportation) | 291,135 | 47,906,264 | ||||||
Grupo Financiero Banorte SAB de CV, Series O (Banks) | 12,270,200 | 77,558,680 | ||||||
Wal-Mart de Mexico SAB de CV (Food & Staples Retailing) | 21,693,800 | 63,750,266 | ||||||
242,083,617 | ||||||||
Panama - 0.8% | ||||||||
Copa Holdings SA, Class A (Transportation) | 514,964 | 42,875,903 | ||||||
Peru - 1.3% | ||||||||
Credicorp Ltd. (Banks) | 289,188 | 68,508,637 | ||||||
Russia - 8.1% | ||||||||
LUKOIL PJSC - Sponsored ADR (Energy) | 1,582,013 | 135,262,111 | ||||||
Novatek PJSC - Sponsored GDR, Reg S (Energy)† | 644,830 | 124,102,796 | ||||||
Sberbank of Russia PJSC - Sponsored ADR (Banks)† | 9,040,771 | 129,968,403 | ||||||
Yandex NV, Class A (Media & Entertainment)* | 861,113 | 32,231,460 | ||||||
421,564,770 | ||||||||
South Africa - 4.9% | ||||||||
Aspen Pharmacare Holdings Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 629,231 | 4,525,978 | ||||||
Discovery Ltd. (Insurance)† | 5,647,682 | 56,873,525 | ||||||
Naspers Ltd., Class N (Retailing)† | 224,437 | 57,328,353 | ||||||
Sasol Ltd. (Materials)† | 1,651,024 | 54,688,540 | ||||||
Standard Bank Group Ltd. (Banks)† | 5,658,393 | 78,705,625 | ||||||
252,122,021 | ||||||||
South Korea - 8.3% | ||||||||
Amorepacific Corp. (Household & Personal Products)† | 205,572 | 36,622,716 | ||||||
Hankook Tire Co., Ltd. (Automobiles & Components)† | 1,634,715 | 55,631,134 | ||||||
LG Household & Health Care Ltd. (Household & Personal Products)† | 89,337 | 108,782,636 |
Shares | Value | |||||||
COMMON STOCKS - 91.1% (continued) |
| |||||||
South Korea - 8.3% (continued) | ||||||||
Samsung Electronics Co., Ltd. - GDR (Technology Hardware & Equipment)† | 182,963 | $180,619,984 | ||||||
Woongjin Coway Co., Ltd. (Consumer Durables & Apparel)† | 658,219 | 49,469,565 | ||||||
431,126,035 | ||||||||
Taiwan - 8.2% | ||||||||
Airtac International Group (Capital Goods)† | 2,269,063 | 30,167,094 | ||||||
Eclat Textile Co., Ltd. (Consumer Durables & Apparel)† | 4,762,031 | 67,730,311 | ||||||
Hon Hai Precision Industry Co., Ltd. (Technology Hardware & Equipment)† | 9,054,031 | 25,465,321 | ||||||
Largan Precision Co., Ltd. (Technology Hardware & Equipment)† | 377,000 | 56,735,655 | ||||||
Taiwan Semiconductor Manufacturing Co., Ltd. (Semiconductors & Semiconductor Equipment)† | 29,028,277 | 245,204,018 | ||||||
425,302,399 | ||||||||
Thailand - 1.4% | ||||||||
Siam Commercial Bank pcl, Reg S (Banks) | 18,124,670 | 74,372,178 | ||||||
United Arab Emirates - 1.7% | ||||||||
DP World plc (Transportation)† | 2,692,636 | 53,851,050 | ||||||
Emaar Properties PJSC (Real Estate)† | 25,246,813 | 33,002,760 | ||||||
86,853,810 | ||||||||
United Kingdom - 1.8% | ||||||||
Bank of Georgia Group plc (Banks)† | 686,578 | 15,392,508 | ||||||
Coca-Cola HBC AG - CDI (Food Beverage & Tobacco)*† | 2,120,812 | 75,861,644 | ||||||
91,254,152 | ||||||||
United States - 1.6% | ||||||||
EPAM Systems Inc. (Software & Services)* | 471,192 | 84,512,997 | ||||||
Total Common Stocks (Cost $3,619,820,135) |
| $4,727,210,182 | ||||||
| ||||||||
PREFERRED STOCKS - 5.6% | ||||||||
Brazil - 3.6% | ||||||||
Banco Bradesco SA - ADR (Banks)* | 8,921,788 | 80,831,399 | ||||||
Cia Brasileira de Distribuicao - Sponsored ADR (Food & Staples Retailing)* | 1,252,052 | 30,750,397 |
See Notes to Financial Statements
15
Table of Contents
Harding, Loevner Funds, Inc.
Institutional Emerging Markets Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
PREFERRED STOCKS - 5.6% (continued) |
| |||||||
Brazil - 3.6% (continued) | ||||||||
Itau Unibanco Holding SA - Sponsored ADR, 0.55% (Banks)+ | 8,398,253 | $72,644,889 | ||||||
184,226,685 | ||||||||
Colombia - 1.2% | ||||||||
Bancolombia SA - Sponsored ADR, 2.55% (Banks)+ | 1,222,476 | 62,003,983 | ||||||
South Korea - 0.8% | ||||||||
Samsung Electronics Co., Ltd. - GDR, Reg S, 3.93% (Technology Hardware & Equipment)+† | 52,055 | 41,377,264 | ||||||
Total Preferred Stocks (Cost $180,468,684) |
| $287,607,932 | ||||||
| ||||||||
SHORT TERM INVESTMENTS - 3.3% |
| |||||||
Northern Institutional Funds - Prime Obligations Portfolio, 2.49% (Money Market Funds) | 30,000,000 | 30,000,000 | ||||||
Northern Institutional Funds - Treasury Portfolio, 2.29% (Money Market Funds) | 142,724,707 | 142,724,707 | ||||||
| ||||||||
Total Short Term Investments (Cost $172,724,707) | $172,724,707 | |||||||
| ||||||||
Total Investments — 100.0% | ||||||||
(Cost $3,973,013,526) | $5,187,542,821 | |||||||
Other Assets Less Liabilities - 0.0% | 949,825 | |||||||
Net Assets — 100.0% | $5,188,492,646 |
Summary of Abbreviations
ADR | American Depositary Receipt. |
CDI | Chess Depository Interest. |
GDR | Global Depository Receipt. |
Reg S | Security sold outside United States without registration under the Securities Act of 1933. |
* | Non-income producing security. |
† | Investment categorized as level 2 security as disclosed in Note 2 of the Notes to Financial Statements. |
+ | Current yield is disclosed. Dividends are calculated based on a percentage of the issuer’s net income. |
Industry |
Percentage of Net Assets | |||
Automobiles & Components | 2.8 | % | ||
Banks | 20.7 | |||
Capital Goods | 2.1 | |||
Commercial & Professional Services | 1.5 | |||
Consumer Durables & Apparel | 5.5 | |||
Consumer Services | 1.9 | |||
Diversified Financials | 2.3 | |||
Energy | 7.8 | |||
Food & Staples Retailing | 2.3 | |||
Food Beverage & Tobacco | 3.7 | |||
Household & Personal Products | 2.8 | |||
Insurance | 4.8 | |||
Materials | 1.1 | |||
Media & Entertainment | 7.0 | |||
Pharmaceuticals, Biotechnology & Life Sciences | 1.1 | |||
Real Estate | 0.6 | |||
Retailing | 5.9 | |||
Semiconductors & Semiconductor Equipment | 5.4 | |||
Software & Services | 2.7 | |||
Technology Hardware & Equipment | 8.6 | |||
Telecommunication Services | 1.0 | |||
Transportation | 3.2 | |||
Utilities | 1.9 | |||
Money Market Funds | 3.3 | |||
Total Investments | 100.0 | |||
Other Assets Less Liabilities | 0.0 | |||
Net Assets | 100.0 | % |
See Notes to Financial Statements
16
Table of Contents
Emerging Markets Portfolio
Portfolio of Investments
April 30, 2019 (unaudited)
Shares | Value | |||||||
COMMON STOCKS - 90.7%
| ||||||||
Brazil - 3.4% | ||||||||
Ambev SA - ADR (Food Beverage & Tobacco) | 8,297,430 | $39,080,895 | ||||||
B3 SA - Brasil Bolsa Balcao (Diversified Financials)* | 3,256,000 | 28,606,564 | ||||||
Localiza Rent a Car SA (Transportation)* | 1,893,200 | 17,478,218 | ||||||
Raia Drogasil SA (Food & Staples | 1,084,600 | 19,124,543 | ||||||
WEG SA (Capital Goods) | 8,158,830 | 38,660,341 | ||||||
142,950,561 | ||||||||
Chile - 0.4% | ||||||||
Banco Santander Chile - ADR (Banks) | 645,584 | 18,076,352 | ||||||
China - 24.1% | ||||||||
51job Inc. - ADR (Commercial & Professional Services)* | 675,286 | 62,355,909 | ||||||
AAC Technologies Holdings Inc. (Technology Hardware & Equipment)† | 3,331,500 | 21,579,874 | ||||||
Alibaba Group Holding Ltd. - Sponsored ADR (Retailing)* | 857,865 | 159,194,008 | ||||||
Autohome Inc. - ADR (Media & Entertainment)* | 231,654 | 26,753,720 | ||||||
Baidu Inc. - Sponsored ADR (Media & Entertainment)* | 197,778 | 32,876,637 | ||||||
CNOOC Ltd. - Sponsored ADR (Energy) | 364,364 | 66,197,652 | ||||||
CSPC Pharmaceutical Group Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 15,602,000 | 29,984,495 | ||||||
Ctrip.com International Ltd. - ADR (Retailing)* | 609,300 | 26,839,665 | ||||||
ENN Energy Holdings Ltd. (Utilities)† | 8,535,700 | 80,674,926 | ||||||
Hangzhou Hikvision Digital Technology Co., Ltd., Class A (Technology Hardware & Equipment)† | 10,131,008 | 49,144,503 | ||||||
Han’s Laser Technology Industry Group Co., Ltd., Class A (Capital Goods)† | 4,389,980 | 25,499,626 | ||||||
JD.com Inc. - ADR (Retailing)* | 555,784 | 16,823,582 | ||||||
Midea Group Co., Ltd., Class A (Consumer Durables & Apparel)† | 7,768,838 | 60,415,765 | ||||||
Ping An Insurance Group Co. of China Ltd., Class H (Insurance)† | 3,973,500 | 47,877,359 | ||||||
Shenzhou International Group Holdings Ltd. (Consumer Durables & Apparel)† | 3,833,000 | 51,338,809 | ||||||
Sino Biopharmaceutical Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 12,648,788 | 12,125,665 |
Shares | Value | |||||||
COMMON STOCKS - 90.7% (continued)
|
| |||||||
China - 24.1% (continued) | ||||||||
Sunny Optical Technology Group Co., Ltd. (Technology Hardware & Equipment)† | 3,677,800 | $44,678,968 | ||||||
Tencent Holdings Ltd. (Media & Entertainment)† | 3,741,300 | 185,354,309 | ||||||
Weibo Corp. - Sponsored ADR (Media & Entertainment)* | 338,239 | 23,169,372 | ||||||
1,022,884,844 | ||||||||
Czech Republic - 0.9% | ||||||||
Komercni banka AS (Banks)† | 1,013,524 | 38,432,008 | ||||||
Egypt - 0.8% | ||||||||
Commercial International Bank Egypt SAE - GDR, Reg S (Banks)† | 7,224,304 | 31,611,735 | ||||||
Hong Kong - 7.4% | ||||||||
AIA Group Ltd. (Insurance)† | 10,775,189 | 109,990,879 | ||||||
ASM Pacific Technology Ltd. (Semiconductors & Semiconductor Equipment)† | 2,553,123 | 29,583,923 | ||||||
Hong Kong Exchanges & Clearing Ltd. (Diversified Financials)† | 2,008,251 | 69,726,917 | ||||||
Sands China Ltd. (Consumer Services)† | 14,243,744 | 78,257,048 | ||||||
Techtronic Industries Co., Ltd. (Consumer Durables & Apparel)† | 3,477,000 | 25,165,254 | ||||||
312,724,021 | ||||||||
India - 5.3% | ||||||||
Housing Development Finance Corp., Ltd. (Banks)† | 3,144,081 | 90,179,506 | ||||||
Kotak Mahindra Bank Ltd. (Banks)† | 2,481,411 | 49,472,771 | ||||||
Maruti Suzuki India Ltd. (Automobiles & Components)† | 403,105 | 38,638,694 | ||||||
Tata Consultancy Services Ltd. (Software & Services)† | 1,445,338 | 46,975,928 | ||||||
225,266,899 | ||||||||
Indonesia - 3.4% | ||||||||
Astra International Tbk PT (Automobiles & Components)† | 63,966,900 | 34,225,986 | ||||||
Bank Central Asia Tbk PT (Banks)† | 20,474,010 | 41,306,180 | ||||||
Bank Rakyat Indonesia Persero Tbk PT (Banks)*† | 226,721,390 | 69,524,278 | ||||||
145,056,444 | ||||||||
Italy - 1.2% | ||||||||
Tenaris SA - ADR (Energy) | 1,878,144 | 52,099,715 | ||||||
Kenya - 1.3% | ||||||||
East African Breweries Ltd. (Food Beverage & Tobacco)† | 4,804,050 | 10,531,970 |
See Notes to Financial Statements
17
Table of Contents
Harding, Loevner Funds, Inc.
Emerging Markets Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 90.7% (continued)
|
| |||||||
Kenya - 1.3% (continued) | ||||||||
Safaricom plc (Telecommunication Services)† | 154,914,701 | $43,114,417 | ||||||
53,646,387 | ||||||||
Mexico - 4.7% | ||||||||
Fomento Economico Mexicano SAB de CV - Sponsored ADR (Food Beverage & Tobacco) | 442,144 | 43,148,833 | ||||||
Grupo Aeroportuario del Sureste SAB de CV - ADR (Transportation) | 237,612 | 39,099,055 | ||||||
Grupo Financiero Banorte SAB de CV, Series O (Banks) | 10,014,340 | 63,299,619 | ||||||
Wal-Mart de Mexico SAB de CV (Food & Staples Retailing) | 17,705,500 | 52,030,088 | ||||||
197,577,595 | ||||||||
Panama - 0.8% | ||||||||
Copa Holdings SA, Class A (Transportation) | 420,290 | 34,993,345 | ||||||
Peru - 1.3% | ||||||||
Credicorp Ltd. (Banks) | 236,022 | 55,913,612 | ||||||
Russia - 8.1% | ||||||||
LUKOIL PJSC - Sponsored ADR (Energy) | 1,291,168 | 110,394,864 | ||||||
Novatek PJSC - Sponsored GDR, Reg S (Energy)† | 526,282 | 101,287,266 | ||||||
Sberbank of Russia PJSC - Sponsored ADR (Banks)† | 7,378,672 | 106,074,384 | ||||||
Yandex NV, Class A (Media & Entertainment)* | 702,802 | 26,305,879 | ||||||
344,062,393 | ||||||||
South Africa - 4.8% | ||||||||
Aspen Pharmacare Holdings Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 493,039 | 3,546,366 | ||||||
Discovery Ltd. (Insurance)† | 4,609,385 | 46,417,623 | ||||||
Naspers Ltd., Class N (Retailing)† | 183,175 | 46,788,725 | ||||||
Sasol Ltd. (Materials)† | 1,347,492 | 44,634,342 | ||||||
Standard Bank Group Ltd. (Banks)† | 4,618,127 | 64,236,007 | ||||||
205,623,063 | ||||||||
South Korea - 8.3% | ||||||||
Amorepacific Corp. (Household & Personal Products)† | 167,778 | 29,889,703 | ||||||
Hankook Tire Co., Ltd. (Automobiles & Components)† | 1,334,181 | 45,403,634 | ||||||
LG Household & Health Care Ltd. (Household & Personal Products)† | 72,913 | 88,783,688 |
Shares | Value | |||||||
COMMON STOCKS - 90.7% (continued)
|
| |||||||
South Korea - 8.3% (continued) |
| |||||||
Samsung Electronics Co., Ltd. - GDR (Technology Hardware & Equipment)† | 149,303 | $147,391,033 | ||||||
Woongjin Coway Co., Ltd. (Consumer Durables & Apparel)† | 537,209 | 40,374,853 | ||||||
351,842,911 | ||||||||
Taiwan - 8.1% | ||||||||
Airtac International Group (Capital Goods)† | 1,702,397 | 22,633,294 | ||||||
Eclat Textile Co., Ltd. (Consumer Durables & Apparel)† | 3,887,216 | 55,287,827 | ||||||
Hon Hai Precision Industry Co., Ltd. (Technology Hardware & Equipment)† | 7,389,136 | 20,782,645 | ||||||
Largan Precision Co., Ltd. (Technology Hardware & Equipment)† | 308,001 | 46,351,827 | ||||||
Taiwan Semiconductor Manufacturing Co., Ltd. (Semiconductors & Semiconductor Equipment)† | 23,691,637 | 200,125,023 | ||||||
345,180,616 | ||||||||
Thailand - 1.4% | ||||||||
Siam Commercial Bank pcl, Reg S (Banks) | 14,792,500 | 60,699,060 | ||||||
United Arab Emirates - 1.6% | ||||||||
DP World plc (Transportation)† | 2,197,608 | 43,950,798 | ||||||
Emaar Properties PJSC (Real Estate)† | 18,816,024 | 24,596,400 | ||||||
68,547,198 | ||||||||
United Kingdom - 1.8% | ||||||||
Bank of Georgia Group plc (Banks)† | 560,354 | 12,562,671 | ||||||
Coca-Cola HBC AG - CDI (Food Beverage & Tobacco)*† | 1,718,880 | 61,484,498 | ||||||
74,047,169 | ||||||||
United States - 1.6% | ||||||||
EPAM Systems Inc. (Software & Services)* | 384,069 | 68,886,616 | ||||||
Total Common Stocks (Cost $2,806,992,907) |
| $3,850,122,544 | ||||||
PREFERRED STOCKS - 5.5% | ||||||||
Brazil - 3.5% | ||||||||
Banco Bradesco SA - ADR (Banks)* | 7,284,386 | 65,996,537 | ||||||
Cia Brasileira de Distribuicao - Sponsored ADR (Food & Staples Retailing)* | 1,021,869 | 25,097,103 |
See Notes to Financial Statements
18
Table of Contents
Harding, Loevner Funds, Inc.
Emerging Markets Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
PREFERRED STOCKS - 5.5% (continued)
|
| |||||||
Brazil - 3.5% (continued) | ||||||||
Itau Unibanco Holding SA - Sponsored ADR, 0.55% (Banks)+ | 6,854,277 | $59,289,496 | ||||||
150,383,136 | ||||||||
Colombia - 1.2% | ||||||||
Bancolombia SA - Sponsored ADR, 2.55% (Banks)+ | 997,730 | 50,604,866 | ||||||
South Korea - 0.8% | ||||||||
Samsung Electronics Co., Ltd. - GDR, Reg S, 3.93% (Technology Hardware & Equipment)+† | 42,515 | 33,794,148 | ||||||
Total Preferred Stocks (Cost $131,241,901) |
| $234,782,150 | ||||||
SHORT TERM INVESTMENTS - 3.5%
|
| |||||||
Northern Institutional Funds - Prime Obligations Portfolio, 2.49% (Money Market Funds) | 35,000,000 | 35,000,000 | ||||||
Northern Institutional Funds - Treasury Portfolio, 2.29% (Money Market Funds) | 112,673,567 | 112,673,567 | ||||||
Total Short Term Investments (Cost $147,673,567) | $147,673,567 | |||||||
Total Investments — 99.7% | ||||||||
(Cost $3,085,908,375) | $4,232,578,261 | |||||||
Other Assets Less Liabilities - 0.3% | 12,158,753 | |||||||
Net Assets — 100.0% | $4,244,737,014 |
Summary of Abbreviations
ADR | American Depositary Receipt. |
CDI | Chess Depository Interest. |
GDR | Global Depository Receipt. |
Reg S | Security sold outside United States without registration under the Securities Act of 1933. |
* | Non-income producing security. |
† | Investment categorized as level 2 security as disclosed in Note 2 of the Notes to Financial Statements. |
+ | Current yield is disclosed. Dividends are calculated based on a percentage of the issuer’s net income. |
Industry |
Percentage of | |||
Automobiles & Components | 2.8 | % | ||
Banks | 20.7 | |||
Capital Goods | 2.0 | |||
Commercial & Professional Services | 1.5 | |||
Consumer Durables & Apparel | 5.5 | |||
Consumer Services | 1.8 | |||
Diversified Financials | 2.3 | |||
Energy | 7.8 | |||
Food & Staples Retailing | 2.3 | |||
Food Beverage & Tobacco | 3.6 | |||
Household & Personal Products | 2.8 | |||
Insurance | 4.8 | |||
Materials | 1.0 | |||
Media & Entertainment | 6.9 | |||
Pharmaceuticals, Biotechnology & Life Sciences | 1.1 | |||
Real Estate | 0.6 | |||
Retailing | 5.9 | |||
Semiconductors & Semiconductor Equipment | 5.4 | |||
Software & Services | 2.7 | |||
Technology Hardware & Equipment | 8.6 | |||
Telecommunication Services | 1.0 | |||
Transportation | 3.2 | |||
Utilities | 1.9 | |||
Money Market Funds | 3.5 | |||
Total Investments | 99.7 | |||
Other Assets Less Liabilities | 0.3 | |||
Net Assets | 100.0 | % |
See Notes to Financial Statements
19
Table of Contents
Frontier Emerging Markets Portfolio
Portfolio of Investments
April 30, 2019 (unaudited)
Shares | Value | |||||||
COMMON STOCKS - 84.8% | ||||||||
Argentina - 8.0% | ||||||||
Banco Macro SA - ADR (Banks) | 158,276 | $6,422,840 | ||||||
Globant SA (Software & Services)* | 147,466 | 12,385,669 | ||||||
Grupo Financiero Galicia SA - ADR (Banks) | 244,831 | 5,332,419 | ||||||
Loma Negra Cia Industrial Argentina SA - Sponsored ADR (Materials)* | 218,768 | 2,187,680 | ||||||
Telecom Argentina SA - Sponsored ADR (Telecommunication Services)* | 261,510 | 3,438,857 | ||||||
29,767,465 | ||||||||
Bangladesh - 3.0% | ||||||||
GrameenPhone Ltd. (Telecommunication Services)† | 307,340 | 1,305,715 | ||||||
Square Pharmaceuticals Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 3,183,073 | 9,798,294 | ||||||
11,104,009 | ||||||||
Colombia - 5.0% | ||||||||
Cementos Argos SA - Sponsored ADR (Materials)#† | 409,460 | 5,109,938 | ||||||
Ecopetrol SA - Sponsored ADR (Energy) | 625,862 | 11,572,188 | ||||||
Grupo Nutresa SA (Food Beverage & Tobacco) | 259,856 | 2,153,914 | ||||||
18,836,040 | ||||||||
Croatia - 0.5% | ||||||||
Ericsson Nikola Tesla (Technology Hardware & Equipment)† | 11,309 | 1,873,368 | ||||||
Egypt - 4.7% | ||||||||
Commercial International Bank Egypt SAE - GDR, Reg S (Banks)† | 2,235,992 | 9,784,138 | ||||||
Edita Food Industries SAE (Food Beverage & Tobacco)† | 2,231,107 | 2,598,856 | ||||||
Integrated Diagnostics Holdings plc (Health Care Equipment & Services)† | 1,084,730 | 5,288,234 | ||||||
17,671,228 | ||||||||
Estonia - 0.7% | ||||||||
Tallink Grupp AS (Transportation)† | 2,057,843 | 2,492,666 | ||||||
Kazakhstan - 1.1% | ||||||||
Halyk Savings Bank of Kazakhstan JSC - GDR, Reg S (Banks)† | 339,467 | 3,974,139 | ||||||
Kenya - 4.8% | ||||||||
East African Breweries Ltd. (Food Beverage & Tobacco)† | 786,100 | 1,723,375 |
Shares | Value | |||||||
COMMON STOCKS - 84.8% (continued) |
| |||||||
Kenya - 4.8% (continued) | ||||||||
Safaricom plc (Telecommunication | 57,624,150 | $16,037,417 | ||||||
17,760,792 | ||||||||
Kuwait - 4.7% | ||||||||
Mabanee Co. SAK (Real Estate)† | 2,001,530 | 4,108,811 | ||||||
National Bank of Kuwait SAKP (Banks) | 4,337,266 | 13,248,998 | ||||||
17,357,809 | ||||||||
Morocco - 2.2% | ||||||||
Maroc Telecom (Telecommunication Services)† | 314,629 | 4,780,588 | ||||||
Societe d’Exploitation des Ports (Transportation)† | 177,214 | 3,391,213 | ||||||
8,171,801 | ||||||||
Nigeria - 5.7% | ||||||||
Dangote Cement plc (Materials) | 5,603,772 | 2,796,061 | ||||||
Guaranty Trust Bank plc (Banks)† | 78,468,479 | 7,178,140 | ||||||
Lafarge Africa plc (Materials) | 1,100,000 | 34,913 | ||||||
Nestle Nigeria plc (Food Beverage & Tobacco) | 993,293 | 4,185,185 | ||||||
Nigerian Breweries plc (Food Beverage & Tobacco)† | 1,694,100 | 305,271 | ||||||
Zenith Bank plc (Banks)† | 114,426,819 | 6,756,212 | ||||||
21,255,782 | ||||||||
Pakistan - 1.4% | ||||||||
Engro Corp., Ltd. (Materials)† | 439,992 | 989,220 | ||||||
MCB Bank Ltd. (Banks)† | 507,200 | 681,983 | ||||||
Oil & Gas Development Co., Ltd. (Energy)† | 1,011,100 | 1,006,273 | ||||||
Pakistan Petroleum Ltd. (Energy)† | 2,012,571 | 2,410,745 | ||||||
5,088,221 | ||||||||
Peru - 8.7% | ||||||||
Alicorp SAA (Food Beverage & Tobacco) | 3,685,461 | 11,926,337 | ||||||
Cementos Pacasmayo SAA, Class C (Materials) | 454,952 | 880,597 | ||||||
Credicorp Ltd. (Banks) | 61,767 | 14,632,602 | ||||||
Ferreycorp SAA (Capital Goods) | 6,557,072 | 4,858,559 | ||||||
32,298,095 | ||||||||
Philippines - 18.9% | ||||||||
Bank of the Philippine Islands (Banks)† | 4,403,894 | 7,170,836 | ||||||
BDO Unibank Inc. (Banks)† | 2,434,608 | 6,260,973 | ||||||
International Container Terminal Services Inc. (Transportation)† | 2,266,740 | 5,504,699 | ||||||
Jollibee Foods Corp. (Consumer Services)† | 2,660,420 | 15,550,606 |
See Notes to Financial Statements
20
Table of Contents
Harding, Loevner Funds, Inc.
Frontier Emerging Markets Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 84.8% (continued) |
| |||||||
Philippines - 18.9% (continued) | ||||||||
Robinsons Retail Holdings Inc. (Food & Staples Retailing)† | 5,964,940 | $8,938,960 | ||||||
Security Bank Corp. (Banks)† | 2,179,170 | 7,527,440 | ||||||
SM Prime Holdings Inc. (Real Estate)† | 20,939,200 | 16,655,426 | ||||||
Universal Robina Corp. (Food Beverage & Tobacco)† | 906,820 | 2,650,097 | ||||||
70,259,037 | ||||||||
Romania - 2.1% | ||||||||
Banca Transilvania SA (Banks)† | 8,446,314 | 4,390,036 | ||||||
Societatea Nationala de Gaze Naturale ROMGAZ SA (Energy)† | 472,767 | 3,663,049 | ||||||
8,053,085 | ||||||||
Slovenia - 0.7% | ||||||||
Krka dd Novo mesto (Pharmaceuticals, Biotechnology & Life Sciences)† | 37,932 | 2,518,407 | ||||||
Sri Lanka - 0.3% | ||||||||
Commercial Bank of Ceylon plc (Banks)† | 573,285 | 299,300 | ||||||
John Keells Holdings plc (Capital Goods)† | 1,066,675 | 906,139 | ||||||
1,205,439 | ||||||||
Thailand - 0.7% | ||||||||
Home Product Center pcl, Reg S (Retailing) | 5,239,094 | 2,576,469 | ||||||
Ukraine - 1.4% | ||||||||
Kernel Holding SA (Food Beverage & Tobacco)† | 230,672 | 3,198,549 | ||||||
MHP SE - GDR (Food Beverage & Tobacco)† | 177,842 | 1,991,285 | ||||||
5,189,834 | ||||||||
United Arab Emirates - 2.3% | ||||||||
Agthia Group PJSC (Food Beverage & Tobacco)† | 4,254,671 | 4,531,609 | ||||||
DP World plc (Transportation)† | 119,323 | 2,386,386 | ||||||
Emaar Properties PJSC (Real Estate)† | 1,269,082 | 1,658,950 | ||||||
8,576,945 | ||||||||
United Kingdom - 0.5% | ||||||||
Bank of Georgia Group plc (Banks)† | 79,115 | 1,773,693 | ||||||
Vietnam - 7.4% | ||||||||
Hoa Phat Group JSC (Materials)*† | 9,559,192 | 13,838,988 | ||||||
Masan Group Corp. (Food Beverage & Tobacco)*† | 1,057,850 | 3,944,146 |
Shares | Value | |||||||
COMMON STOCKS - 84.8% (continued) |
| |||||||
Vietnam - 7.4% (continued) | ||||||||
Vietnam Dairy Products JSC (Food Beverage & Tobacco)† | 1,757,760 | $9,787,743 | ||||||
27,570,877 | ||||||||
Total Common Stocks (Cost $265,240,495) |
| $315,375,201 | ||||||
PREFERRED STOCKS - 2.7% | ||||||||
Colombia - 2.7% | ||||||||
Bancolombia SA - Sponsored ADR, 2.55% (Banks)+
|
| 196,607
|
|
| 9,971,907
|
| ||
Total Preferred Stocks (Cost $6,673,826) |
| $9,971,907 | ||||||
PARTICIPATION NOTES - 11.7% | ||||||||
Saudi Arabia - 11.7% | ||||||||
Al Rajhi Bank, Issued by JP Morgan Structured Products, Maturity Date 12/5/19 (Banks)^† | 833,460 | 16,659,083 | ||||||
Herfy Food Services Co., Issued by JP Morgan Structured Products, Maturity Date 1/11/28 (Consumer Services)^† | 158,349 | 2,490,812 | ||||||
Jarir Marketing Co., Issued by HSBC BANK PLC, Maturity Date 1/19/21 (Retailing)*^† | 388,515 | 18,336,624 | ||||||
National Commercial Bank, Issued by HSBC BANK PLC, Maturity Date 11/9/20 | 377,491 | 6,201,099 | ||||||
43,687,618 | ||||||||
Total Participation Notes (Cost $29,248,943) |
| $43,687,618 | ||||||
SHORT TERM INVESTMENTS - 0.7% |
| |||||||
Northern Institutional Funds - Treasury Portfolio, 2.29% (Money Market Funds)
|
| 2,499,159
|
|
| 2,499,159
|
| ||
Total Short Term Investments (Cost $2,499,159) |
| $2,499,159 | ||||||
Total Investments — 99.9% | ||||||||
(Cost $303,662,423) | $371,533,885 | |||||||
Other Assets Less Liabilities - 0.1% | 302,247 | |||||||
Net Assets — 100.0% | $371,836,132 |
See Notes to Financial Statements
21
Table of Contents
Harding, Loevner Funds, Inc.
Frontier Emerging Markets Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Summary of Abbreviations
ADR | American Depositary Receipt. |
GDR | Global Depository Receipt. |
Reg S | Security sold outside United States without registration under the Securities Act of 1933. |
* | Non-income producing security. |
† | Investment categorized as level 2 security as disclosed in Note 2 of the Notes to Financial Statements. |
# | Security valued at fair value as determined in good faith under policies and procedures established by and under the supervision of the Portfolio’s Board of Directors as disclosed in Note 2 of the Notes to Financial Statements. |
+ | Current yield is disclosed. Dividends are calculated based on a percentage of the issuer’s net income. |
^ | Security exempt from registration pursuant to Rule 144A of the Securities Act of 1933. These securities, which represent 11.7% of net assets as of April 30, 2019, are considered liquid and may be resold in transactions exempt from registration, normally to qualified buyers. |
Industry |
Percentage of Net Assets | |||
Banks | 34.5 | % | ||
Capital Goods | 1.6 | |||
Consumer Services | 4.9 | |||
Energy | 5.0 | |||
Food & Staples Retailing | 2.4 | |||
Food Beverage & Tobacco | 13.2 | |||
Health Care Equipment & Services | 1.4 | |||
Materials | 6.9 | |||
Pharmaceuticals, Biotechnology & Life Sciences | 3.3 | |||
Real Estate | 6.0 | |||
Retailing | 5.6 | |||
Software & Services | 3.3 | |||
Technology Hardware & Equipment | 0.5 | |||
Telecommunication Services | 6.9 | |||
Transportation | 3.7 | |||
Money Market Fund | 0.7 | |||
Total Investments | 99.9 | |||
Other Assets Less Liabilities | 0.1 | |||
Net Assets | 100.0 | % |
See Notes to Financial Statements
22
Table of Contents
Global Equity Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited)
Shares | Value | |||||||
COMMON STOCKS - 97.4% | ||||||||
Argentina - 0.2% | ||||||||
Telecom Argentina SA - Sponsored ADR (Telecommunication Services)* | 938 | $12,335 | ||||||
Australia - 1.4% | ||||||||
BHP Group Ltd. (Materials)† | 1,977 | 52,215 | ||||||
Cochlear Ltd. (Health Care Equipment & Services)† | 83 | 10,961 | ||||||
DuluxGroup Ltd. (Materials)† | 4,340 | 29,843 | ||||||
93,019 | ||||||||
Belgium - 0.6% | ||||||||
Anheuser-Busch InBev SA (Food Beverage & Tobacco)† | 463 | 41,177 | ||||||
Brazil - 0.5% | ||||||||
Ambev SA - ADR (Food Beverage & Tobacco) | 2,877 | 13,551 | ||||||
Ultrapar Participacoes SA - Sponsored ADR (Energy) | 1,872 | 10,034 | ||||||
WEG SA (Capital Goods) | 1,900 | 9,003 | ||||||
32,588 | ||||||||
Canada - 2.0% | ||||||||
Alimentation Couche-Tard Inc. (Food & Staples Retailing) | 800 | 47,294 | ||||||
Canadian National Railway Co. (Transportation) | 600 | 55,668 | ||||||
Cenovus Energy Inc. (Energy) | 1,500 | 14,869 | ||||||
Encana Corp. (Energy) | 2,037 | 14,117 | ||||||
131,948 | ||||||||
China - 5.0% | ||||||||
AAC Technologies Holdings Inc. (Technology Hardware & Equipment)† | 1,670 | 10,818 | ||||||
Alibaba Group Holding Ltd. - Sponsored ADR (Retailing)* | 55 | 10,206 | ||||||
Autohome Inc. - ADR (Media & Entertainment)* | 92 | 10,625 | ||||||
China Mobile Ltd. - Sponsored ADR (Telecommunication Services) | 984 | 46,907 | ||||||
CNOOC Ltd. - Sponsored ADR (Energy) | 119 | 21,620 | ||||||
CSPC Pharmaceutical Group Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 4,000 | 7,687 | ||||||
Ctrip.com International Ltd. - ADR (Retailing)* | 481 | 21,188 | ||||||
ENN Energy Holdings Ltd. (Utilities)† | 2,000 | 18,903 | ||||||
Fuyao Glass Industry Group Co., Ltd., Class A (Automobiles & | 2,600 | 9,695 |
Shares | Value | |||||||
COMMON STOCKS - 97.4% (continued) | ||||||||
China - 5.0% (continued) | ||||||||
Gree Electric Appliances Inc. of Zhuhai, Class A (Consumer Durables & Apparel)† | 1,700 | $14,026 | ||||||
Haitian International Holdings Ltd. (Capital Goods)† | 4,000 | 10,049 | ||||||
Han’s Laser Technology Industry Group Co., Ltd., Class A (Capital Goods)† | 1,900 | 11,036 | ||||||
Inner Mongolia Yili Industrial Group Co., Ltd., Class A (Food Beverage & Tobacco)† | 2,200 | 10,124 | ||||||
Jiangsu Yanghe Brewery Joint-Stock Co., Ltd., Class A (Food Beverage & Tobacco)† | 600 | 10,479 | ||||||
Midea Group Co., Ltd., Class A (Consumer Durables & Apparel)† | 1,500 | 11,665 | ||||||
NetEase Inc. - ADR (Media & Entertainment) | 41 | 11,666 | ||||||
New Oriental Education & Technology Group Inc. - Sponsored ADR (Consumer Services)* | 110 | 10,501 | ||||||
Ping An Insurance Group Co. of China Ltd., Class A (Insurance)† | 1,100 | 14,058 | ||||||
Shanghai International Airport Co., Ltd., Class A (Transportation)† | 1,200 | 12,581 | ||||||
Shenzhou International Group Holdings Ltd. (Consumer Durables & Apparel)† | 1,000 | 13,394 | ||||||
Songcheng Performance Development Co., Ltd., Class A (Consumer Services)† | 2,900 | 9,716 | ||||||
Sunny Optical Technology Group Co., Ltd. (Technology Hardware & Equipment)† | 1,100 | 13,363 | ||||||
Tingyi Cayman Islands Holding Corp. (Food Beverage & Tobacco)† | 6,000 | 9,896 | ||||||
WuXi AppTec Co., Ltd., Class A (Pharmaceuticals, Biotechnology & Life Sciences)*† | 700 | 9,198 | ||||||
Wuxi Biologics Cayman Inc. (Pharmaceuticals, Biotechnology & Life Sciences)*† | 1,000 | 10,069 | ||||||
339,470 | ||||||||
Colombia - 0.5% | ||||||||
Cementos Argos SA - Sponsored ADR (Materials)#† | 743 | 9,272 | ||||||
Ecopetrol SA - Sponsored ADR (Energy) | 800 | 14,792 |
See Notes to Financial Statements
23
Table of Contents
Harding, Loevner Funds, Inc.
Global Equity Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 97.4% (continued) | ||||||||
Colombia - 0.5% (continued) | ||||||||
Grupo Nutresa SA (Food Beverage & Tobacco) | 1,370 | $11,356 | ||||||
35,420 | ||||||||
Denmark - 0.9% | ||||||||
Chr Hansen Holding A/S (Materials)† | 150 | 15,320 | ||||||
Coloplast A/S, Class B (Health Care Equipment & Services)† | 318 | 34,309 | ||||||
Novozymes A/S, Class B (Materials)† | 290 | 13,529 | ||||||
63,158 | ||||||||
Egypt - 0.5% | ||||||||
Commercial International Bank Egypt SAE - GDR, Reg S (Banks)† | 7,736 | 33,851 | ||||||
France - 1.7% | ||||||||
Air Liquide SA (Materials)† | 300 | 39,896 | ||||||
Dassault Systemes SE (Software & Services)† | 130 | 20,634 | ||||||
EssilorLuxottica SA (Consumer Durables & Apparel)† | 320 | 38,948 | ||||||
Sartorius Stedim Biotech (Pharmaceuticals, Biotechnology & Life Sciences)† | 109 | 14,817 | ||||||
114,295 | ||||||||
Germany - 3.3% | ||||||||
adidas AG (Consumer Durables & Apparel)† | 60 | 15,420 | ||||||
Allianz SE, Reg S (Insurance)† | 230 | 55,436 | ||||||
Bayerische Motoren Werke AG (Automobiles & Components)† | 350 | 29,861 | ||||||
FUCHS PETROLUB SE (Materials)† | 375 | 14,930 | ||||||
Henkel AG & Co. KGaA (Household & Personal Products)† | 549 | 52,348 | ||||||
Infineon Technologies AG (Semiconductors & Semiconductor Equipment)† | 1,190 | 28,041 | ||||||
SAP SE - Sponsored ADR (Software & Services) | 110 | 14,175 | ||||||
Symrise AG (Materials)† | 160 | 15,391 | ||||||
225,602 | ||||||||
Hong Kong - 1.4% | ||||||||
AIA Group Ltd. (Insurance)† | 1,600 | 16,333 | ||||||
ASM Pacific Technology Ltd. (Semiconductors & Semiconductor Equipment)† | 1,000 | 11,587 | ||||||
Hong Kong Exchanges & Clearing Ltd. (Diversified Financials)† | 400 | 13,888 |
Shares | Value | |||||||
COMMON STOCKS - 97.4% (continued) | ||||||||
Hong Kong - 1.4% (continued) | ||||||||
Sands China Ltd. (Consumer Services)† | 6,400 | $35,162 | ||||||
Techtronic Industries Co., Ltd. (Consumer Durables & Apparel)† | 2,500 | 18,094 | ||||||
95,064 | ||||||||
India - 2.6% | ||||||||
Asian Paints Ltd. (Materials)† | 460 | 9,676 | ||||||
Bharti Infratel Ltd. (Telecommunication Services)† | 4,020 | 15,192 | ||||||
Emami Ltd. (Household & Personal Products)† | 2,197 | 12,227 | ||||||
Housing Development Finance Corp., Ltd. (Banks)† | 390 | 11,186 | ||||||
ICICI Bank Ltd. - Sponsored ADR (Banks) | 1,034 | 11,839 | ||||||
ITC Ltd. (Food Beverage & Tobacco)† | 3,613 | 15,655 | ||||||
Kotak Mahindra Bank Ltd. (Banks)† | 590 | 11,763 | ||||||
Max Financial Services Ltd. (Insurance)*† | 1,630 | 9,792 | ||||||
Pidilite Industries Ltd. (Materials)† | 1,120 | 19,883 | ||||||
Tata Consultancy Services Ltd. (Software & Services)† | 1,735 | 56,390 | ||||||
173,603 | ||||||||
Indonesia - 0.9% | ||||||||
Astra International Tbk PT (Automobiles & Components)† | 16,000 | 8,561 | ||||||
Bank Central Asia Tbk PT (Banks)† | 20,200 | 40,753 | ||||||
Bank Rakyat Indonesia Persero Tbk PT | 34,200 | 10,488 | ||||||
59,802 | ||||||||
Israel - 0.8% | ||||||||
Check Point Software | ||||||||
Technologies Ltd. (Software & Services)* | 450 | 54,342 | ||||||
Italy - 0.8% | ||||||||
FinecoBank Banca Fineco SpA (Banks)† | 2,542 | 33,564 | ||||||
Tenaris SA - ADR (Energy) | 720 | 19,973 | ||||||
53,537 | ||||||||
Japan - 9.4% | ||||||||
ABC-Mart Inc. (Retailing)† | 700 | 43,592 | ||||||
Chugai Pharmaceutical Co., Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 300 | 18,916 | ||||||
Daito Trust Construction Co., Ltd. (Real | 100 | 13,366 |
See Notes to Financial Statements
24
Table of Contents
Harding, Loevner Funds, Inc.
Global Equity Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 97.4% (continued) | ||||||||
Japan - 9.4% (continued) | ||||||||
Dentsu Inc. (Media & Entertainment)† | 500 | $20,277 | ||||||
FANUC Corp. (Capital Goods)† | 100 | 18,743 | ||||||
Fast Retailing Co., Ltd. (Retailing)† | 30 | 17,374 | ||||||
Hakuhodo DY Holdings Inc. (Media & Entertainment)† | 3,100 | 52,366 | ||||||
Infomart Corp. (Software & Services)† | 1,200 | 17,584 | ||||||
JGC Corp. (Capital Goods)† | 1,600 | 22,950 | ||||||
Kakaku.com Inc. (Media & Entertainment)† | 600 | 12,341 | ||||||
Keyence Corp. (Technology Hardware & Equipment)† | 23 | 14,334 | ||||||
Komatsu Ltd. (Capital Goods)† | 900 | 23,415 | ||||||
Kubota Corp. (Capital Goods)† | 1,600 | 24,080 | ||||||
M3 Inc. (Health Care Equipment & Services)† | 800 | 14,232 | ||||||
Makita Corp. (Capital Goods)† | 1,200 | 43,825 | ||||||
MISUMI Group Inc. (Capital Goods)† | 700 | 17,988 | ||||||
Nidec Corp. (Capital Goods)† | 100 | 14,273 | ||||||
Nomura Research Institute Ltd. (Software & Services)† | 330 | 16,144 | ||||||
Pigeon Corp. (Household & Personal Products)† | 400 | 17,025 | ||||||
Rinnai Corp. (Consumer Durables & | 540 | 36,174 | ||||||
Shimano Inc. (Consumer Durables & Apparel)† | 400 | 58,279 | ||||||
SMC Corp. (Capital Goods)† | 40 | 16,625 | ||||||
Stanley Electric Co., Ltd. (Automobiles & Components)† | 500 | 13,564 | ||||||
Sugi Holdings Co., Ltd. (Food & Staples Retailing)† | 500 | 25,132 | ||||||
Sysmex Corp. (Health Care Equipment & Services)† | 300 | 17,175 | ||||||
Unicharm Corp. (Household & Personal Products)† | 1,000 | 32,884 | ||||||
ZOZO Inc. (Retailing)† | 700 | 12,405 | ||||||
635,063 | ||||||||
Mexico - 1.4% | ||||||||
Banco Santander Mexico SA Institucion de Banca Multiple Grupo Financiero Santand - ADR (Banks) | 1,000 | 8,430 | ||||||
Coca-Cola Femsa SAB de CV - Sponsored ADR (Food Beverage & Tobacco) | 110 | 7,053 | ||||||
Fomento Economico Mexicano SAB de CV - Sponsored ADR (Food Beverage & Tobacco) | 90 | 8,783 |
Shares | Value | |||||||
COMMON STOCKS - 97.4% (continued) | ||||||||
Mexico - 1.4% (continued) | ||||||||
Grupo Bimbo SAB de CV, Series A (Food Beverage & Tobacco) | 4,200 | $9,354 | ||||||
Grupo Financiero Banorte SAB de CV, Series O (Banks) | 1,400 | 8,849 | ||||||
Wal-Mart de Mexico SAB de CV (Food & Staples Retailing) | 18,700 | 54,953 | ||||||
97,422 | ||||||||
Netherlands - 0.3% | ||||||||
ASML Holding NV, Reg S (Semiconductors & Semiconductor Equipment) | 90 | 18,794 | ||||||
Pakistan - 0.7% | ||||||||
Engro Corp., Ltd. (Materials)† | 3,800 | 8,543 | ||||||
MCB Bank Ltd. (Banks)† | 5,700 | 7,664 | ||||||
Oil & Gas Development Co., Ltd. (Energy)† | 13,400 | 13,336 | ||||||
Pakistan Petroleum Ltd. (Energy)† | 11,325 | 13,566 | ||||||
United Bank Ltd. (Banks)† | 6,800 | 7,122 | ||||||
50,231 | ||||||||
Peru - 0.6% | ||||||||
Alicorp SAA (Food Beverage & Tobacco) | 9,290 | 30,063 | ||||||
Credicorp Ltd. (Banks) | 50 | 11,845 | ||||||
41,908 | ||||||||
Philippines - 1.8% | ||||||||
Bank of the Philippine Islands (Banks)† | 16,850 | 27,437 | ||||||
BDO Unibank Inc. (Banks)† | 3,320 | 8,538 | ||||||
International Container Terminal Services Inc. (Transportation)† | 16,230 | 39,414 | ||||||
Jollibee Foods Corp. (Consumer Services)† | 1,710 | 9,995 | ||||||
Robinsons Retail Holdings Inc. (Food & Staples Retailing)† | 10,510 | 15,750 | ||||||
Security Bank Corp. (Banks)† | 3,360 | 11,606 | ||||||
SM Prime Holdings Inc. (Real Estate)† | 12,800 | 10,182 | ||||||
122,922 | ||||||||
Qatar - 0.2% | ||||||||
Qatar Electricity & Water Co. QSC (Utilities)† | 260 | 11,934 | ||||||
Russia - 0.8% | ||||||||
LUKOIL PJSC - Sponsored ADR (Energy) | 130 | 11,115 | ||||||
Moscow ExchangeMICEX-RTS PJSC (Diversified Financials)† | 9,963 | 14,047 | ||||||
Novatek PJSC - Sponsored GDR, Reg S (Energy)† | 50 | 9,623 |
See Notes to Financial Statements
25
Table of Contents
Harding, Loevner Funds, Inc.
Global Equity Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 97.4% (continued) | ||||||||
Russia - 0.8% (continued) | ||||||||
Sberbank of Russia PJSC - Sponsored ADR (Banks)† | 620 | $8,913 | ||||||
Yandex NV, Class A (Media & Entertainment)* | 274 | 10,256 | ||||||
53,954 | ||||||||
Singapore - 1.1% | ||||||||
DBS Group Holdings Ltd. (Banks)† | 2,400 | 49,882 | ||||||
Oversea-Chinese Banking Corp. Ltd. | 2,635 | 23,454 | ||||||
73,336 | ||||||||
South Africa - 0.6% | ||||||||
Clicks Group Ltd. (Food & Staples | 851 | 11,636 | ||||||
Discovery Ltd. (Insurance)† | 850 | 8,560 | ||||||
Standard Bank Group Ltd. (Banks)† | 640 | 8,902 | ||||||
Tiger Brands Ltd. (Food Beverage & Tobacco)† | 670 | 11,656 | ||||||
40,754 | ||||||||
South Korea - 0.8% | ||||||||
Hankook Tire Co., Ltd. (Automobiles & Components)† | 447 | 15,212 | ||||||
LG Household & Health Care Ltd. (Household & Personal Products)† | 9 | 10,959 | ||||||
NAVER Corp. (Media & Entertainment)† | 125 | 12,792 | ||||||
Woongjin Coway Co., Ltd. (Consumer Durables & Apparel)† | 184 | 13,829 | ||||||
52,792 | ||||||||
Spain - 1.8% | ||||||||
Amadeus IT Group SA (Software & | 450 | 35,805 | ||||||
Banco Bilbao Vizcaya Argentaria SA | 3,607 | 21,985 | ||||||
Banco Santander SA (Banks)† | 5,049 | 25,665 | ||||||
Bankinter SA (Banks)† | 4,810 | 38,410 | ||||||
121,865 | ||||||||
Sweden - 2.3% | ||||||||
Alfa Laval AB (Capital Goods)† | 520 | 12,064 | ||||||
Assa Abloy AB, Class B (Capital Goods)† | 1,220 | 26,038 | ||||||
Atlas Copco AB, Class A (Capital Goods)† | 544 | 16,903 | ||||||
Epiroc AB, Class A (Capital Goods)*† | 1,467 | 15,175 | ||||||
Hexagon AB, Class B (Technology Hardware & Equipment)† | 270 | 14,722 | ||||||
Intrum AB (Commercial & Professional Services)† | 823 | 20,933 |
Shares | Value | |||||||
COMMON STOCKS - 97.4% (continued) | ||||||||
Sweden - 2.3% (continued) | ||||||||
Skandinaviska Enskilda Banken AB, Class A (Banks)† | 5,250 | $50,107 | ||||||
155,942 | ||||||||
Switzerland - 4.0% | ||||||||
Alcon Inc. (Health Care Equipment & | 368 | 21,418 | ||||||
Cie Financiere Richemont SA, Reg S (Consumer Durables & Apparel)† | 140 | 10,239 | ||||||
Kuehne + Nagel International AG, Reg S (Transportation)† | 285 | 41,483 | ||||||
Lonza Group AG, Reg S (Pharmaceuticals, Biotechnology & Life Sciences)*† | 60 | 18,535 | ||||||
Nestle SA - Sponsored ADR (Food Beverage & Tobacco) | 540 | 52,126 | ||||||
Roche Holding AG, Genusschein (Pharmaceuticals, Biotechnology & Life Sciences)† | 225 | 59,320 | ||||||
SGS SA, Reg S (Commercial & Professional Services)† | 8 | 21,141 | ||||||
Sonova Holding AG, Reg S (Health Care Equipment & Services)† | 65 | 13,143 | ||||||
Temenos AG, Reg S (Software & Services)*† | 98 | 16,297 | ||||||
VAT Group AG (Capital Goods)*† | 120 | 14,902 | ||||||
268,604 | ||||||||
Taiwan - 1.6% | ||||||||
Advantech Co., Ltd. (Technology Hardware & Equipment)† | 4,000 | 32,345 | ||||||
Eclat Textile Co., Ltd. (Consumer Durables & Apparel)† | 714 | 10,155 | ||||||
Hon Hai Precision Industry Co., Ltd. (Technology Hardware & Equipment)† | 4,000 | 11,250 | ||||||
Largan Precision Co., Ltd. (Technology Hardware & Equipment)† | 70 | 10,534 | ||||||
Silergy Corp. (Semiconductors & Semiconductor Equipment)† | 600 | 9,828 | ||||||
Taiwan Semiconductor Manufacturing Co., Ltd. (Semiconductors & Semiconductor Equipment)† | 4,000 | 33,788 | ||||||
107,900 | ||||||||
Thailand - 0.1% | ||||||||
Siam Commercial Bank pcl, Reg S (Banks) | 1,800 | 7,386 | ||||||
Turkey - 0.1% | ||||||||
BIM Birlesik Magazalar AS (Food & Staples Retailing)† | 613 | 8,532 |
See Notes to Financial Statements
26
Table of Contents
Harding, Loevner Funds, Inc.
Global Equity Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 97.4% (continued) | ||||||||
United Arab Emirates - 0.2% | ||||||||
Emaar Properties PJSC (Real Estate)† | 9,900 | $12,941 | ||||||
United Kingdom - 5.7% | ||||||||
Abcam plc (Pharmaceuticals, Biotechnology & Life Sciences)† | 970 | 16,490 | ||||||
Bank of Georgia Group plc (Banks)† | 320 | 7,174 | ||||||
BBA Aviation plc (Transportation)† | 5,148 | 18,292 | ||||||
Dechra Pharmaceuticals plc (Pharmaceuticals, Biotechnology & Life Sciences)† | 780 | 27,059 | ||||||
Diageo plc (Food Beverage & Tobacco)† | 1,040 | 43,858 | ||||||
HSBC Holdings plc - Sponsored ADR (Banks) | 920 | 40,084 | ||||||
Rathbone Brothers plc (Diversified Financials)† | 363 | 11,936 | ||||||
Reckitt Benckiser Group plc (Household & Personal Products)† | 567 | 45,938 | ||||||
Rightmove plc (Media & Entertainment)† | 2,000 | 14,123 | ||||||
Rio Tinto plc (Materials)† | 225 | 13,127 | ||||||
Royal Dutch Shell plc, Class B - Sponsored ADR (Energy) | 790 | 51,263 | ||||||
Spirax-Sarco Engineering plc (Capital | 154 | 16,589 | ||||||
St. James’s Place plc (Diversified Financials)† | 750 | 10,986 | ||||||
Standard Chartered plc (Banks)† | 1,190 | 10,881 | ||||||
Unilever plc (Household & Personal | 898 | 54,529 | ||||||
382,329 | ||||||||
United States - 40.8% | ||||||||
Abbott Laboratories (Health Care Equipment & Services) | 184 | 14,639 | ||||||
Accenture plc, Class A (Software & Services) | 380 | 69,415 | ||||||
Adobe Inc. (Software & Services)* | 90 | 26,033 | ||||||
Air Products & Chemicals Inc. (Materials) | 320 | 65,853 | ||||||
Allegion plc (Capital Goods) | 721 | 71,545 | ||||||
Alphabet Inc., Class A (Media & Entertainment)* | 45 | 53,953 | ||||||
Amazon.com Inc. (Retailing)* | 20 | 38,530 | ||||||
Amphenol Corp., Class A (Technology Hardware & Equipment) | 700 | 69,692 | ||||||
ANSYS Inc. (Software & Services)* | 78 | 15,272 | ||||||
Apple Inc. (Technology Hardware & Equipment) | 65 | 13,044 |
Shares | Value | |||||||
COMMON STOCKS - 97.4% (continued) | ||||||||
United States - 40.8% (continued) | ||||||||
Automatic Data Processing Inc. (Software & Services) | 418 | $68,715 | ||||||
Booking Holdings Inc. (Retailing)* | 7 | 12,985 | ||||||
BorgWarner Inc. (Automobiles & Components) | 407 | 17,000 | ||||||
Cisco Systems Inc. (Technology Hardware & Equipment) | 845 | 47,278 | ||||||
Cognex Corp. (Technology Hardware & Equipment) | 273 | 13,767 | ||||||
Cognizant Technology Solutions Corp., Class A (Software & Services) | 170 | 12,403 | ||||||
Colgate-Palmolive Co. (Household & Personal Products) | 950 | 69,150 | ||||||
Danaher Corp. (Health Care Equipment & Services) | 327 | 43,308 | ||||||
Deere & Co. (Capital Goods) | 200 | 33,126 | ||||||
eBay Inc. (Retailing) | 1,070 | 41,463 | ||||||
Ecolab Inc. (Materials) | 400 | 73,632 | ||||||
Emerson Electric Co. (Capital Goods) | 185 | 13,133 | ||||||
EnerSys (Capital Goods) | 200 | 13,838 | ||||||
Facebook Inc., Class A (Media & Entertainment)* | 270 | 52,218 | ||||||
First Republic Bank (Banks) | 660 | 69,709 | ||||||
Fiserv Inc. (Software & Services)* | 790 | 68,920 | ||||||
Gartner Inc. (Software & Services)* | 450 | 71,536 | ||||||
Guidewire Software Inc. (Software & | 152 | 16,188 | ||||||
Healthcare Services Group Inc. (Commercial & Professional Services) | 622 | 21,055 | ||||||
HEICO Corp. (Capital Goods) | 212 | 22,372 | ||||||
Helmerich & Payne Inc. (Energy) | 180 | 10,534 | ||||||
IDEXX Laboratories Inc. (Health Care Equipment & Services)* | 70 | 16,240 | ||||||
Illumina Inc. (Pharmaceuticals, Biotechnology & Life Sciences)* | 60 | 18,720 | ||||||
IPG Photonics Corp. (Technology Hardware & Equipment)* | 100 | 17,473 | ||||||
IQVIA Holdings Inc. (Pharmaceuticals, Biotechnology & Life Sciences)* | 100 | 13,890 | ||||||
JPMorgan Chase & Co. (Banks) | 641 | 74,388 | ||||||
Kansas City Southern (Transportation) | 302 | 37,188 | ||||||
Linde plc (Materials)† | 169 | 30,387 |
See Notes to Financial Statements
27
Table of Contents
Harding, Loevner Funds, Inc.
Global Equity Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 97.4% (continued) | ||||||||
United States - 40.8% (continued) | ||||||||
Mastercard Inc., Class A (Software & Services) | 141 | $35,848 | ||||||
McDonald’s Corp. (Consumer Services) | 390 | 77,052 | ||||||
Merck & Co., Inc. (Pharmaceuticals, Biotechnology & Life Sciences) | 880 | 69,265 | ||||||
Mettler-Toledo International Inc. (Pharmaceuticals, Biotechnology & Life Sciences)* | 30 | 22,358 | ||||||
Microsoft Corp. (Software & Services) | 400 | 52,240 | ||||||
NIKE Inc., Class B (Consumer Durables & Apparel) | 156 | 13,701 | ||||||
NVIDIA Corp. (Semiconductors & Semiconductor Equipment) | 107 | 19,367 | ||||||
PayPal Holdings Inc. (Software & Services)* | 240 | 27,065 | ||||||
Procter & Gamble Co. (Household & Personal Products) | 769 | 81,883 | ||||||
Prudential Financial Inc. (Insurance) | 460 | 48,627 | ||||||
Red Hat Inc. (Software & Services)* | 120 | 21,904 | ||||||
Regeneron Pharmaceuticals Inc. (Pharmaceuticals, Biotechnology & Life Sciences)* | 82 | 28,137 | ||||||
Reinsurance Group of America Inc. (Insurance) | 380 | 57,574 | ||||||
ResMed Inc. (Health Care Equipment & Services) | 672 | 70,231 | ||||||
Rollins Inc. (Commercial & Professional Services) | 600 | 23,202 | ||||||
Roper Technologies Inc. (Capital Goods) | 208 | 74,818 | ||||||
salesforce.com Inc. (Software & Services)* | 130 | 21,496 | ||||||
Schlumberger Ltd. (Energy) | 280 | 11,950 | ||||||
Sensata Technologies Holding plc (Capital Goods)* | 328 | 16,380 | ||||||
Signature Bank (Banks) | 473 | 62,469 | ||||||
Synopsys Inc. (Software & Services)* | 511 | 61,872 | ||||||
Texas Instruments Inc. (Semiconductors & Semiconductor Equipment) | 110 | 12,961 | ||||||
Thermo Fisher Scientific Inc. (Pharmaceuticals, Biotechnology & Life Sciences) | 60 | 16,647 | ||||||
Tiffany & Co. (Retailing) | 608 | 65,555 |
Shares | Value | |||||||
COMMON STOCKS - 97.4% (continued) | ||||||||
United States - 40.8% (continued) | ||||||||
UnitedHealth Group Inc. (Health Care Equipment & Services) | 230 | $53,606 | ||||||
Verisk Analytics Inc. (Commercial & Professional Services) | 249 | 35,144 | ||||||
Vertex Pharmaceuticals Inc. (Pharmaceuticals, Biotechnology & Life Sciences)* | 69 | 11,660 | ||||||
Visa Inc., Class A (Software & Services) | 260 | 42,752 | ||||||
Walt Disney Co. (Media & Entertainment) | 590 | 80,812 | ||||||
Waters Corp. (Pharmaceuticals, Biotechnology & Life Sciences)* | 149 | 31,817 | ||||||
Workday Inc., Class A (Software & Services)* | 140 | 28,788 | ||||||
Zoetis Inc. (Pharmaceuticals, Biotechnology & Life Sciences) | 380 | 38,699 | ||||||
2,754,472 | ||||||||
Total Common Stocks (Cost $5,511,318) | $6,578,292 | |||||||
| ||||||||
PREFERRED STOCKS - 0.8% | ||||||||
Brazil - 0.5% | ||||||||
Banco Bradesco SA - ADR (Banks)* | 1,262 | 11,434 | ||||||
Cia Brasileira de Distribuicao - Sponsored ADR (Food & Staples Retailing)* | 433 | 10,634 | ||||||
Itau Unibanco Holding SA - Sponsored ADR, 0.55% (Banks)+ | 1,095 | 9,472 | ||||||
31,540 | ||||||||
Colombia - 0.1% | ||||||||
Bancolombia SA - Sponsored ADR, 2.55% (Banks)+ | 187 | 9,485 | ||||||
South Korea - 0.2% | ||||||||
Samsung Electronics Co., Ltd. - GDR, Reg S, 3.93% (Technology Hardware & | 17 | 13,513 | ||||||
Total Preferred Stocks (Cost $47,205) | $54,538 | |||||||
| ||||||||
SHORT TERM INVESTMENTS - 1.5% | ||||||||
Northern Institutional Funds - Treasury Portfolio, 2.29% (Money Market Funds) | 103,433 | 103,433 | ||||||
|
See Notes to Financial Statements
28
Table of Contents
Harding, Loevner Funds, Inc.
Global Equity Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||
SHORT TERM INVESTMENTS - 1.5% (continued) | ||||||
Total Short Term Investments (Cost $103,433) | $103,433 | |||||
| ||||||
Total Investments — 99.7% | ||||||
(Cost $5,661,956) | $6,736,263 | |||||
Other Assets Less Liabilities - 0.3% | 22,244 | |||||
Net Assets — 100.0% | $6,758,507 | |||||
Summary of Abbreviations |
ADR American Depositary Receipt. |
GDR Global Depository Receipt. |
Reg S Security sold outside United States without registration under the Securities Act of 1933. |
* Non-income producing security. |
† Investment categorized as level 2 security as disclosed in Note 2 of the Notes to Financial Statements. |
# Security valued at fair value as determined in good faith under policies and procedures established by and under the supervision of the Portfolio’s Board of Directors as disclosed in Note 2 of the Notes to Financial Statements. |
+ Current yield is disclosed. Dividends are calculated based on a percentage of the issuer’s net income. |
Industry |
Percentage of Net Assets | |||
Automobiles & Components | 1.4 | % | ||
Banks | 11.5 | |||
Capital Goods | 8.3 | |||
Commercial & Professional Services | 1.8 | |||
Consumer Durables & Apparel | 3.8 | |||
Consumer Services | 2.1 | |||
Diversified Financials | 0.7 | |||
Energy | 3.2 | |||
Food & Staples Retailing | 2.6 | |||
Food Beverage & Tobacco | 4.1 | |||
Health Care Equipment & Services | 4.6 | |||
Household & Personal Products | 5.6 | |||
Insurance | 3.1 | |||
Materials | 6.1 | |||
Media & Entertainment | 4.9 | |||
Pharmaceuticals, Biotechnology & Life Sciences | 6.4 | |||
Real Estate | 0.5 | |||
Retailing | 3.9 | |||
Semiconductors & Semiconductor Equipment | 2.0 | |||
Software & Services | 12.9 | |||
Technology Hardware & Equipment | 4.2 | |||
Telecommunication Services | 1.1 | |||
Transportation | 3.0 | |||
Utilities | 0.4 | |||
Money Market Fund | 1.5 | |||
Total Investments | 99.7 | |||
Other Assets Less Liabilities | 0.3 | |||
Net Assets | 100.0 | % |
See Notes to Financial Statements
29
Table of Contents
International Equity Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited)
Shares | Value | |||||||
COMMON STOCKS - 96.2% | ||||||||
Argentina - 0.3% | ||||||||
Telecom Argentina SA - Sponsored ADR (Telecommunication Services)* | 2,290 | $30,114 | ||||||
Australia - 2.0% | ||||||||
BHP Group Ltd. (Materials)† | 4,427 | 116,922 | ||||||
Cochlear Ltd. (Health Care Equipment & Services)† | 455 | 60,088 | ||||||
DuluxGroup Ltd. (Materials)† | 10,386 | 71,417 | ||||||
248,427 | ||||||||
Belgium - 1.2% | ||||||||
Anheuser-Busch InBev SA (Food Beverage & Tobacco)† | 1,594 | 141,762 | ||||||
Brazil - 0.8% | ||||||||
Ambev SA - ADR (Food Beverage & Tobacco) | 6,357 | 29,941 | ||||||
Ultrapar Participacoes SA - Sponsored ADR (Energy) | 5,930 | 31,785 | ||||||
WEG SA (Capital Goods) | 6,100 | 28,905 | ||||||
90,631 | ||||||||
Canada - 2.7% | ||||||||
Alimentation Couche-Tard Inc. (Food & Staples Retailing) | 2,100 | 124,147 | ||||||
Canadian National Railway Co. (Transportation) | 1,371 | 127,201 | ||||||
Cenovus Energy Inc. (Energy) | 3,700 | 36,677 | ||||||
Encana Corp. (Energy) | 5,202 | 36,050 | ||||||
324,075 | ||||||||
China - 7.2% | ||||||||
AAC Technologies Holdings Inc. (Technology Hardware & Equipment)† | 5,000 | 32,388 | ||||||
Alibaba Group Holding Ltd. - Sponsored ADR (Retailing)* | 160 | 29,691 | ||||||
Autohome Inc. - ADR (Media & Entertainment)* | 275 | 31,760 | ||||||
China Mobile Ltd. - Sponsored ADR (Telecommunication Services) | 670 | 31,939 | ||||||
CNOOC Ltd. - Sponsored ADR (Energy) | 247 | 44,875 | ||||||
CSPC Pharmaceutical Group Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 22,000 | 42,280 | ||||||
Ctrip.com International Ltd. - ADR (Retailing)* | 947 | 41,715 | ||||||
ENN Energy Holdings Ltd. (Utilities)† | 4,000 | 37,806 | ||||||
Fuyao Glass Industry Group Co., Ltd., Class A (Automobiles & Components)† | 8,500 | 31,696 |
Shares | Value | |||||||
COMMON STOCKS - 96.2% (continued) |
| |||||||
China - 7.2% (continued) | ||||||||
Gree Electric Appliances Inc. of Zhuhai, Class A (Consumer Durables & Apparel)† | 3,400 | $28,052 | ||||||
Haitian International Holdings Ltd. (Capital Goods)† | 15,400 | 38,690 | ||||||
Han’s Laser Technology Industry Group Co., Ltd., Class A (Capital Goods)† | 5,400 | 31,366 | ||||||
Inner Mongolia Yili Industrial Group Co., Ltd., Class A (Food Beverage & Tobacco)† | 6,800 | 31,291 | ||||||
Jiangsu Yanghe Brewery Joint-Stock Co., Ltd., Class A (Food Beverage & Tobacco)† | 1,800 | 31,437 | ||||||
Midea Group Co., Ltd., Class A (Consumer Durables & Apparel)† | 4,700 | 36,550 | ||||||
NetEase Inc. - ADR (Media & Entertainment) | 122 | 34,713 | ||||||
New Oriental Education & Technology Group Inc. - Sponsored ADR | 435 | 41,525 | ||||||
Ping An Insurance Group Co. of China Ltd., Class A (Insurance)† | 3,100 | 39,619 | ||||||
Shanghai International Airport Co., Ltd., Class A (Transportation)† | 3,500 | 36,695 | ||||||
Shenzhou International Group Holdings Ltd. (Consumer Durables & Apparel)† | 3,770 | 50,495 | ||||||
Songcheng Performance Development Co., Ltd., Class A (Consumer Services)† | 8,100 | 27,138 | ||||||
Sunny Optical Technology Group Co., Ltd. (Technology Hardware & Equipment)† | 2,000 | 24,297 | ||||||
Tingyi Cayman Islands Holding Corp. (Food Beverage & Tobacco)† | 25,150 | 41,479 | ||||||
WuXi AppTec Co., Ltd., Class A (Pharmaceuticals, Biotechnology & Life Sciences)*† | 2,200 | 28,908 | ||||||
Wuxi Biologics Cayman Inc. (Pharmaceuticals, Biotechnology & Life Sciences)*† | 3,000 | 30,207 | ||||||
876,612 | ||||||||
Colombia - 1.1% | ||||||||
Cementos Argos SA - Sponsored ADR (Materials)#† | 2,349 | 29,315 | ||||||
Ecopetrol SA - Sponsored ADR (Energy) | 2,575 | 47,612 |
See Notes to Financial Statements
30
Table of Contents
Harding, Loevner Funds, Inc.
International Equity Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares |
Value | |||||||
COMMON STOCKS - 96.2% (continued) | ||||||||
Colombia - 1.1% (continued) | ||||||||
Grupo Nutresa SA (Food Beverage & Tobacco) | 7,266 | $60,227 | ||||||
137,154 | ||||||||
Denmark - 2.1% | ||||||||
Chr Hansen Holding A/S (Materials)† | 602 | 61,486 | ||||||
Coloplast A/S, Class B (Health Care Equipment & Services)† | 770 | 83,074 | ||||||
Novozymes A/S, Class B (Materials)† | 2,434 | 113,554 | ||||||
258,114 | ||||||||
Egypt - 0.5% | ||||||||
Commercial International Bank Egypt SAE - GDR, Reg S (Banks)† | 14,745 | 64,520 | ||||||
France - 3.1% | ||||||||
Air Liquide SA (Materials)† | 804 | 106,921 | ||||||
Dassault Systemes SE (Software & Services)† | 530 | 84,124 | ||||||
EssilorLuxottica SA (Consumer Durables & Apparel)† | 862 | 104,916 | ||||||
Sartorius Stedim Biotech (Pharmaceuticals, Biotechnology & Life Sciences)† | 583 | 79,251 | ||||||
375,212 | ||||||||
Germany - 6.8% | ||||||||
adidas AG (Consumer Durables & Apparel)† | 369 | 94,834 | ||||||
Allianz SE, Reg S (Insurance)† | 561 | 135,216 | ||||||
Bayerische Motoren Werke AG (Automobiles & Components)† | 1,251 | 106,732 | ||||||
FUCHS PETROLUB SE (Materials)† | 2,539 | 101,088 | ||||||
Henkel AG & Co. KGaA (Household & Personal Products)† | 1,229 | 117,187 | ||||||
Infineon Technologies AG (Semiconductors & Semiconductor Equipment)† | 1,150 | 27,098 | ||||||
SAP SE - Sponsored ADR (Software & Services) | 1,107 | 142,648 | ||||||
Symrise AG (Materials)† | 1,113 | 107,063 | ||||||
831,866 | ||||||||
Hong Kong - 3.3% | ||||||||
AIA Group Ltd. (Insurance)† | 11,800 | 120,452 | ||||||
ASM Pacific Technology Ltd. (Semiconductors & Semiconductor Equipment)† | 7,200 | 83,429 | ||||||
Hong Kong Exchanges & Clearing Ltd. (Diversified Financials)† | 2,000 | 69,440 |
Shares |
Value | |||||||
COMMON STOCKS - 96.2% (continued) | ||||||||
Hong Kong - 3.3% (continued) | ||||||||
Sands China Ltd. (Consumer Services)† | 5,200 | $28,570 | ||||||
Techtronic Industries Co., Ltd. (Consumer Durables & Apparel)† | 13,000 | 94,089 | ||||||
395,980 | ||||||||
India - 3.8% | ||||||||
Asian Paints Ltd. (Materials)† | 1,380 | 29,029 | ||||||
Bharti Infratel Ltd. (Telecommunication Services)† | 16,093 | 60,816 | ||||||
Emami Ltd. (Household & Personal | 4,758 | 26,479 | ||||||
Housing Development Finance Corp., Ltd. (Banks)† | 1,080 | 30,977 | ||||||
ICICI Bank Ltd. - Sponsored ADR (Banks) | 3,265 | 37,384 | ||||||
ITC Ltd. (Food Beverage & Tobacco)† | 6,040 | 26,171 | ||||||
Kotak Mahindra Bank Ltd. (Banks)† | 1,770 | 35,289 | ||||||
Max Financial Services Ltd. (Insurance)*† | 7,870 | 47,276 | ||||||
Pidilite Industries Ltd. (Materials)† | 2,100 | 37,281 | ||||||
Tata Consultancy Services Ltd. (Software & Services)† | 3,914 | 127,212 | ||||||
457,914 | ||||||||
Indonesia - 0.8% | ||||||||
Astra International Tbk PT (Automobiles & Components)† | 79,500 | 42,537 | ||||||
Bank Central Asia Tbk PT (Banks)† | 13,000 | 26,227 | ||||||
Bank Rakyat Indonesia Persero Tbk PT (Banks)*† | 101,900 | 31,248 | ||||||
100,012 | ||||||||
Israel - 1.0% | ||||||||
Check Point Software Technologies Ltd. (Software & Services)* | 1,004 | 121,243 | ||||||
Italy - 1.0% | ||||||||
FinecoBank Banca Fineco SpA (Banks)† | 5,169 | 68,251 | ||||||
Tenaris SA - ADR (Energy) | 1,856 | 51,485 | ||||||
119,736 | ||||||||
Japan - 16.3% | ||||||||
ABC-Mart Inc. (Retailing)† | 1,840 | 114,586 | ||||||
Chugai Pharmaceutical Co., Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 1,100 | 69,357 | ||||||
Daito Trust Construction Co., Ltd. (Real Estate)† | 800 | 106,927 |
See Notes to Financial Statements
31
Table of Contents
Harding, Loevner Funds, Inc.
International Equity Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 96.2% (continued) | ||||||||
Japan - 16.3% (continued) | ||||||||
Dentsu Inc. (Media & Entertainment)† | 2,020 | $81,919 | ||||||
FANUC Corp. (Capital Goods)† | 300 | 56,228 | ||||||
Fast Retailing Co., Ltd. (Retailing)† | 70 | 40,539 | ||||||
Hakuhodo DY Holdings Inc. (Media & Entertainment)† | 6,790 | 114,698 | ||||||
Infomart Corp. (Software & Services)† | 2,600 | 38,098 | ||||||
JGC Corp. (Capital Goods)† | 3,500 | 50,203 | ||||||
Kakaku.com Inc. (Media & Entertainment)† | 4,000 | 82,273 | ||||||
Keyence Corp. (Technology Hardware & Equipment)† | 50 | 31,161 | ||||||
Komatsu Ltd. (Capital Goods)† | 1,240 | 32,261 | ||||||
Kubota Corp. (Capital Goods)† | 6,300 | 94,813 | ||||||
M3 Inc. (Health Care Equipment & Services)† | 1,800 | 32,023 | ||||||
Makita Corp. (Capital Goods)† | 2,600 | 94,955 | ||||||
MISUMI Group Inc. (Capital Goods)† | 2,200 | 56,534 | ||||||
Nidec Corp. (Capital Goods)† | 200 | 28,545 | ||||||
Nomura Research Institute Ltd. (Software & Services)† | 2,502 | 122,400 | ||||||
Pigeon Corp. (Household & Personal | 1,700 | 72,355 | ||||||
Rinnai Corp. (Consumer Durables & | 1,300 | 87,087 | ||||||
Shimano Inc. (Consumer Durables & | 800 | 116,559 | ||||||
SMC Corp. (Capital Goods)† | 160 | 66,502 | ||||||
Stanley Electric Co., Ltd. (Automobiles & Components)† | 3,915 | 106,203 | ||||||
Sugi Holdings Co., Ltd. (Food & Staples Retailing)† | 1,055 | 53,028 | ||||||
Sysmex Corp. (Health Care Equipment & Services)† | 1,500 | 85,877 | ||||||
Unicharm Corp. (Household & Personal Products)† | 3,700 | 121,671 | ||||||
ZOZO Inc. (Retailing)† | 1,500 | 26,581 | ||||||
1,983,383 | ||||||||
Mexico - 1.7% | ||||||||
Banco Santander Mexico SA Institucion de Banca Multiple Grupo Financiero Santand - ADR (Banks) | 5,002 | 42,167 | ||||||
Coca-Cola Femsa SAB de CV - Sponsored ADR (Food Beverage & Tobacco) | 502 | 32,188 | ||||||
Fomento Economico Mexicano SAB de CV - Sponsored ADR (Food Beverage & Tobacco) | 280 | 27,325 |
Shares | Value | |||||||
COMMON STOCKS - 96.2% (continued) | ||||||||
Mexico - 1.7% (continued) | ||||||||
Grupo Bimbo SAB de CV, Series A (Food Beverage & Tobacco) | 13,500 | $30,065 | ||||||
Grupo Financiero Banorte SAB de CV, Series O (Banks) | 5,800 | 36,661 | ||||||
Wal-Mart de Mexico SAB de CV (Food & Staples Retailing) | 14,400 | 42,317 | ||||||
210,723 | ||||||||
Netherlands - 0.9% | ||||||||
ASML Holding NV, Reg S (Semiconductors & Semiconductor Equipment) | 492 | 102,739 | ||||||
Pakistan - 1.1% | ||||||||
Engro Corp., Ltd. (Materials)† | 13,100 | 29,452 | ||||||
MCB Bank Ltd. (Banks)† | 20,500 | 27,564 | ||||||
Oil & Gas Development Co., Ltd. (Energy)† | 28,900 | 28,762 | ||||||
Pakistan Petroleum Ltd. (Energy)† | 17,825 | 21,352 | ||||||
United Bank Ltd. (Banks)† | 25,600 | 26,811 | ||||||
133,941 | ||||||||
Peru - 0.7% | ||||||||
Alicorp SAA (Food Beverage & Tobacco) | 10,540 | 34,108 | ||||||
Credicorp Ltd. (Banks) | 214 | 50,697 | ||||||
84,805 | ||||||||
Philippines - 3.1% | ||||||||
Bank of the Philippine Islands (Banks)† | 26,220 | 42,694 | ||||||
BDO Unibank Inc. (Banks)† | 10,450 | 26,874 | ||||||
International Container Terminal Services Inc. (Transportation)† | 39,950 | 97,017 | ||||||
Jollibee Foods Corp. (Consumer Services)† | 5,870 | 34,311 | ||||||
Robinsons Retail Holdings Inc. (Food & Staples Retailing)† | 40,830 | 61,187 | ||||||
Security Bank Corp. (Banks)† | 15,220 | 52,574 | ||||||
SM Prime Holdings Inc. (Real Estate)† | 79,600 | 63,315 | ||||||
377,972 | ||||||||
Qatar - 0.5% | ||||||||
Qatar Electricity & Water Co. QSC | 1,383 | 63,479 | ||||||
Russia - 1.7% | ||||||||
LUKOIL PJSC - Sponsored ADR (Energy) | 636 | 54,378 | ||||||
Moscow ExchangeMICEX-RTS PJSC (Diversified Financials)† | 23,860 | 33,641 | ||||||
Novatek PJSC - Sponsored GDR, Reg S (Energy)† | 266 | 51,194 |
See Notes to Financial Statements
32
Table of Contents
Harding, Loevner Funds, Inc.
International Equity Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 96.2% (continued)
|
| |||||||
Russia - 1.7% (continued) | ||||||||
Sberbank of Russia PJSC - Sponsored ADR (Banks)† | 2,020 | $29,039 | ||||||
Yandex NV, Class A (Media & | 882 | 33,013 | ||||||
201,265 | ||||||||
Singapore - 2.0% | ||||||||
DBS Group Holdings Ltd. (Banks)† | 6,070 | 126,158 | ||||||
Oversea-Chinese Banking Corp. Ltd. (Banks)† | 13,100 | 116,604 | ||||||
242,762 | ||||||||
South Africa - 1.0% | ||||||||
Clicks Group Ltd. (Food & Staples Retailing)† | 2,470 | 33,773 | ||||||
Discovery Ltd. (Insurance)† | 2,580 | 25,981 | ||||||
Standard Bank Group Ltd. (Banks)† | 2,468 | 34,329 | ||||||
Tiger Brands Ltd. (Food Beverage & | 1,517 | 26,393 | ||||||
120,476 | ||||||||
South Korea - 1.4% | ||||||||
Hankook Tire Co., Ltd. (Automobiles & Components)† | 1,716 | 58,397 | ||||||
LG Household & Health Care Ltd. (Household & Personal Products)† | 28 | 34,095 | ||||||
NAVER Corp. (Media & Entertainment)† | 237 | 24,254 | ||||||
Woongjin Coway Co., Ltd. (Consumer Durables & Apparel)† | 670 | 50,355 | ||||||
167,101 | ||||||||
Spain - 3.2% | ||||||||
Amadeus IT Group SA (Software & | 1,550 | 123,327 | ||||||
Banco Bilbao Vizcaya Argentaria SA | 7,281 | 44,378 | ||||||
Banco Santander SA (Banks)† | 24,423 | 124,149 | ||||||
Bankinter SA (Banks)† | 12,382 | 98,876 | ||||||
390,730 | ||||||||
Sweden - 4.3% | ||||||||
Alfa Laval AB (Capital Goods)† | 1,110 | 25,753 | ||||||
Assa Abloy AB, Class B (Capital Goods)† | 5,505 | 117,492 | ||||||
Atlas Copco AB, Class A (Capital Goods)† | 1,000 | 31,071 | ||||||
Epiroc AB, Class A (Capital Goods)*† | 10,312 | 106,668 | ||||||
Hexagon AB, Class B (Technology Hardware & Equipment)† | 1,644 | 89,643 | ||||||
Intrum AB (Commercial & Professional Services)† | 2,857 | 72,669 |
Shares | Value | |||||||
COMMON STOCKS - 96.2% (continued)
|
| |||||||
Sweden - 4.3% (continued) | ||||||||
Skandinaviska Enskilda Banken AB, Class A (Banks)† | 8,357 | $79,760 | ||||||
523,056 | ||||||||
Switzerland - 7.4% | ||||||||
Alcon Inc. (Health Care Equipment & | 1,484 | 86,369 | ||||||
Cie Financiere Richemont SA, Reg S (Consumer Durables & Apparel)† | 1,358 | 99,321 | ||||||
Kuehne + Nagel International AG, Reg S (Transportation)† | 769 | 111,931 | ||||||
Lonza Group AG, Reg S (Pharmaceuticals, Biotechnology & Life Sciences)*† | 130 | 40,160 | ||||||
Nestle SA - Sponsored ADR (Food Beverage & Tobacco) | 1,289 | 124,427 | ||||||
Roche Holding AG, Genusschein (Pharmaceuticals, Biotechnology & Life Sciences)† | 450 | 118,640 | ||||||
SGS SA, Reg S (Commercial & Professional Services)† | 45 | 118,921 | ||||||
Sonova Holding AG, Reg S (Health Care Equipment & Services)† | 532 | 107,566 | ||||||
Temenos AG, Reg S (Software & Services)*† | 387 | 64,357 | ||||||
VAT Group AG (Capital Goods)*† | 268 | 33,281 | ||||||
904,973 | ||||||||
Taiwan - 1.7% | ||||||||
Advantech Co., Ltd. (Technology Hardware & Equipment)† | 6,000 | 48,517 | ||||||
Eclat Textile Co., Ltd. (Consumer Durables & Apparel)† | 2,040 | 29,015 | ||||||
Hon Hai Precision Industry Co., Ltd. (Technology Hardware & Equipment)† | 12,000 | 33,751 | ||||||
Largan Precision Co., Ltd. (Technology Hardware & Equipment)† | 220 | 33,109 | ||||||
Silergy Corp. (Semiconductors & Semiconductor Equipment)† | 2,000 | 32,758 | ||||||
Taiwan Semiconductor Manufacturing Co., Ltd. (Semiconductors & Semiconductor Equipment)† | 4,000 | 33,788 | ||||||
210,938 | ||||||||
Thailand - 0.2% | ||||||||
Siam Commercial Bank pcl, Reg S (Banks) | 6,700 | 27,493 | ||||||
Turkey - 0.3% | ||||||||
BIM Birlesik Magazalar AS (Food & Staples Retailing)† | 2,193 | 30,523 |
See Notes to Financial Statements
33
Table of Contents
Harding, Loevner Funds, Inc.
International Equity Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 96.2% (continued)
|
| |||||||
United Arab Emirates - 0.5% | ||||||||
Emaar Properties PJSC (Real Estate)† | 45,410 | $59,360 | ||||||
United Kingdom - 10.5% | ||||||||
Abcam plc (Pharmaceuticals, Biotechnology & Life Sciences)† | 4,562 | 77,555 | ||||||
Bank of Georgia Group plc (Banks)† | 1,330 | 29,818 | ||||||
BBA Aviation plc (Transportation)† | 28,010 | 99,528 | ||||||
Dechra Pharmaceuticals plc (Pharmaceuticals, Biotechnology & Life Sciences)† | 1,913 | 66,363 | ||||||
Diageo plc (Food Beverage & Tobacco)† | 1,767 | 74,516 | ||||||
HSBC Holdings plc - Sponsored ADR (Banks) | 2,346 | 102,215 | ||||||
Rathbone Brothers plc (Diversified Financials)† | 1,747 | 57,442 | ||||||
Reckitt Benckiser Group plc (Household & Personal Products)† | 1,453 | 117,722 | ||||||
Rightmove plc (Media & Entertainment)† | 12,198 | 86,135 | ||||||
Rio Tinto plc (Materials)† | 1,066 | 62,195 | ||||||
Royal Dutch Shell plc, Class B - Sponsored ADR (Energy) | 1,795 | 116,478 | ||||||
Spirax-Sarco Engineering plc (Capital Goods)† | 796 | 85,745 | ||||||
St. James’s Place plc (Diversified Financials)† | 7,866 | 115,223 | ||||||
Standard Chartered plc (Banks)† | 6,710 | 61,351 | ||||||
Unilever plc (Household & Personal Products)† | 2,114 | 128,367 | ||||||
1,280,653 | ||||||||
Total Common Stocks (Cost $10,430,678) | $11,689,744 | |||||||
PREFERRED STOCKS - 1.6%
| ||||||||
Brazil - 0.9% | ||||||||
Banco Bradesco SA - ADR (Banks)* | 5,130 | 46,478 | ||||||
Cia Brasileira de Distribuicao - Sponsored ADR (Food & Staples Retailing)* | 1,300 | 31,928 | ||||||
Itau Unibanco Holding SA - Sponsored ADR, 0.55% (Banks)+ | 4,341 | 37,549 | ||||||
115,955 | ||||||||
Colombia - 0.4% | ||||||||
Bancolombia SA - Sponsored ADR, 2.55% (Banks)+ | 910 | 46,155 |
Shares | Value | |||||||
PREFERRED STOCKS - 1.6% (continued)
|
| |||||||
South Korea - 0.3% | ||||||||
Samsung Electronics Co., Ltd. - GDR, Reg S, 3.93% (Technology Hardware & | 44 | $34,975 | ||||||
Total Preferred Stocks (Cost $154,443) | $197,085 | |||||||
SHORT TERM INVESTMENTS - 2.1% | ||||||||
Northern Institutional Funds - Treasury Portfolio, 2.29% (Money Market Funds) | 255,963 | 255,963 | ||||||
Total Short Term Investments (Cost $255,963) |
| $255,963 | ||||||
Total Investments — 99.9% | ||||||||
(Cost $10,841,084) | $12,142,792 | |||||||
Other Assets Less Liabilities - 0.1% | 14,807 | |||||||
Net Assets — 100.0% | $12,157,599 |
Summary of Abbreviations
ADR | American Depositary Receipt. |
GDR | Global Depository Receipt. |
Reg S | Security sold outside United States without registration under the Securities Act of 1933. |
* | Non-income producing security. |
† | Investment categorized as level 2 security as disclosed in Note 2 of the Notes to Financial Statements. |
# | Security valued at fair value as determined in good faith under policies and procedures established by and under the supervision of the Portfolio’s Board of Directors as disclosed in Note 2 of the Notes to Financial Statements. |
+ | Current yield is disclosed. Dividends are calculated based on a percentage of the issuer’s net income. |
See Notes to Financial Statements
34
Table of Contents
Harding, Loevner Funds, Inc.
International Equity Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Industry |
Percentage of Net Assets | |||
Automobiles & Components | 2.8 | % | ||
Banks | 13.2 | |||
Capital Goods | 8.1 | |||
Commercial & Professional Services | 1.6 | |||
Consumer Durables & Apparel | 6.5 | |||
Consumer Services | 1.1 | |||
Diversified Financials | 2.3 | |||
Energy | 4.3 | |||
Food & Staples Retailing | 3.1 | |||
Food Beverage & Tobacco | 5.9 | |||
Health Care Equipment & Services | 3.7 | |||
Household & Personal Products | 5.1 | |||
Insurance | 3.0 | |||
Materials | 7.1 | |||
Media & Entertainment | 4.0 | |||
Pharmaceuticals, Biotechnology & Life Sciences | 4.5 | |||
Real Estate | 1.9 | |||
Retailing | 2.1 | |||
Semiconductors & Semiconductor Equipment | 2.3 | |||
Software & Services | 6.8 | |||
Technology Hardware & Equipment | 2.7 | |||
Telecommunication Services | 1.0 | |||
Transportation | 3.9 | |||
Utilities | 0.8 | |||
Money Market Fund | 2.1 | |||
Total Investments | 99.9 | |||
Other Assets Less Liabilities | 0.1 | |||
Net Assets | 100.0 | % |
See Notes to Financial Statements
35
Table of Contents
Emerging Markets Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited)
Shares | Value | |||||||
COMMON STOCKS - 89.1% | ||||||||
Argentina - 0.2% | ||||||||
Telecom Argentina SA - Sponsored ADR (Telecommunication Services)* | 1,090 | $14,333 | ||||||
Bangladesh - 0.4% | ||||||||
GrameenPhone Ltd. (Telecommunication Services)† | 3,588 | 15,243 | ||||||
Square Pharmaceuticals Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 4,543 | 13,985 | ||||||
29,228 | ||||||||
Brazil - 2.7% | ||||||||
Ambev SA - ADR (Food Beverage & Tobacco) | 20,920 | 98,534 | ||||||
Ultrapar Participacoes SA - Sponsored ADR (Energy) | 11,420 | 61,211 | ||||||
WEG SA (Capital Goods) | 7,700 | 36,486 | ||||||
196,231 | ||||||||
China - 27.4% | ||||||||
AAC Technologies Holdings Inc. (Technology Hardware & Equipment)† | 4,500 | 29,149 | ||||||
Alibaba Group Holding Ltd. - Sponsored ADR (Retailing)* | 773 | 143,446 | ||||||
Autohome Inc. - ADR (Media & Entertainment)* | 332 | 38,343 | ||||||
China Mobile Ltd. - Sponsored ADR (Telecommunication Services) | 2,609 | 124,371 | ||||||
CNOOC Ltd. - Sponsored ADR (Energy) | 773 | 140,439 | ||||||
CSPC Pharmaceutical Group Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)† | 24,000 | 46,124 | ||||||
Ctrip.com International Ltd. - ADR (Retailing)* | 2,559 | 112,724 | ||||||
ENN Energy Holdings Ltd. (Utilities)† | 9,000 | 85,063 | ||||||
Fuyao Glass Industry Group Co., Ltd., Class A (Automobiles & Components)† | 37,300 | 139,088 | ||||||
Gree Electric Appliances Inc. of Zhuhai, Class A (Consumer Durables & Apparel)† | 9,700 | 80,031 | ||||||
Haitian International Holdings Ltd. (Capital Goods)† | 15,000 | 37,685 | ||||||
Han’s Laser Technology Industry Group Co., Ltd., Class A (Capital Goods)† | 12,400 | 72,027 | ||||||
Inner Mongolia Yili Industrial Group Co., Ltd., Class A (Food Beverage & Tobacco)† | 17,400 | 80,068 |
Shares | Value | |||||||
COMMON STOCKS - 89.1% (continued) | ||||||||
China - 27.4% (continued) | ||||||||
Jiangsu Yanghe Brewery Joint-Stock Co., Ltd., Class A (Food Beverage & Tobacco)† | 3,800 | $66,368 | ||||||
Midea Group Co., Ltd., Class A (Consumer Durables & Apparel)† | 13,400 | 104,207 | ||||||
NetEase Inc. - ADR (Media & Entertainment) | 148 | 42,110 | ||||||
New Oriental Education & Technology Group Inc. - Sponsored ADR (Consumer Services)* | 844 | 80,568 | ||||||
Ping An Insurance Group Co. of China Ltd., Class A (Insurance)† | 12,100 | 154,643 | ||||||
Shanghai International Airport Co., Ltd., Class A (Transportation)† | 8,600 | 90,166 | ||||||
Shenzhou International Group Holdings Ltd. (Consumer Durables & Apparel)† | 6,000 | 80,363 | ||||||
Songcheng Performance Development Co., Ltd., Class A (Consumer Services)† | 10,100 | 33,838 | ||||||
Sunny Optical Technology Group Co., Ltd. (Technology Hardware & Equipment)† | 5,600 | 68,030 | ||||||
Tingyi Cayman Islands Holding Corp. (Food Beverage & Tobacco)† | 40,000 | 65,970 | ||||||
WuXi AppTec Co., Ltd., Class A (Pharmaceuticals, Biotechnology & Life Sciences)*† | 2,600 | 34,164 | ||||||
Wuxi Biologics Cayman Inc. (Pharmaceuticals, Biotechnology & Life Sciences)*† | 4,000 | 40,276 | ||||||
1,989,261 | ||||||||
Colombia - 1.0% | ||||||||
Cementos Argos SA - Sponsored ADR | 1,739 | 21,702 | ||||||
Ecopetrol SA - Sponsored ADR (Energy) | 1,683 | 31,119 | ||||||
Grupo Nutresa SA (Food Beverage & Tobacco) | 2,477 | 20,531 | ||||||
73,352 | ||||||||
Egypt - 0.8% | ||||||||
Commercial International Bank Egypt SAE - GDR, Reg S (Banks)† | 13,500 | 59,073 | ||||||
India - 10.9% | ||||||||
Asian Paints Ltd. (Materials)† | 2,810 | 59,110 | ||||||
Bharti Infratel Ltd. (Telecommunication | 24,259 | 91,676 |
See Notes to Financial Statements
36
Table of Contents
Harding, Loevner Funds, Inc.
Emerging Markets Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 89.1% (continued) | ||||||||
India - 10.9% (continued) | ||||||||
Emami Ltd. (Household & Personal Products)† | 7,944 | $44,210 | ||||||
Housing Development Finance Corp., Ltd. (Banks)† | 5,100 | 146,280 | ||||||
ICICI Bank Ltd. - Sponsored ADR (Banks) | 4,150 | 47,517 | ||||||
ITC Ltd. (Food Beverage & Tobacco)† | 14,150 | 61,312 | ||||||
Kotak Mahindra Bank Ltd. (Banks)† | 4,150 | 82,740 | ||||||
Max Financial Services Ltd. (Insurance)*† | 3,880 | 23,308 | ||||||
Pidilite Industries Ltd. (Materials)† | 4,150 | 73,673 | ||||||
Tata Consultancy Services Ltd. (Software & Services)† | 5,052 | 164,198 | ||||||
794,024 | ||||||||
Indonesia - 3.4% | ||||||||
Astra International Tbk PT (Automobiles & Components)† | 226,200 | 121,030 | ||||||
Bank Central Asia Tbk PT (Banks)† | 42,400 | 85,542 | ||||||
Bank Rakyat Indonesia Persero Tbk PT (Banks)*† | 128,700 | 39,466 | ||||||
246,038 | ||||||||
Kazakhstan - 0.3% | ||||||||
Halyk Savings Bank of Kazakhstan JSC - GDR, Reg S (Banks)† | 1,610 | 18,848 | ||||||
Kenya - 0.2% | ||||||||
Safaricom plc (Telecommunication | 62,300 | 17,339 | ||||||
Kuwait - 1.1% | ||||||||
Mabanee Co. SAK (Real Estate)† | 8,845 | 18,157 | ||||||
National Bank of Kuwait SAKP (Banks) | 20,523 | 62,692 | ||||||
80,849 | ||||||||
Mexico - 6.2% | ||||||||
Banco Santander Mexico SA Institucion de Banca Multiple Grupo Financiero Santand - ADR (Banks) | 4,150 | 34,985 | ||||||
Coca-Cola Femsa SAB de CV - Sponsored ADR (Food Beverage & Tobacco) | 908 | 58,221 | ||||||
Fomento Economico Mexicano SAB de CV - Sponsored ADR (Food Beverage & Tobacco) | 1,105 | 107,837 | ||||||
Grupo Bimbo SAB de CV, Series A (Food Beverage & Tobacco) | 24,900 | 55,454 |
Shares | Value | |||||||
COMMON STOCKS - 89.1% (continued) | ||||||||
Mexico - 6.2% (continued) | ||||||||
Grupo Financiero Banorte SAB de CV, Series O (Banks) | 11,500 | $72,690 | ||||||
Wal-Mart de Mexico SAB de CV (Food & Staples Retailing) | 40,300 | 118,427 | ||||||
447,614 | ||||||||
Morocco - 0.4% | ||||||||
Attijariwafa Bank (Banks)† | 320 | 14,839 | ||||||
Maroc Telecom (Telecommunication | 900 | 13,675 | ||||||
28,514 | ||||||||
Nigeria - 0.8% | ||||||||
Dangote Cement plc (Materials) | 28,327 | 14,134 | ||||||
Guaranty Trust Bank plc (Banks)† | 167,008 | 15,278 | ||||||
Nestle Nigeria plc (Food Beverage & Tobacco) | 3,815 | 16,074 | ||||||
Zenith Bank plc (Banks)† | 260,470 | 15,379 | ||||||
60,865 | ||||||||
Pakistan - 1.0% | ||||||||
Engro Corp., Ltd. (Materials)† | 4,900 | 11,016 | ||||||
MCB Bank Ltd. (Banks)† | 8,900 | 11,967 | ||||||
Oil & Gas Development Co., Ltd. (Energy)† | 17,300 | 17,217 | ||||||
Pakistan Petroleum Ltd. (Energy)† | 12,650 | 15,153 | ||||||
United Bank Ltd. (Banks)† | 18,500 | 19,375 | ||||||
74,728 | ||||||||
Peru - 2.3% | ||||||||
Alicorp SAA (Food Beverage & Tobacco) | 6,050 | 19,578 | ||||||
Credicorp Ltd. (Banks) | 617 | 146,167 | ||||||
165,745 | ||||||||
Philippines - 3.7% | ||||||||
Bank of the Philippine Islands (Banks)† | 26,900 | 43,801 | ||||||
BDO Unibank Inc. (Banks)† | 12,990 | 33,406 | ||||||
International Container Terminal Services Inc. (Transportation)† | 12,000 | 29,141 | ||||||
Jollibee Foods Corp. (Consumer Services)† | 9,090 | 53,133 | ||||||
Robinsons Retail Holdings Inc. (Food & Staples Retailing)† | 10,620 | 15,915 | ||||||
Security Bank Corp. (Banks)† | 9,060 | 31,296 | ||||||
SM Prime Holdings Inc. (Real Estate)† | 72,700 | 57,827 | ||||||
264,519 | ||||||||
Qatar - 0.3% | ||||||||
Qatar Electricity & Water Co. QSC (Utilities)† | 420 | 19,278 |
See Notes to Financial Statements
37
Table of Contents
Harding, Loevner Funds, Inc.
Emerging Markets Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS - 89.1% (continued) | ||||||||
Romania - 0.4% | ||||||||
Banca Transilvania SA (Banks)† | 29,552 | $15,360 | ||||||
Societatea Nationala de Gaze Naturale ROMGAZ SA (Energy)† | 2,060 | 15,961 | ||||||
31,321 | ||||||||
Russia - 6.0% | ||||||||
LUKOIL PJSC - Sponsored ADR (Energy) | 1,650 | 141,075 | ||||||
Moscow ExchangeMICEX-RTS PJSC (Diversified Financials)† | 28,840 | 40,663 | ||||||
Novatek PJSC - Sponsored GDR, Reg S (Energy)† | 745 | 143,381 | ||||||
Sberbank of Russia PJSC - Sponsored ADR (Banks)† | 4,750 | 68,285 | ||||||
Yandex NV, Class A (Media & | 1,136 | 42,520 | ||||||
435,924 | ||||||||
South Africa - 3.5% | ||||||||
Clicks Group Ltd. (Food & Staples | 3,867 | 52,875 | ||||||
Discovery Ltd. (Insurance)† | 7,600 | 76,534 | ||||||
Standard Bank Group Ltd. (Banks)† | 6,870 | 95,558 | ||||||
Tiger Brands Ltd. (Food Beverage & | 1,835 | 31,925 | ||||||
256,892 | ||||||||
South Korea - 4.3% | ||||||||
Hankook Tire Co., Ltd. (Automobiles & Components)† | 2,101 | 71,499 | ||||||
LG Household & Health Care Ltd. (Household & Personal Products)† | 70 | 85,237 | ||||||
NAVER Corp. (Media & Entertainment)† | 1,040 | 106,432 | ||||||
Woongjin Coway Co., Ltd. (Consumer Durables & Apparel)† | 650 | 48,852 | ||||||
312,020 | ||||||||
Taiwan - 7.7% | ||||||||
Advantech Co., Ltd. (Technology Hardware & Equipment)† | 8,000 | 64,689 | ||||||
Eclat Textile Co., Ltd. (Consumer Durables & Apparel)† | 4,080 | 58,030 | ||||||
Hon Hai Precision Industry Co., Ltd. (Technology Hardware & Equipment)† | 54,000 | 151,880 | ||||||
Largan Precision Co., Ltd. (Technology Hardware & Equipment)† | 690 | 103,840 | ||||||
Silergy Corp. (Semiconductors & Semiconductor Equipment)† | 1,400 | 22,931 |
Shares | Value | |||||||
COMMON STOCKS - 89.1% (continued) | ||||||||
Taiwan - 7.7% (continued) | ||||||||
Taiwan Semiconductor Manufacturing Co., Ltd. (Semiconductors & Semiconductor Equipment)† | 19,000 | $160,494 | ||||||
561,864 | ||||||||
Thailand - 0.9% | ||||||||
Siam Commercial Bank pcl, Reg S (Banks) | 16,100 | 66,064 | ||||||
Turkey - 0.4% | ||||||||
BIM Birlesik Magazalar AS (Food & Staples Retailing)† | 2,232 | 31,066 | ||||||
United Arab Emirates - 1.0% | ||||||||
Emaar Properties PJSC (Real Estate)† | 53,680 | 70,171 | ||||||
United Kingdom - 0.4% | ||||||||
Bank of Georgia Group plc (Banks)† | 1,170 | 26,230 | ||||||
Vietnam - 1.4% | ||||||||
Hoa Phat Group JSC (Materials)*† | 21,400 | 30,981 | ||||||
Masan Group Corp. (Food Beverage & | 14,550 | 54,249 | ||||||
Vietnam Dairy Products JSC (Food Beverage & Tobacco)† | 2,472 | 13,765 | ||||||
98,995 | ||||||||
Total Common Stocks (Cost $5,846,742) | $6,470,386 | |||||||
PREFERRED STOCKS - 5.0% | ||||||||
Brazil - 2.5% | ||||||||
Banco Bradesco SA - ADR (Banks)* | 8,309 | 75,279 | ||||||
Cia Brasileira de Distribuicao - Sponsored ADR (Food & Staples Retailing)* | 1,620 | 39,787 | ||||||
Itau Unibanco Holding SA - Sponsored ADR, 0.55% (Banks)+ | 7,687 | 66,493 | ||||||
181,559 | ||||||||
Colombia - 0.6% | ||||||||
Bancolombia SA - Sponsored ADR, 2.55% (Banks)+ | 940 | 47,677 | ||||||
South Korea - 1.9% | ||||||||
Samsung Electronics Co., Ltd. - GDR, Reg S, 3.93% (Technology Hardware & | 171 | 135,924 | ||||||
| ||||||||
Total Preferred Stocks (Cost $341,079) | $365,160 |
See Notes to Financial Statements
38
Table of Contents
Harding, Loevner Funds, Inc.
Emerging Markets Research Portfolio
Portfolio of Investments
April 30, 2019 (unaudited) (continued)
Shares | Value | |||||||
PARTICIPATION NOTES - 2.8% | ||||||||
Saudi Arabia - 2.8% | ||||||||
Al Rajhi Bank, Issued by JP Morgan Structured Products, Maturity Date 12/5/19 (Banks)^† | 7,518 | $150,278 | ||||||
Jarir Marketing Co., Issued by HSBC BANK PLC, Maturity Date 1/19/21 (Retailing)*^† | 1,214 | 57,297 | ||||||
207,575 | ||||||||
Total Participation Notes (Cost $146,239) | $207,575 | |||||||
SHORT TERM INVESTMENTS - 1.8% | ||||||||
Northern Institutional Funds - Treasury Portfolio, 2.29% (Money Market Funds) | 129,293 | 129,293 | ||||||
Total Short Term Investments (Cost $129,293) |
| $129,293 | ||||||
Total Investments — 98.7% | ||||||||
(Cost $6,463,353) | $7,172,414 | |||||||
Other Assets Less Liabilities - 1.3% | 90,869 | |||||||
Net Assets — 100.0% | $7,263,283 |
Summary of Abbreviations
ADR | American Depositary Receipt. |
GDR | Global Depository Receipt. |
Reg S | Security sold outside United States without registration under the Securities Act of 1933. |
* | Non-income producing security. |
† | Investment categorized as level 2 security as disclosed in Note 2 of the Notes to Financial Statements. |
# | Security valued at fair value as determined in good faith under policies and procedures established by and under the supervision of the Portfolio’s Board of Directors as disclosed in Note 2 of the Notes to Financial Statements. |
+ | Current yield is disclosed. Dividends are calculated based on a percentage of the issuer’s net income. |
^ | Security exempt from registration pursuant to Rule 144A of the Securities Act of 1933. These securities, which represent 2.8% of net assets as of April 30, 2019, are considered liquid and may be resold in transactions exempt from registration, normally to qualified buyers. |
Percentage of | ||||
Industry | Net Assets | |||
Automobiles & Components | 4.6 | % | ||
Banks | 21.9 | |||
Capital Goods | 2.0 | |||
Consumer Durables & Apparel | 5.1 | |||
Consumer Services | 2.3 | |||
Diversified Financials | 0.6 | |||
Energy | 7.8 | |||
Food & Staples Retailing | 3.6 | |||
Food Beverage & Tobacco | 10.3 | |||
Household & Personal Products | 1.8 | |||
Insurance | 3.5 | |||
Materials | 2.9 | |||
Media & Entertainment | 3.2 | |||
Pharmaceuticals, Biotechnology & Life Sciences | 1.8 | |||
Real Estate | 2.0 | |||
Retailing | 4.3 | |||
Semiconductors & Semiconductor Equipment | 2.5 | |||
Software & Services | 2.3 | |||
Technology Hardware & Equipment | 7.6 | |||
Telecommunication Services | 3.8 | |||
Transportation | 1.6 | |||
Utilities | 1.4 | |||
Money Market Fund | 1.8 | |||
Total Investments | 98.7 | |||
Other Assets Less Liabilities | 1.3 | |||
Net Assets | 100.0 | % |
See Notes to Financial Statements
39
Table of Contents
Harding, Loevner Funds, Inc.
Statements of Assets and Liabilities
April 30, 2019 (Unaudited)
Global Equity Portfolio | International Equity Portfolio | International Small Companies Portfolio | |||||||||||||
ASSETS: | |||||||||||||||
Investments (cost $652,486,045, $12,702,469,720 and $174,076,620, respectively) | $964,113,730 | $15,649,756,680 | $211,627,887 | ||||||||||||
Dividends and interest receivable | 1,429,419 | 29,380,109 | 535,124 | ||||||||||||
Foreign currency (cost $129,505, $1,073,365 and $120,217, respectively) | 129,506 | 1,073,365 | 120,516 | ||||||||||||
Receivable for investments sold | 363,480 | 8,545,140 | 149,912 | ||||||||||||
Receivable for Fund shares sold | 220,646 | 52,724,275 | 121,633 | ||||||||||||
Tax reclaim receivable | 398,833 | 25,768,544 | 224,293 | ||||||||||||
Prepaid offering fees | — | — | 424 | ||||||||||||
Prepaid expenses | 15,593 | 346,045 | 83,131 | ||||||||||||
Total Assets: | 966,671,207 | 15,767,594,158 | 212,862,920 | ||||||||||||
LIABILITIES: | |||||||||||||||
Payable to Investment Adviser | (638,914 | ) | (8,525,268 | ) | (199,306 | ) | |||||||||
Payable for investments purchased | (964 | ) | (67,936,210 | ) | — | ||||||||||
Payable for Fund shares redeemed | (317,012 | ) | (13,896,106 | ) | (185,377 | ) | |||||||||
Payable for distribution fees | — | (298,254 | ) | (30,707 | ) | ||||||||||
Deferred capital gains tax | — | — | (25,058 | ) | |||||||||||
Other liabilities | (240,870 | ) | (3,650,791 | ) | (144,810 | ) | |||||||||
Total Liabilities | (1,197,760 | ) | (94,306,629 | ) | (585,258 | ) | |||||||||
Net Assets | $965,473,447 | $15,673,287,529 | $212,277,662 | ||||||||||||
ANALYSIS OF NET ASSETS: | |||||||||||||||
Paid in capital | $668,266,471 | $12,942,928,012 | $183,003,049 | ||||||||||||
Distributable earnings | 297,206,976 | 2,730,359,517 | 29,274,613 | ||||||||||||
Net Assets | $965,473,447 | $15,673,287,529 | $212,277,662 | ||||||||||||
Net Assets: | |||||||||||||||
Institutional Class | $673,192,750 | $13,551,526,744 | $150,594,994 | ||||||||||||
Institutional Class Z | 196,278,491 | 1,676,157,006 | — | ||||||||||||
Investor Class | — | 445,603,779 | 61,682,668 | ||||||||||||
Advisor Class | 96,002,206 | — | — | ||||||||||||
Total Shares Outstanding: | |||||||||||||||
Institutional Class (400,000,000, 500,000,000 and 400,000,000, respectively, $.001 par value shares authorized) | 19,366,282 | 606,458,269 | 9,671,348 | ||||||||||||
Institutional Class Z (200,000,000, 200,000,000 and —, respectively, $.001 par value shares authorized) | 5,651,982 | 75,043,854 | — | ||||||||||||
Investor Class (—, 400,000,000 and 400,000,000, respectively, $.001 par value shares authorized) | — | 19,960,969 | 3,996,667 | ||||||||||||
Advisor Class (400,000,000, — and —, respectively, $.001 par value shares authorized) | 2,765,312 | — | — | ||||||||||||
Net Asset Value, Offering Price and Redemption Price Per Share: | |||||||||||||||
Institutional Class | $34.76 | $22.35 | $15.57 | ||||||||||||
Institutional Class Z | 34.73 | 22.34 | — | ||||||||||||
Investor Class | — | 22.32 | 15.43 | ||||||||||||
Advisor Class | 34.72 | — | — |
See Notes to Financial Statements
40
Table of Contents
Harding, Loevner Funds, Inc.
Statements of Assets and Liabilities (continued)
April 30, 2019 (Unaudited)
Institutional Emerging Markets Portfolio | Emerging Markets Portfolio | Frontier Emerging Markets Portfolio | |||||||||||||
ASSETS: | |||||||||||||||
Investments (cost $3,973,013,526, $3,085,908,375 and $303,662,423, respectively) | $5,187,542,821 | $4,232,578,261 | $371,533,885 | ||||||||||||
Dividends and interest receivable | 10,757,430 | 8,091,679 | 2,591,890 | ||||||||||||
Foreign currency (cost $356,966, $293,102 and $387,932, respectively) | 356,966 | 293,102 | 388,442 | ||||||||||||
Receivable for investments sold | 28,959,183 | 19,121,755 | — | ||||||||||||
Receivable for Fund shares sold | 10,847,767 | 3,668,931 | 96,462 | ||||||||||||
Tax reclaim receivable | 326,716 | 280,813 | — | ||||||||||||
Prepaid expenses | 95,405 | 30,967 | 32,490 | ||||||||||||
Total Assets: | 5,238,886,288 | 4,264,065,508 | 374,643,169 | ||||||||||||
LIABILITIES: | |||||||||||||||
Payable to Investment Adviser | (4,790,994 | ) | (3,683,849 | ) | (420,478 | ) | |||||||||
Payable for investments purchased | (37,532,853 | ) | (10,120,563 | ) | (790,335 | ) | |||||||||
Payable for Fund shares redeemed | (5,924,478 | ) | (3,438,484 | ) | (348,612 | ) | |||||||||
Payable for distribution fees | — | — | (18,001 | ) | |||||||||||
Deferred capital gains tax | (664,933 | ) | — | (1,068,448 | ) | ||||||||||
Other liabilities | (1,480,384 | ) | (2,085,598 | ) | (161,163 | ) | |||||||||
Total Liabilities | (50,393,642 | ) | (19,328,494 | ) | (2,807,037 | ) | |||||||||
Net Assets | $5,188,492,646 | $4,244,737,014 | $371,836,132 | ||||||||||||
ANALYSIS OF NET ASSETS: | |||||||||||||||
Paid in capital | $4,173,716,697 | $3,124,032,061 | $425,072,432 | ||||||||||||
Distributable earnings | 1,014,775,949 | 1,120,704,953 | (53,236,300 | ) | |||||||||||
Net Assets | $5,188,492,646 | $4,244,737,014 | $371,836,132 | ||||||||||||
Net Assets: | |||||||||||||||
Institutional Class | $4,703,513,950 | $— | $— | ||||||||||||
Institutional Class I | — | — | 167,681,490 | ||||||||||||
Institutional Class II | — | — | 180,698,144 | ||||||||||||
Institutional Class Z | 484,978,696 | — | — | ||||||||||||
Investor Class | — | — | 23,456,498 | ||||||||||||
Advisor Class | — | 4,244,737,014 | — | ||||||||||||
Total Shares Outstanding: | |||||||||||||||
Institutional Class (500,000,000, — and —, respectively, $.001 par value shares authorized) | 217,368,966 | — | — | ||||||||||||
Institutional Class I (—, — and 400,000,000, respectively, $.001 par value shares authorized) | — | — | 20,416,993 | ||||||||||||
Institutional Class II (—, — and 200,000,000, respectively, $.001 par value shares authorized) | — | — | 21,980,834 | ||||||||||||
Institutional Class Z (400,000,000, — and —, respectively, $.001 par value shares authorized) | 22,400,470 | — | — | ||||||||||||
Investor Class (—, — and 400,000,000, respectively, $.001 par value shares authorized) | — | — | 2,869,434 | ||||||||||||
Advisor Class (—, 500,000,000 and —, respectively, $.001 par value shares authorized) | — | 74,870,443 | — | ||||||||||||
Net Asset Value, Offering Price and Redemption Price Per Share: | |||||||||||||||
Institutional Class | $21.64 | $— | $— | ||||||||||||
Institutional Class I | — | — | 8.21 | ||||||||||||
Institutional Class II | — | — | 8.22 | ||||||||||||
Institutional Class Z | 21.65 | — | — | ||||||||||||
Investor Class | — | — | 8.17 | ||||||||||||
Advisor Class | — | 56.69 | — |
See Notes to Financial Statements
41
Table of Contents
Harding, Loevner Funds, Inc.
Statements of Assets and Liabilities (continued)
April 30, 2019 (Unaudited)
Global Equity Research Portfolio | International Research | Emerging Markets Research Portfolio | ||||||||||
ASSETS: | ||||||||||||
Investments (cost $5,661,956, $10,841,084 and $6,463,353, respectively) | $6,736,263 | $12,142,792 | $7,172,414 | |||||||||
Dividends and interest receivable | 15,718 | 44,723 | 15,575 | |||||||||
Foreign currency (cost $426, $680 and $1,612, respectively) | 426 | 679 | 1,611 | |||||||||
Receivable for investments sold | 93,325 | 129,915 | 186,440 | |||||||||
Tax reclaim receivable | 2,880 | 14,776 | 333 | |||||||||
Prepaid offering fees | 218 | — | 819 | |||||||||
Prepaid expenses | 1,253 | 337 | 1,275 | |||||||||
Total Assets: | 6,850,083 | 12,333,222 | 7,378,467 | |||||||||
LIABILITIES: | ||||||||||||
Payable to Investment Adviser | (14,754 | ) | (17,650 | ) | (17,070 | ) | ||||||
Payable for investments purchased | (42,796 | ) | (123,180 | ) | (63,298 | ) | ||||||
Payable for distribution fees | (1,598 | ) | (2,369 | ) | (1,830 | ) | ||||||
Deferred capital gains tax | (1,090 | ) | (984 | ) | (2,480 | ) | ||||||
Other liabilities | (31,338 | ) | (31,440 | ) | (30,506 | ) | ||||||
Total Liabilities | (91,576 | ) | (175,623 | ) | (115,184 | ) | ||||||
Net Assets | $6,758,507 | $12,157,599 | $7,263,283 | |||||||||
ANALYSIS OF NET ASSETS: | ||||||||||||
Paid in capital | $5,505,911 | $10,740,623 | $6,444,039 | |||||||||
Distributable earnings | 1,252,596 | 1,416,976 | 819,244 | |||||||||
Net Assets | $6,758,507 | $12,157,599 | $7,263,283 | |||||||||
Net Assets: | ||||||||||||
Institutional Class | $6,758,507 | $12,157,599 | $7,263,283 | |||||||||
Total Shares Outstanding: | ||||||||||||
Institutional Class (500,000,000, 600,000,000 and 500,000,000, respectively, $.001 par value shares authorized) | 547,553 | 1,024,962 | 629,640 | |||||||||
Net Asset Value, Offering Price and Redemption Price Per Share: | ||||||||||||
Institutional Class | $12.34 | $11.86 | $11.54 |
See Notes to Financial Statements
42
Table of Contents
Harding, Loevner Funds, Inc.
Six Months Ended April 30, 2019 (unaudited)
Global Equity | International Portfolio | International Small Companies Portfolio | Institutional Emerging Markets Portfolio | Emerging Markets Portfolio | ||||||||||||||||
INVESTMENT INCOME | ||||||||||||||||||||
Interest | $— | $— | $250 | $132 | $248 | |||||||||||||||
Dividends (net of foreign withholding taxes of $436,446, $15,011,368, $185,944, $4,265,718 and $3,335,455, respectively) | 5,556,512 | 128,483,003 | 1,862,192 | 33,963,800 | 25,944,401 | |||||||||||||||
Total investment income | 5,556,512 | 128,483,003 | 1,862,442 | 33,963,932 | 25,944,649 | |||||||||||||||
EXPENSES | ||||||||||||||||||||
Investment advisory fees (Note 3) | 3,485,409 | 47,359,771 | 1,102,077 | 26,207,164 | 20,434,728 | |||||||||||||||
Administration fees (Note 3) | 144,369 | 2,263,242 | 35,620 | 756,858 | 587,395 | |||||||||||||||
Distribution fees, Investor Class | — | 512,641 | 70,096 | — | — | |||||||||||||||
Custody and accounting fees (Note 3) | 59,877 | 874,712 | 81,091 | 782,776 | 635,344 | |||||||||||||||
Directors’ fees and expenses | 12,744 | 207,109 | 2,876 | 67,975 | 53,613 | |||||||||||||||
Transfer agent fees and expenses (Note 3) | 12,234 | 230,305 | 7,157 | 33,308 | 262,086 | |||||||||||||||
Printing and postage fees | 16,670 | 413,605 | 9,728 | 124,176 | 169,037 | |||||||||||||||
State registration filing fees | 41,397 | 321,473 | 30,958 | 56,237 | 45,895 | |||||||||||||||
Professional fees | 29,997 | 240,451 | 27,290 | 90,178 | 76,843 | |||||||||||||||
Shareholder servicing fees (Note 3) | 306,233 | 4,816,635 | 126,281 | 1,602,622 | 2,995,438 | |||||||||||||||
Compliance officers’ fees and expenses (Note 3) | 1,381 | 22,468 | 311 | 7,352 | 5,796 | |||||||||||||||
Other fees and expenses | 15,334 | 149,840 | 6,766 | 51,440 | 45,303 | |||||||||||||||
Total Expenses | 4,125,645 | 57,412,252 | 1,500,251 | 29,780,086 | 25,311,478 | |||||||||||||||
Less Waiver of investment advisory fee and/or reimbursement of other operating expenses (Note 3) | — | — | (329,955 | ) | (191,775 | ) | — | |||||||||||||
Net expenses | 4,125,645 | 57,412,252 | 1,170,296 | 29,588,311 | 25,311,478 | |||||||||||||||
Net investment income | 1,430,867 | 71,070,751 | 692,146 | 4,375,621 | 633,171 | |||||||||||||||
REALIZED AND UNREALIZED GAIN (LOSS) | ||||||||||||||||||||
Net realized gain (loss) | ||||||||||||||||||||
Investment transactions | (11,636,997 | ) | (177,480,085 | ) | (7,797,699 | ) | (13,421,939 | ) | 16,393,347 | |||||||||||
Foreign currency transactions | (42,218 | ) | (1,506,650 | ) | (44,673 | ) | (617,200 | ) | (233,816 | ) | ||||||||||
Net realized gain (loss) | (11,679,215 | ) | (178,986,735 | ) | (7,842,372 | ) | (14,039,139 | ) | 16,159,531 | |||||||||||
Change in unrealized appreciation (depreciation) | ||||||||||||||||||||
Investments (net of increase (decrease) in deferred foreign taxes of $—, $—, $(80,540), $662,364 and $—, respectively) | 96,881,681 | 1,431,967,270 | 24,832,769 | 813,468,863 | 603,201,447 | |||||||||||||||
Translation of assets and liabilities denominated in foreign currencies | 7,556 | 47,252 | 1,232 | (52,130 | ) | (52,462 | ) | |||||||||||||
Net change in unrealized appreciation | 96,889,237 | 1,432,014,522 | 24,834,001 | 813,416,733 | 603,148,985 | |||||||||||||||
Net realized and unrealized gain | 85,210,022 | 1,253,027,787 | 16,991,629 | 799,377,594 | 619,308,516 | |||||||||||||||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $86,640,889 | $1,324,098,538 | $17,683,775 | $803,753,215 | $619,941,687 |
See Notes to Financial Statements
43
Table of Contents
Harding, Loevner Funds, Inc.
Statements of Operations (continued)
Six Months Ended April 30, 2019 (unaudited)
Frontier Emerging Markets Portfolio | Global Equity Research Portfolio | International Equity Research Portfolio | Emerging Markets Research Portfolio | |||||||||||||
INVESTMENT INCOME | ||||||||||||||||
Dividends (net of foreign withholding taxes of $762,114, $5,747, $14,433 and $7,026, respectively) | $6,342,401 | $60,648 | $122,621 | $63,242 | ||||||||||||
Total investment income | 6,342,401 | 60,648 | 122,621 | 63,242 | ||||||||||||
EXPENSES | ||||||||||||||||
Investment advisory fees (Note 3) | 2,507,061 | 23,568 | 39,974 | 36,585 | ||||||||||||
Administration fees (Note 3) | 64,380 | 5,940 | 6,702 | 6,022 | ||||||||||||
Distribution fees, Investor Class | 30,182 | 465 | 882 | 471 | ||||||||||||
Custody and accounting fees (Note 3) | 222,490 | 5,043 | 6,122 | 5,791 | ||||||||||||
Directors’ fees and expenses | 5,811 | 98 | 163 | 104 | ||||||||||||
Transfer agent fees and expenses (Note 3) | 12,585 | — | — | — | ||||||||||||
Printing and postage fees | 15,064 | 169 | 306 | 199 | ||||||||||||
State registration filing fees | 33,095 | 30,084 | 27,168 | 30,124 | ||||||||||||
Professional fees | 24,865 | 20,598 | 20,144 | 19,939 | ||||||||||||
Shareholder servicing fees (Note 3) | 102,961 | — | 927 | — | ||||||||||||
Compliance officers’ fees and expenses (Note 3) | 630 | 11 | 18 | 11 | ||||||||||||
Other fees and expenses | 10,334 | 537 | 712 | 547 | ||||||||||||
Total Expenses | 3,029,458 | 86,513 | 103,118 | 99,793 | ||||||||||||
Less Waiver of investment advisory fee and/or reimbursement of other operating expenses (Note 3) | (178,070 | ) | (59,395 | ) | (56,018 | ) | (57,725 | ) | ||||||||
Net expenses | 2,851,388 | 27,118 | 47,100 | 42,068 | ||||||||||||
Net investment income | 3,491,013 | 33,530 | 75,521 | 21,174 | ||||||||||||
REALIZED AND UNREALIZED GAIN (LOSS) | ||||||||||||||||
Net realized gain (loss) | ||||||||||||||||
Investment transactions | (19,205,633 | ) | 149,211 | 58,172 | 107,117 | |||||||||||
Foreign currency transactions | (235,035 | ) | (699 | ) | (1,450 | ) | (2,010 | ) | ||||||||
Net realized gain (loss) | (19,440,668 | ) | 148,512 | 56,722 | 105,107 | |||||||||||
Change in unrealized appreciation (depreciation) | ||||||||||||||||
Investments (net of increase (decrease) in deferred foreign taxes of $(378,681), $778, $1,450 and $2,851, respectively) | 48,243,930 | 557,136 | 1,101,270 | 885,280 | ||||||||||||
Translation of assets and liabilities denominated in foreign currencies | (10,389 | ) | (12 | ) | (125 | ) | (104 | ) | ||||||||
Net change in unrealized appreciation | 48,233,541 | 557,124 | 1,101,145 | 885,176 | ||||||||||||
Net realized and unrealized gain | 28,792,873 | 705,636 | 1,157,867 | 990,283 | ||||||||||||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $32,283,886 | $739,166 | $1,233,388 | $1,011,457 |
See Notes to Financial Statements
44
Table of Contents
Harding, Loevner Funds, Inc.
Statements of Changes in Net Assets
For the Six Months Ended April 30, 2019 (unaudited) and the Fiscal Year Ended October 31, 2018
Global Equity Portfolio | International Equity Portfolio | International Small Companies Portfolio | ||||||||||||||||||||||
April 30, 2019 | October 31, 2018 | April 30, 2019 | October 31, 2018 | April 30, 2019 | October 31, 2018 | |||||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | ||||||||||||||||||||||||
Net investment income | $1,430,867 | $2,880,013 | $71,070,751 | $188,111,334 | $692,146 | $1,684,619 | ||||||||||||||||||
Net realized gain (loss) on investments and foreign currency transactions | (11,679,215 | ) | 84,065,593 | (178,986,735 | ) | (99,614,726 | ) | (7,842,372 | ) | 9,819,784 | ||||||||||||||
Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies | 96,889,237 | (94,344,043 | ) | 1,432,014,522 | (1,198,264,762 | ) | 24,834,001 | (29,991,836 | ) | |||||||||||||||
Net increase (decrease) in net assets resulting from operations | 86,640,889 | (7,398,437 | ) | 1,324,098,538 | (1,109,768,154 | ) | 17,683,775 | (18,487,433 | ) | |||||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS: | ||||||||||||||||||||||||
Institutional Class | (64,234,872 | ) | (75,945,675 | ) | (167,443,933 | ) | (187,967,105 | ) | (8,346,534 | ) | (2,045,986 | ) | ||||||||||||
Institutional Class Z | (15,391,304 | ) | (16,353,510 | ) | (20,898,599 | ) | (3,458,977 | ) | — | — | ||||||||||||||
Investor Class | — | — | (3,656,420 | ) | (7,760,428 | ) | (3,593,042 | ) | (557,242 | ) | ||||||||||||||
Advisor Class | (9,454,856 | ) | (9,422,593 | ) | — | — | — | — | ||||||||||||||||
Total distributions to shareholders | (89,081,032 | ) | (101,721,778 | ) | (191,998,952 | ) | (199,186,510 | ) | (11,939,576 | ) | (2,603,228 | ) | ||||||||||||
TRANSACTIONS IN SHARES OF COMMON STOCK | ||||||||||||||||||||||||
Institutional Class | 58,903,705 | (93,043,196 | ) | 579,929,177 | 1,969,136,424 | (4,796,875 | ) | 21,866,504 | ||||||||||||||||
Institutional Class Z | 53,479,829 | 112,530,952 | 210,513,576 | 1,369,945,673 | — | — | ||||||||||||||||||
Investor Class | — | — | 637,613 | (198,921,542 | ) | 2,135,324 | 13,956,662 | |||||||||||||||||
Advisor Class | 5,256,643 | 28,071,937 | — | — | — | — | ||||||||||||||||||
Net Increase (Decrease) in net assets from portfolio share transactions | 117,640,177 | 47,559,693 | 791,080,366 | 3,140,160,555 | (2,661,551 | ) | 35,823,166 | |||||||||||||||||
NET INCREASE (DECREASE) IN NET ASSETS | 115,200,034 | (61,560,522 | ) | 1,923,179,952 | 1,831,205,891 | 3,082,648 | 14,732,505 | |||||||||||||||||
NET ASSETS | ||||||||||||||||||||||||
At beginning of period | 850,273,413 | 911,833,935 | 13,750,107,577 | 11,918,901,686 | 209,195,014 | 194,462,509 | ||||||||||||||||||
At end of period | $965,473,447 | $850,273,413 | $15,673,287,529 | $13,750,107,577 | $212,277,662 | $209,195,014 | ||||||||||||||||||
See Notes to Financial Statements
45
Table of Contents
Harding, Loevner Funds, Inc.
Statements of Changes in Net Assets (continued)
For the Six Months Ended April 30, 2019 (unaudited) and the Fiscal Year Ended October 31, 2018
Institutional Emerging Markets Portfolio | Emerging Markets Portfolio | Frontier Emerging Markets Portfolio | ||||||||||||||||||||||
April 30, 2019 | October 31, 2018 | April 30, 2019 | October 31, 2018 | April 30, 2019 | October 31, 2018 | |||||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | ||||||||||||||||||||||||
Net investment income | $4,375,621 | $43,560,880 | $633,171 | $30,475,892 | $3,491,013 | $6,303,168 | ||||||||||||||||||
Net realized gain (loss) on investments and foreign currency transactions | (14,039,139 | ) | (67,093,355 | ) | 16,159,531 | (11,468,128 | ) | (19,440,668 | ) | 9,478,438 | ||||||||||||||
Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies | 813,416,733 | (776,222,456 | ) | 603,148,985 | (665,366,341 | ) | 48,233,541 | (55,969,791 | ) | |||||||||||||||
Net increase (decrease) in net assets resulting from operations | 803,753,215 | (799,754,931 | ) | 619,941,687 | (646,358,577 | ) | 32,283,886 | (40,188,185 | ) | |||||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS: | ||||||||||||||||||||||||
Institutional Class | (37,840,246 | ) | (34,875,251 | )* | — | — | — | — | ||||||||||||||||
Institutional Class I | — | — | — | — | (2,317,415 | ) | (5,147,342 | ) | ||||||||||||||||
Institutional Class II | — | — | — | — | (2,370,233 | ) | (3,499,694 | ) | ||||||||||||||||
Institutional Class Z | (4,685,232 | ) | (3,886,186 | )** | — | — | — | — | ||||||||||||||||
Investor Class | — | — | — | — | (193,925 | ) | (491,328 | ) | ||||||||||||||||
Advisor Class | — | — | (29,768,360 | ) | (30,340,225 | ) | — | — | ||||||||||||||||
Total distributions to shareholders | (42,525,478 | ) | (38,761,437 | ) | (29,768,360 | ) | (30,340,225 | ) | (4,881,573 | ) | (9,138,364 | ) | ||||||||||||
TRANSACTIONS IN SHARES OF COMMON STOCK | ||||||||||||||||||||||||
Institutional Class | 35,013,875 | 355,101,774* | — | — | — | — | ||||||||||||||||||
Institutional Class I | — | — | — | — | (65,040,318 | ) | (19,849,297 | ) | ||||||||||||||||
Institutional Class II | — | — | — | — | 3,869,428 | 16,504,134 | ||||||||||||||||||
Institutional Class Z | 22,346,617 | 8,520,318** | — | — | — | — | ||||||||||||||||||
Investor Class | — | — | — | — | (3,943,118 | ) | (2,303,970 | ) | ||||||||||||||||
Advisor Class | — | — | 195,406,676 | 120,879,281 | — | — | ||||||||||||||||||
Net Increase (Decrease) in net assets from portfolio share transactions | 57,360,492 | 363,622,092 | 195,406,676 | 120,879,281 | (65,114,008 | ) | (5,649,133 | ) | ||||||||||||||||
NET INCREASE (DECREASE) IN NET ASSETS | 818,588,229 | (474,894,276 | ) | 785,580,003 | (555,819,521 | ) | (37,711,695 | ) | (54,975,682 | ) | ||||||||||||||
NET ASSETS | ||||||||||||||||||||||||
At beginning of period | 4,369,904,417 | 4,844,798,693 | 3,459,157,011 | 4,014,976,532 | 409,547,827 | 464,523,509 | ||||||||||||||||||
At end of period | $5,188,492,646 | $4,369,904,417 | $4,244,737,014 | $3,459,157,011 | $371,836,132 | $409,547,827 | ||||||||||||||||||
* | Formerly Class I |
** | Formerly Class II |
See Notes to Financial Statements
46
Table of Contents
Harding, Loevner Funds, Inc.
Statements of Changes in Net Assets (continued)
For the Six Months Ended April 30, 2019 (unaudited) and the Fiscal Year Ended October 31, 2018
Global Equity Research Portfolio | International Equity Research Portfolio | Emerging Markets Research Portfolio | ||||||||||||||||||||||
April 30, 2019 | October 31, 2018 | April 30, 2019 | October 31, 2018 | April 30, 2019 | October 31, 2018 | |||||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | ||||||||||||||||||||||||
Net investment income | $33,530 | $45,926 | $75,521 | $116,795 | $21,174 | $63,243 | ||||||||||||||||||
Net realized gain on investments and foreign currency transactions | 148,512 | 468,654 | 56,722 | 693,010 | 105,107 | 449,129 | ||||||||||||||||||
Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies | 557,124 | (356,645 | ) | 1,101,145 | (1,542,490 | ) | 885,176 | (1,254,653 | ) | |||||||||||||||
Net increase (decrease) in net assets resulting from operations | 739,166 | 157,935 | 1,233,388 | (732,685 | ) | 1,011,457 | (742,281 | ) | ||||||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS: | ||||||||||||||||||||||||
Institutional Class | (466,964 | ) | (219,334 | ) | (728,939 | ) | (531,221 | ) | (473,739 | ) | (435,447 | ) | ||||||||||||
Investor Class | (48,022 | ) | (22,701 | ) | (85,106 | ) | (63,122 | ) | (45,469 | ) | (45,523 | ) | ||||||||||||
Total distributions to shareholders | (514,986 | ) | (242,035 | ) | (814,045 | ) | (594,343 | ) | (519,208 | ) | (480,970 | ) | ||||||||||||
TRANSACTIONS IN SHARES OF COMMON STOCK | ||||||||||||||||||||||||
Institutional Class | 1,067,714 | 219,158 | 2,404,294 | 1,018,199 | 1,079,554 | 935,446 | ||||||||||||||||||
Investor Class* | (547,728 | ) | 22,877 | (1,044,839 | ) | 84,604 | (560,346 | ) | 45,523 | |||||||||||||||
Net Increase in net assets from portfolio share transactions | 519,986 | 242,035 | 1,359,455 | 1,102,803 | 519,208 | 980,969 | ||||||||||||||||||
NET INCREASE (DECREASE) IN NET ASSETS | 744,166 | 157,935 | 1,778,798 | (224,225 | ) | 1,011,457 | (242,282 | ) | ||||||||||||||||
NET ASSETS | ||||||||||||||||||||||||
At beginning of period | 6,014,341 | 5,856,406 | 10,378,801 | 10,603,026 | 6,251,826 | 6,494,108 | ||||||||||||||||||
At end of period | $6,758,507 | $6,014,341 | $12,157,599 | $10,378,801 | $7,263,283 | $6,251,826 | ||||||||||||||||||
* | Effective March 1, 2019, the Investor Class shares of the Global Equity Research, International Equity Research and Emerging Markets Research Portfolios were closed and their balances were transferred to the Institutional Class (See Notes 6). |
See Notes to Financial Statements
47
Table of Contents
Harding, Loevner Funds, Inc.
For the Six Months Ended April 30, 2019 (unaudited) or the Fiscal Year Ended October 31
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | DISTRIBUTIONS TO SHAREHOLDERS FROM: | RATIOS/SUPPLEMENTAL DATA: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | Net investment income (loss)(1) | Net realized and unrealized on investments and foreign currency- | Net increase (decrease) from investment operations | Net investment income | Net realized gain from investments | Total distributions | Net asset value, end of period | Total Return | Net assets, end of period (000’s) | Expenses to average net assets | Expenses to average net assets (net of fees waived/ reimbursed) | Net investment average net assets | Portfolio turnover rate | |||||||||||||||||||||||||||||||||||||||||
Global Equity Portfolio–Institutional Class |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | $35.68 | $0.06 | $2.86 | $2.92 | $(0.12 | ) | $(3.72 | ) | $(3.84 | ) | $34.76 | 9.90 | (A)% | $ 673,193 | 0.93 | (B)% | 0.93 | (B)% | 0.34 | (B)% | 18 | (A)% | ||||||||||||||||||||||||||||||||
10/31/18 | 40.84 | 0.13 | (0.13 | ) | — | (0.14 | ) | (5.02 | ) | (5.16 | ) | 35.68 | (0.35 | ) | 619,347 | 0.94 | 0.94 | 0.34 | 42 | |||||||||||||||||||||||||||||||||||
10/31/17 | 32.53 | 0.09 | 8.74 | 8.83 | (0.13 | ) | (0.39 | ) | (0.52 | ) | 40.84 | 27.58 | 790,097 | 0.93 | 0.93 | 0.25 | 33 | |||||||||||||||||||||||||||||||||||||
10/31/16 | 32.44 | 0.13 | 0.92 | 1.05 | (0.12 | ) | (0.84 | ) | (0.96 | ) | 32.53 | 3.43 | 779,020 | 0.92 | 0.92 | 0.42 | 24 | |||||||||||||||||||||||||||||||||||||
10/31/15 | 32.98 | 0.13 | 0.68 | 0.81 | (0.12 | ) | (1.23 | ) | (1.35 | ) | 32.44 | 2.51 | 805,291 | 0.92 | 0.92 | 0.41 | 45 | |||||||||||||||||||||||||||||||||||||
10/31/14 | 29.84 | 0.13 | 3.27 | 3.40 | (0.13 | ) | (0.13 | ) | (0.26 | ) | 32.98 | 11.47 | 731,897 | 0.97 | 0.95 | 0.43 | 30 | |||||||||||||||||||||||||||||||||||||
Global Equity Portfolio–Institutional Class Z |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | 35.67 | 0.07 | 2.85 | 2.92 | (0.14 | ) | (3.72 | ) | (3.86 | ) | 34.73 | 9.90 | (A) | 196,278 | 0.89 | (B) | 0.89 | (B) | 0.40 | (B) | 18 | (A) | ||||||||||||||||||||||||||||||||
10/31/18 | 40.84 | 0.17 | (0.15 | ) | 0.02 | (0.17 | ) | (5.02 | ) | (5.19 | ) | 35.67 | (0.26 | ) | 140,359 | 0.91 | 0.90 | 0.43 | 42 | |||||||||||||||||||||||||||||||||||
10/31/17(2)(3) | 39.33 | (0.01 | ) | 1.52 | 1.51 | — | — | — | 40.84 | 3.80 | (A) | 46,493 | 1.21 | (B) | 0.90 | (B) | (0.05 | )(B) | 33 | (A) | ||||||||||||||||||||||||||||||||||
Global Equity Portfolio–Advisor Class |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | 35.60 | 0.02 | 2.86 | 2.88 | (0.04 | ) | (3.72 | ) | (3.76 | ) | 34.72 | 9.77 | (A) | 96,002 | 1.13 | (B) | 1.13 | (B) | 0.13 | (B) | 18 | (A) | ||||||||||||||||||||||||||||||||
10/31/18 | 40.78 | 0.07 | (0.15 | ) | (0.08 | ) | (0.08 | ) | (5.02 | ) | (5.10 | ) | 35.60 | (0.57 | ) | 90,567 | 1.14 | 1.14 | 0.18 | 42 | ||||||||||||||||||||||||||||||||||
10/31/17 | 32.47 | 0.01 | 8.73 | 8.74 | (0.04 | ) | (0.39 | ) | (0.43 | ) | 40.78 | 27.28 | 75,244 | 1.14 | 1.14 | 0.02 | 33 | |||||||||||||||||||||||||||||||||||||
10/31/16 | 32.38 | 0.05 | 0.91 | 0.96 | (0.03 | ) | (0.84 | ) | (0.87 | ) | 32.47 | 3.12 | 56,698 | 1.19 | 1.19 | 0.15 | 24 | |||||||||||||||||||||||||||||||||||||
10/31/15 | 32.92 | 0.04 | 0.68 | 0.72 | (0.03 | ) | (1.23 | ) | (1.26 | ) | 32.38 | 2.28 | 64,726 | 1.18 | 1.18 | 0.13 | 45 | |||||||||||||||||||||||||||||||||||||
10/31/14 | 29.80 | 0.05 | 3.27 | 3.32 | (0.07 | ) | (0.13 | ) | (0.20 | ) | 32.92 | 11.19 | 81,507 | 1.20 | 1.20 | 0.16 | 30 | |||||||||||||||||||||||||||||||||||||
International Equity Portfolio–Institutional Class |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | 20.74 | 0.10 | 1.80 | 1.90 | (0.29 | ) | — | (0.29 | ) | 22.35 | 9.38 | (A) | 13,551,527 | 0.81 | (B) | 0.81 | (B) | 1.01 | (B) | 25 | (A) | |||||||||||||||||||||||||||||||||
10/31/18 | 22.64 | 0.31 | (1.83 | ) | (1.52 | ) | (0.20 | ) | (0.18 | ) | (0.38 | ) | 20.74 | (6.86 | ) | 11,995,592 | 0.81 | 0.81 | 1.34 | 10 | ||||||||||||||||||||||||||||||||||
10/31/17 | 18.37 | 0.23 | 4.22 | 4.45 | (0.18 | ) | — | (0.18 | ) | 22.64 | 24.47 | 11,107,736 | 0.82 | 0.82 | 1.22 | 12 | ||||||||||||||||||||||||||||||||||||||
10/31/16 | 17.69 | 0.21 | 0.64 | 0.85 | (0.17 | ) | — | (0.17 | ) | 18.37 | 4.91 | 6,354,810 | 0.84 | 0.84 | 1.20 | 22 | ||||||||||||||||||||||||||||||||||||||
10/31/15 | 18.30 | 0.20 | (0.63 | ) | (0.43 | ) | (0.18 | ) | — | (0.18 | ) | 17.69 | (2.40 | ) | 4,591,802 | 0.85 | 0.85 | 1.11 | 12 | |||||||||||||||||||||||||||||||||||
10/31/14 | 17.97 | 0.18 | 0.29 | 0.47 | (0.14 | ) | — | (0.14 | ) | 18.30 | 2.65 | 3,819,491 | 0.87 | 0.87 | 1.01 | 10 | ||||||||||||||||||||||||||||||||||||||
International Equity Portfolio–Institutional Class Z |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | 20.75 | 0.11 | 1.79 | 1.90 | (0.31 | ) | — | (0.31 | ) | 22.34 | 9.43 | (A) | 1,676,157 | 0.75 | (B) | 0.75 | (B) | 1.09 | (B) | 25 | (A) | |||||||||||||||||||||||||||||||||
10/31/18 | 22.64 | 0.40 | (1.90 | ) | (1.50 | ) | (0.21 | ) | (0.18 | ) | (0.39 | ) | 20.75 | (6.79 | ) | 1,342,804 | 0.74 | 0.74 | 1.77 | 10 | ||||||||||||||||||||||||||||||||||
10/31/17(3)(4) | 21.35 | 0.02 | 1.27 | 1.29 | — | — | — | 22.64 | 6.00 | (A) | 166,923 | 0.99 | (B) | 0.80 | (B) | 0.33 | (B) | 12 | (A) | |||||||||||||||||||||||||||||||||||
International Equity Portfolio–Investor Class |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | 20.65 | 0.07 | 1.79 | 1.86 | (0.19 | ) | — | (0.19 | ) | 22.32 | 9.13 | (A) | 445,604 | 1.15 | (B) | 1.15 | (B) | 0.66 | (B) | 25 | (A) | |||||||||||||||||||||||||||||||||
10/31/18 | 22.55 | 0.21 | (1.80 | ) | (1.59 | ) | (0.13 | ) | (0.18 | ) | (0.31 | ) | 20.65 | (7.16 | ) | 411,712 | 1.14 | 1.14 | 0.92 | 10 | ||||||||||||||||||||||||||||||||||
10/31/17 | 18.30 | 0.19 | 4.18 | 4.37 | (0.12 | ) | — | (0.12 | ) | 22.55 | 24.04 | 644,243 | 1.14 | 1.14 | 0.95 | 12 | ||||||||||||||||||||||||||||||||||||||
10/31/16 | 17.62 | 0.14 | 0.66 | 0.80 | (0.12 | ) | — | (0.12 | ) | 18.30 | 4.63 | 433,765 | 1.15 | 1.15 | 0.83 | 22 | ||||||||||||||||||||||||||||||||||||||
10/31/15 | 18.23 | 0.15 | (0.64 | ) | (0.49 | ) | (0.12 | ) | — | (0.12 | ) | 17.62 | (2.76 | ) | 405,101 | 1.17 | 1.17 | 0.83 | 12 | |||||||||||||||||||||||||||||||||||
10/31/14 | 17.89 | 0.13 | 0.29 | 0.42 | (0.08 | ) | — | (0.08 | ) | 18.23 | 2.36 | 443,029 | 1.17 | 1.17 | 0.72 | 10 |
(A) | Not Annualized. |
(B) | Annualized. |
(1) | Net investment income per share was calculated using the average shares outstanding method. |
(2) | For the period from August 1, 2017 (commencement of class operations) through October 31, 2017. |
(3) | All per share amounts and net asset values have been adjusted as a result of the reverse share split effected after the close of business on December 1, 2017. (See Note 1). |
(4) | For the period from July 17, 2017 (commencement of class operations) through October 31, 2017. |
See Notes to Financial Statements
48
Table of Contents
Harding, Loevner Funds, Inc.
Financial Highlights (continued)
For the Six Months Ended April 30, 2019 (unaudited) or the Fiscal Year Ended October 31
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | DISTRIBUTIONS TO SHAREHOLDERS FROM: | RATIOS/SUPPLEMENTAL DATA: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | Net investment income (loss)(1) | Net realized and unrealized on investments and foreign currency- | Net increase (decrease) from investment operations | Net investment income | Net realized gain from investments | Total distributions | Net asset value, end of period | Total Return | Net assets, end of period (000’s) | Expenses to average net assets | Expenses to average net assets (net of fees waived/ reimbursed) | Net investment average net assets | Portfolio turnover rate | |||||||||||||||||||||||||||||||||||||||||||
International Small Companies Portfolio–Institutional Class |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | $15.29 | $ 0.06 | $ 1.23 | $ 1.29 | $(0.13 | ) | $(0.88 | ) | $(1.01 | ) | $15.57 | 9.65 | (A)% | $ 150,595 | 1.48 | (B)% | 1.15 | (B)% | 0.80 | (B)% | 21 | (A)% | ||||||||||||||||||||||||||||||||||
10/31/18 | 16.67 | 0.13 | (1.30 | ) | (1.17 | ) | (0.06 | ) | (0.15 | ) | (0.21 | ) | 15.29 | (7.15 | ) | 151,283 | 1.39 | 1.15 | 0.75 | 52 | ||||||||||||||||||||||||||||||||||||
10/31/17 | 13.72 | 0.11 | 3.41 | 3.52 | (0.16 | ) | (0.41 | ) | (0.57 | ) | 16.67 | 26.98 | 144,170 | 1.41 | 1.15 | 0.72 | 19 | |||||||||||||||||||||||||||||||||||||||
10/31/16 | 13.40 | 0.20 | 0.34 | 0.54 | (0.09 | ) | (0.13 | ) | (0.22 | ) | 13.72 | 4.15 | 62,785 | 1.60 | 1.25 | 1.51 | 49 | |||||||||||||||||||||||||||||||||||||||
10/31/15 | 13.85 | 0.11 | (0.25 | ) | (0.14 | ) | (0.05 | ) | (0.26 | ) | (0.31 | ) | 13.40 | (0.98 | ) | 47,276 | 1.64 | 1.30 | 0.79 | 38 | ||||||||||||||||||||||||||||||||||||
10/31/14 | 14.47 | 0.08 | 0.23 | 0.31 | (0.06 | ) | (0.87 | ) | (0.93 | ) | 13.85 | 2.28 | 28,711 | 1.59 | 1.30 | 0.58 | 36 | |||||||||||||||||||||||||||||||||||||||
International Small Companies Portfolio–Investor Class |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | 15.16 | 0.04 | 1.21 | 1.25 | (0.10 | ) | (0.88 | ) | (0.98 | ) | 15.43 | 9.47 | (A) | 61,683 | 1.77 | (B) | 1.40 | (B) | 0.53 | (B) | 21 | (A) | ||||||||||||||||||||||||||||||||||
10/31/18 | 16.55 | 0.10 | (1.29 | ) | (1.19 | ) | (0.05 | ) | (0.15 | ) | (0.20 | ) | 15.16 | (7.35 | ) | 57,912 | 1.75 | 1.40 | 0.58 | 52 | ||||||||||||||||||||||||||||||||||||
10/31/17 | 13.64 | 0.05 | 3.42 | 3.47 | (0.15 | ) | (0.41 | ) | (0.56 | ) | 16.55 | 26.71 | 50,292 | 1.80 | 1.40 | 0.37 | 19 | |||||||||||||||||||||||||||||||||||||||
10/31/16 | 13.33 | 0.16 | 0.35 | 0.51 | (0.07 | ) | (0.13 | ) | (0.20 | ) | 13.64 | 3.92 | 44,363 | 1.90 | 1.50 | 1.18 | 49 | |||||||||||||||||||||||||||||||||||||||
10/31/15 | 13.80 | 0.08 | (0.26 | ) | (0.18 | ) | (0.03 | ) | (0.26 | ) | (0.29 | ) | 13.33 | (1.29 | ) | 50,164 | 1.93 | 1.55 | 0.58 | 38 | ||||||||||||||||||||||||||||||||||||
10/31/14 | 14.45 | 0.05 | 0.22 | 0.27 | (0.05 | ) | (0.87 | ) | (0.92 | ) | 13.80 | 1.97 | 62,828 | 1.88 | 1.55 | 0.32 | 36 | |||||||||||||||||||||||||||||||||||||||
Institutional Emerging Markets Portfolio–Institutional Class (Formerly Class I) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | 18.43 | 0.02 | 3.37 | 3.39 | (0.18 | ) | — | (0.18 | ) | 21.64 | 18.57 | (A) | 4,703,514 | 1.27 | (B) | 1.27 | (B) | 0.17 | (B) | 12 | (A) | |||||||||||||||||||||||||||||||||||
10/31/18 | 21.94 | 0.19 | (3.53 | ) | (3.34 | ) | (0.17 | ) | — | (0.17 | ) | 18.43 | (15.33 | ) | 3,978,321 | 1.27 | 1.27 | 0.84 | 24 | |||||||||||||||||||||||||||||||||||||
10/31/17 | 17.65 | 0.19 | 4.20 | 4.39 | (0.10 | ) | — | (0.10 | ) | 21.94 | 25.08 | 4,386,511 | 1.28 | 1.28 | 0.97 | 17 | ||||||||||||||||||||||||||||||||||||||||
10/31/16 | 16.04 | 0.14 | 1.56 | 1.70 | (0.09 | ) | — | (0.09 | ) | 17.65 | 10.74 | 3,051,419 | 1.29 | 1.29 | 0.88 | 20 | ||||||||||||||||||||||||||||||||||||||||
10/31/15 | 18.60 | 0.13 | (2.56 | ) | (2.43 | ) | (0.13 | ) | — | (0.13 | ) | 16.04 | (13.14 | ) | 1,876,495 | 1.31 | 1.30 | 0.77 | 23 | |||||||||||||||||||||||||||||||||||||
10/31/14 | 18.07 | 0.20 | 0.48 | 0.68 | (0.15 | ) | — | (0.15 | ) | 18.60 | 3.80 | 1,521,194 | 1.31 | 1.30 | 1.12 | 26 | ||||||||||||||||||||||||||||||||||||||||
Institutional Emerging Markets Portfolio–Institutional Class Z (Formerly Class II) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | 18.45 | 0.03 | 3.37 | 3.40 | (0.20 | ) | — | (0.20 | ) | 21.65 | 18.64 | (A) | 484,979 | 1.20 | (B) | 1.12 | (B) | 0.32 | (B) | 12 | (A) | |||||||||||||||||||||||||||||||||||
10/31/18 | 21.94 | 0.22 | (3.52 | ) | (3.30 | ) | (0.19 | ) | — | (0.19 | ) | 18.45 | (15.21 | ) | 391,583 | 1.20 | 1.11 | 1.00 | 24 | |||||||||||||||||||||||||||||||||||||
10/31/17(2) | 17.71 | 0.22 | 4.21 | 4.43 | (0.20 | ) | — | (0.20 | ) | 21.94 | 25.43 | 458,288 | 1.23 | 1.12 | 1.12 | 17 | ||||||||||||||||||||||||||||||||||||||||
10/31/16(2) | 16.14 | 0.16 | 1.59 | 1.75 | (0.18 | ) | — | (0.18 | ) | 17.71 | 11.06 | 381,031 | 1.24 | 1.13 | 0.96 | 20 | ||||||||||||||||||||||||||||||||||||||||
10/31/15(2) | 18.81 | 0.16 | (2.60 | ) | (2.44 | ) | (0.23 | ) | — | (0.23 | ) | 16.14 | (13.06 | ) | 241,425 | 1.27 | 1.14 | 0.96 | 23 | |||||||||||||||||||||||||||||||||||||
10/31/14(2)(3) | 17.58 | 0.17 | 1.06 | 1.23 | — | — | — | 18.81 | 7.00 | (A) | 194,477 | 1.30 | (B) | 1.14 | (B) | 1.36 | (B) | 26 | (A) |
(A) | Not Annualized. |
(B) | Annualized. |
(1) | Net investment income per share was calculated using the average shares outstanding method. |
(2) | All per share amounts and net asset values have been adjusted as a result of the reverse share split effected after the close of business on December 1, 2017. (See Note 1). |
(3) | For the period from March 5, 2014 (commencement of class operations) through October 31, 2014. |
See Notes to Financial Statements
49
Table of Contents
Harding, Loevner Funds, Inc.
Financial Highlights (continued)
For the Six Months Ended April 30, 2019 (unaudited) or the Fiscal Year Ended October 31
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | DISTRIBUTIONS TO SHAREHOLDERS FROM: | RATIOS/SUPPLEMENTAL DATA: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | Net investment income (loss)(1) | Net realized and unrealized on investments and foreign currency- | Net increase (decrease) from investment operations | Net investment income | Net realized gain from investments | Total distributions | Net asset value, end of period | Total Return | Net assets, end of period (000’s) | Expenses to average net assets | Expenses to average net assets (net of fees waived/ reimbursed) | Net investment average net assets | Portfolio turnover rate | |||||||||||||||||||||||||||||||||||||||||||
Emerging Markets Portfolio–Advisor Class |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | $48.21 | $ 0.01 | $ 8.89 | $ 8.90 | $(0.42 | ) | $ — | $(0.42 | ) | $56.69 | 18.64 | (A)% | $ 4,244,737 | 1.39 | (B)% | 1.39 | (B)% | 0.03 | (B)% | 12 | (A)% | |||||||||||||||||||||||||||||||||||
10/31/18 | 57.46 | 0.42 | (9.24 | ) | (8.82 | ) | (0.40 | ) | (0.03 | ) | (0.43 | ) | 48.21 | (15.47 | ) | 3,459,157 | 1.40 | 1.40 | 0.73 | 24 | ||||||||||||||||||||||||||||||||||||
10/31/17 | 46.27 | 0.43 | 11.02 | 11.45 | (0.26 | ) | — | (0.26 | ) | 57.46 | 24.93 | 4,014,977 | 1.42 | 1.42 | 0.84 | 17 | ||||||||||||||||||||||||||||||||||||||||
10/31/16 | 42.02 | 0.30 | 4.17 | 4.47 | (0.22 | ) | — | (2) | (0.22 | ) | 46.27 | 10.73 | 2,998,484 | 1.42 | 1.42 | 0.72 | 26 | |||||||||||||||||||||||||||||||||||||||
10/31/15 | 50.88 | 0.26 | (6.80 | ) | (6.54 | ) | (0.39 | ) | (1.93 | ) | (2.32 | ) | 42.02 | (13.17 | ) | 2,381,671 | 1.45 | 1.45 | 0.57 | 30 | ||||||||||||||||||||||||||||||||||||
10/31/14 | 50.76 | 0.49 | 1.32 | 1.81 | (0.40 | ) | (1.29 | ) | (1.69 | ) | 50.88 | 3.79 | 2,545,517 | 1.45 | 1.45 | 0.98 | 28 | |||||||||||||||||||||||||||||||||||||||
Frontier Emerging Markets Portfolio–Institutional Class I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | 7.62 | 0.06 | 0.63 | 0.69 | (0.10 | ) | — | (0.10 | ) | 8.21 | 9.04 | (A) | 167,681 | 1.65 | (B) | 1.65 | (B) | 1.66 | (B) | 10 | (A) | |||||||||||||||||||||||||||||||||||
10/31/18 | 8.50 | 0.11 | (0.82 | ) | (0.71 | ) | (0.17 | ) | — | (0.17 | ) | 7.62 | (8.47 | ) | 220,367 | 1.62 | 1.62 | 1.24 | 20 | |||||||||||||||||||||||||||||||||||||
10/31/17 | 7.35 | 0.05 | 1.17 | 1.22 | (0.07 | ) | — | (0.07 | ) | 8.50 | 16.82 | 266,844 | 1.71 | 1.71 | 0.69 | 28 | ||||||||||||||||||||||||||||||||||||||||
10/31/16 | 7.62 | 0.10 | (0.29 | ) | (0.19 | ) | (0.08 | ) | — | (0.08 | ) | 7.35 | (2.43 | ) | 342,114 | 1.79 | 1.79 | 1.41 | 47 | |||||||||||||||||||||||||||||||||||||
10/31/15 | 9.50 | 0.11 | (1.84 | ) | (1.73 | ) | (0.05 | ) | (0.10 | ) | (0.15 | ) | 7.62 | (18.35 | ) | 451,646 | 1.79 | 1.79 | 1.29 | 38 | ||||||||||||||||||||||||||||||||||||
10/31/14 | 8.46 | 0.09 | 0.97 | 1.06 | (0.02 | ) | — | (0.02 | ) | 9.50 | 12.60 | 474,838 | 1.77 | 1.77 | 1.01 | 37 | ||||||||||||||||||||||||||||||||||||||||
Frontier Emerging Markets Portfolio–Institutional Class II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | 7.63 | 0.09 | 0.61 | 0.70 | (0.11 | ) | — | (0.11 | ) | 8.22 | 9.33 | (A) | 180,698 | 1.55 | (B) | 1.35 | (B) | 2.18 | (B) | 10 | (A) | |||||||||||||||||||||||||||||||||||
10/31/18 | 8.50 | 0.14 | (0.83 | ) | (0.69 | ) | (0.18 | ) | — | (0.18 | ) | 7.63 | (8.31 | ) | 163,794 | 1.56 | 1.35 | 1.51 | 20 | |||||||||||||||||||||||||||||||||||||
10/31/17(3)(4) | 7.43 | 0.08 | 0.99 | 1.07 | — | — | — | 8.50 | 14.40 | (A) | 166,698 | 1.58 | (B) | 1.35 | (B) | 1.47 | (B) | 28 | (A) | |||||||||||||||||||||||||||||||||||||
Frontier Emerging Markets Portfolio–Investor Class |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | 7.57 | 0.05 | 0.61 | 0.66 | (0.06 | ) | — | (0.06 | ) | 8.17 | 8.84 | (A) | 23,456 | 2.06 | (B) | 2.00 | (B) | 1.36 | (B) | 10 | (A) | |||||||||||||||||||||||||||||||||||
10/31/18 | 8.43 | 0.07 | (0.79 | ) | (0.72 | ) | (0.14 | ) | — | (0.14 | ) | 7.57 | (8.75 | ) | 25,388 | 2.06 | 2.00 | 0.87 | 20 | |||||||||||||||||||||||||||||||||||||
10/31/17 | 7.28 | 0.04 | 1.15 | 1.19 | (0.04 | ) | — | (0.04 | ) | 8.43 | 16.40 | 30,981 | 2.13 | 2.00 | 0.48 | 28 | ||||||||||||||||||||||||||||||||||||||||
10/31/16 | 7.55 | 0.07 | (0.30 | ) | (0.23 | ) | (0.04 | ) | — | (0.04 | ) | 7.28 | (3.01 | ) | 32,771 | 2.23 | 2.23 | 1.02 | 47 | |||||||||||||||||||||||||||||||||||||
10/31/15 | 9.41 | 0.06 | (1.80 | ) | (1.74 | ) | (0.02 | ) | (0.10 | ) | (0.12 | ) | 7.55 | (18.64 | ) | 45,622 | 2.20 | 2.20 | 0.75 | 38 | ||||||||||||||||||||||||||||||||||||
10/31/14 | 8.40 | 0.04 | 0.98 | 1.02 | (0.01 | ) | — | (0.01 | ) | 9.41 | 12.15 | 78,712 | 2.22 | 2.22 | 0.38 | 37 | ||||||||||||||||||||||||||||||||||||||||
Global Equity Research Portfolio–Institutional Class |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | 12.06 | 0.07 | 1.24 | 1.31 | (0.09 | ) | (0.94 | ) | (1.03 | ) | 12.34 | 12.26 | (A) | 6,759 | 2.14 | (B) | 0.86 | (B) | 1.15 | (B) | 22 | (A) | ||||||||||||||||||||||||||||||||||
10/31/18 | 12.23 | 0.10 | 0.23 | 0.33 | (0.18 | ) | (0.32 | ) | (0.50 | ) | 12.06 | 2.74 | 5,452 | 2.64 | 0.90 | 0.76 | 45 | |||||||||||||||||||||||||||||||||||||||
10/31/17(5) | 10.00 | 0.08 | 2.15 | 2.23 | — | — | — | 12.23 | 22.30 | (A) | 5,308 | 3.49 | (B) | 0.90 | (B) | 0.80 | (B) | 36 | (A) |
(A) | Not Annualized. |
(B) | Annualized. |
(1) | Net investment income per share was calculated using the average shares outstanding method. |
(2) | Amount was less than $0.005 per share. |
(3) | For the period from March 1, 2017 (commencement of class operations) through October 31, 2017. |
(4) | All per share amounts and net asset values have been adjusted as a result of the share dividend effected after the close of business on December 1, 2017. (See Note 1). |
(5) | For the period from December 19, 2016 (commencement of class operations) through October 31, 2017. |
See Notes to Financial Statements
50
Table of Contents
Harding, Loevner Funds, Inc.
Financial Highlights (continued)
For the Six Months Ended April 30, 2019 (unaudited) or the Fiscal Year Ended October 31
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | DISTRIBUTIONS TO SHAREHOLDERS FROM: | RATIOS/SUPPLEMENTAL DATA: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | Net investment income (loss)(1) | Net realized and unrealized on investments and foreign currency- | Net increase (decrease) from investment operations | Net investment income | Net realized gain from investments | Total distributions | Net asset value, end of period | Total Return | Net assets, end of period (000’s) | Expenses to average net assets | Expenses to average net assets (net of fees waived/ reimbursed) | Net investment average net assets | Portfolio turnover rate | |||||||||||||||||||||||||||||||||||||||||||||||
International Equity Research Portfolio–Institutional Class |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | $11.59 | $ 0.08 | $ 1.10 | $ 1.18 | $(0.13 | ) | $(0.78 | ) | $(0.91 | ) | $11.86 | 11.33 | (A)% | $ | 12,158 | 1.52 | (B)% | 0.84 | (B)% | 1.48 | (B)% | 19 | (A)% | |||||||||||||||||||||||||||||||||||||
10/31/18 | 13.11 | 0.14 | (0.93 | ) | (0.79 | ) | (0.14 | ) | (0.59 | ) | (0.73 | ) | 11.59 | (6.43 | ) | 9,305 | 1.78 | 0.90 | 1.07 | 43 | ||||||||||||||||||||||||||||||||||||||||
10/31/17 | 11.10 | 0.12 | 2.26 | 2.38 | (0.17 | ) | (0.20 | ) | (0.37 | ) | 13.11 | 22.26 | 9,479 | 2.26 | 0.90 | 0.99 | 55 | |||||||||||||||||||||||||||||||||||||||||||
10/31/16(2) | 10.00 | 0.14 | 0.96 | 1.10 | — | — | — | 11.10 | 11.00 | (A) | 6,244 | 3.54 | (B) | 0.90 | (B) | 1.51 | (B) | 33 | (A) | |||||||||||||||||||||||||||||||||||||||||
Emerging Markets Research Portfolio–Institutional Class |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
04/30/19 | 10.82 | 0.04 | 1.58 | 1.62 | (0.09 | ) | (0.81 | ) | (0.90 | ) | 11.54 | 16.26 | (A) | 7,263 | 2.38 | (B) | 1.24 | (B) | 0.68 | (B) | 22 | (A) | ||||||||||||||||||||||||||||||||||||||
10/31/18 | 13.01 | 0.12 | (1.34 | ) | (1.22 | ) | (0.23 | ) | (0.74 | ) | (0.97 | ) | 10.82 | (10.24 | ) | 5,702 | 2.90 | 1.30 | 0.93 | 55 | ||||||||||||||||||||||||||||||||||||||||
10/31/17(3) | 10.00 | 0.10 | 2.91 | 3.01 | — | — | — | 13.01 | 30.10 | (A) | 5,880 | 3.72 | (B) | 1.30 | (B) | 1.04 | (B) | 46 | (A) |
(A) | Not Annualized. |
(B) | Annualized. |
(1) | Net investment income per share was calculated using the average shares outstanding method. |
(2) | For the period from December 17, 2015 (commencement of class operations) through October 31, 2016. |
(3) | For the period from December 19, 2016 (commencement of class operations) through October 31, 2017. |
See Notes to Financial Statements
51
Table of Contents
Harding, Loevner Funds, Inc.
April 30, 2019 (unaudited)
1. | Organization |
Harding, Loevner Funds, Inc. (the “Fund”) was organized as a Maryland corporation on July 31, 1996, and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Fund currently has nine separate diversified Portfolios, all of which were active as of April 30, 2019 (individually, a “Portfolio”, collectively, the “Portfolios”). The Fund is managed by Harding Loevner LP (the “Investment Adviser”).
Portfolio | Inception Date | Investment Objective | ||
Global Equity Portfolio (“Global Equity”)
| Institutional Class: November 3, 2009 Institutional Class Z: August 1, 2017 Advisor Class: December 1, 1996 | to seek long-term capital appreciation through investments in equity securities of companies based both inside and outside the United States | ||
International Equity Portfolio (“International Equity”)
| Institutional Class: May 11, 1994* Institutional Class Z: July 17, 2017 Investor Class: September 30, 2005 | to seek long-term capital appreciation through investments in equity securities of companies based outside the United States | ||
International Small Companies Portfolio (“International Small Companies”)
| Institutional Class: June 30, 2011 Investor Class: March 26, 2007 | to seek long-term capital appreciation through investments in equity securities of small companies based outside the United States | ||
Institutional Emerging Markets Portfolio** (“Institutional Emerging Markets”)
| Institutional Class (Formerly Class I): October 17, 2005 Institutional Class Z (Formerly Class II): March 5, 2014 | to seek long-term capital appreciation through investments in equity securities of companies based in emerging markets | ||
Emerging Markets Portfolio** (“Emerging Markets”)
| Advisor Class: November 9, 1998 | to seek long-term capital appreciation through investments in equity securities of companies based in emerging markets | ||
Frontier Emerging Markets Portfolio (“Frontier Emerging Markets”)
| Institutional Class I: May 27, 2008 Institutional Class II: March 1, 2017 Investor Class: December 31, 2010 | to seek long-term capital appreciation through investments in equity securities of companies based in frontier and smaller emerging markets | ||
Global Equity Research Portfolio (“Global Equity Research”)
| Institutional Class***: December 19, 2016 | to seek long-term capital appreciation through investments in equity securities of companies based both inside and outside the United States | ||
International Equity Research Portfolio (“International Equity Research”)
| Institutional Class***: December 17, 2015 | to seek long-term capital appreciation through investments in equity securities of companies based outside the United States | ||
Emerging Markets Research Portfolio (“Emerging Markets Research”)
| Institutional Class***: December 19, 2016 | to seek long-term capital appreciation through investments in equity securities of companies based in emerging markets |
* The International Equity Portfolio is the successor to the HLM International Equity Portfolio of AMT Capital Fund, Inc., pursuant to a reorganization that took place on October 31, 1996. Information for periods prior to October 31, 1996, is historical information for the predecessor portfolio.
** Effective March 1, 2019, the Institutional Emerging Markets and Emerging Markets Portfolios’ shares are generally available for purchase by new and existing shareholders, subject to certain limitations that may apply at the Fund’s discretion.
*** Effective March 1, 2019, the Investor Class shares of the Global Equity Research, International Equity Research and Emerging Markets Research Portfolios were closed and their balances were transferred to the Institutional Class (See Note 6).
52
Table of Contents
Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
April 30, 2019 (unaudited)
1. | Organization (continued) |
On November 24, 2017, the Board of Directors (the “Board”) of the Fund approved reverse share splits (the “Reverse Splits”) of the outstanding Institutional Class Z shares of the Global Equity Portfolio, Institutional Class Z shares of the International Equity Portfolio, and Class II shares of the Institutional Emerging Markets Portfolio (each, a “Split Impacted Portfolio”) at the ratios indicated below.
Portfolio | Reverse Share Split Ratio | |||
Global Equity Portfolio - Institutional Class Z | 1 for 3.933146 | |||
International Equity Portfolio - Institutional Class Z | 1 for 2.135356 | |||
Institutional Emerging Markets Portfolio - Class II | 1 for 1.758429 |
The Reverse Splits were effected after the close of business on December 1, 2017. Institutional Class Z shares and Class II shares of the Split Impacted Portfolios began trading on a split-adjusted basis on December 4, 2017.
The total dollar value of each shareholder’s investment in a Split Impacted Portfolio remained unchanged by the Reverse Splits. While the Reverse Splits reduced the number of outstanding Institutional Class Z or Class II shares of the Split Impacted Portfolios, they proportionately increased the net asset value (“NAV”) per share of Institutional Class Z shares and Class II shares of the Split Impacted Portfolio such that the aggregate market value of each Split Impacted Portfolio’s Institutional Class Z shares or Class II shares, as applicable, remained the same. The Reverse Splits did not affect the voting rights of a shareholder’s investment in a Split Impacted Portfolio, and was not a taxable event for the Split Impacted Portfolio’s shareholders.
On November 24, 2017, the Board also declared a share dividend (the “Share Dividend”) with respect to the Institutional Class II shares of the Frontier Emerging Markets Portfolio equal to 0.346467 shares on each outstanding Institutional Class II share. The Share Dividend was paid to the Portfolio’s Institutional Class II shareholders of record as of the close of business on December 1, 2017. The total dollar value of each shareholder’s investment in the Portfolio remained unchanged by the Share Dividend. While the Share Dividend increased the number of outstanding Institutional Class II shares of the Portfolio, it proportionately decreased the NAV per share of Institutional Class II shares of the Portfolio such that the aggregate market value of the Portfolio’s Institutional Class II shares remained the same. The Share Dividend did not affect the voting rights of a shareholder’s investment in the Portfolio, and was not a taxable event for the Portfolio’s shareholders.
The Board approved the Reverse Splits in order to bring the NAV per share of the Institutional Class Z shares of the Global Equity Portfolio and International Equity Portfolio and Class II shares of the Institutional Emerging Markets Portfolio into line with the NAV per share of the other share classes of the Split Impacted Portfolios. The Board also declared the Share Dividend in order to bring the NAV per share of the Institutional Class II shares of the Frontier Emerging Markets Portfolio into line with the NAV per share of the other share classes of the Portfolio. The Reverse Splits and the Share Dividend are intended to create a general level of parity of required distributions across the Fund’s share classes by increasing the NAV per share and reducing the number of outstanding shares of the share classes subject to the Reverse Splits and decreasing the NAV per share and increasing the number of outstanding shares of the Institutional Class II shares of the Frontier Emerging Markets Portfolio through the Share Dividend.
Per share data, including the proportionate impact to NAV, in the Financial Highlights and Capital Share activity presented in the Capital Share Transactions disclosure (see Note 6) have been restated to reflect the Reverse Splits and the Share Dividend, respectively.
2. | Summary of Significant Accounting Policies |
The accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States (“GAAP”) for investment companies. Accordingly, the Fund follows accounting and reporting guidance under FASB Accounting Standards Codification Topic 946, “Financial Services - Investment Companies”. The following is a summary of the Fund’s significant accounting policies:
Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
53
Table of Contents
Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
April 30, 2019 (unaudited)
2. | Summary of Significant Accounting Policies (continued) |
Valuation
The Board has adopted procedures (“Procedures”) to govern the valuation of the securities held by each Portfolio of the Fund in accordance with the 1940 Act. The Procedures incorporate principles set forth in relevant pronouncements of the Securities and Exchange Commission (“SEC”) and its staff, including guidance on the obligations of the Portfolios and their Directors to determine, in good faith, the fair value of the Portfolios’ securities when market quotations are not readily available.
In determining a Portfolio’s NAV, each equity security traded on a securities exchange, including the NASDAQ Stock Market, and over-the-counter securities, are first valued at the closing price on the exchange or market designated by the Fund’s accounting agent as the principal exchange (each, a “principal exchange”). The closing price provided by the Fund’s accounting agent for a principal exchange may differ from the price quoted elsewhere and may represent information such as last sales price, an official closing price, a closing auction price or other information, depending on exchange or market convention. Shares of open-end mutual funds including money market funds are valued at NAV. Such securities are typically categorized as “Level 1” pursuant to the hierarchy described below.
Participation notes are valued based upon the closing or last traded price of their underlying local shares. Such securities are typically categorized as “Level 2” pursuant to the hierarchy described below.
Since trading in many foreign securities is normally completed before the time at which a Portfolio calculates its NAV, the effect on the value of such securities held by a Portfolio of events that occur between the close of trading in the security and the time at which the Portfolio prices its securities would not be reflected in the Portfolio’s calculation of its NAV if foreign securities were generally valued at their closing prices. To address this issue, the Board has approved the daily use of independently provided quantitative models that may adjust the closing prices of certain foreign equity securities based on information that becomes available after the foreign market closes, through the application of an adjustment factor to such securities’ closing price. Adjustment factors may be greater than, less than, or equal to 1. Thus, use of these quantitative models could cause a Portfolio to value a security higher, lower or equal to its closing market price, which in turn could cause the Portfolio’s NAV per share to differ significantly from that which would have been calculated using closing market prices. The use of these quantitative models is also intended to decrease the opportunities for persons to engage in ‘‘time zone arbitrage,’’ i.e., trading intended to take advantage of stale closing prices in foreign markets that could affect the NAV of the Portfolios. Securities subjected to an adjustment factor due to the use of these quantitative models are not specifically designated on the Portfolios’ Portfolio of Investments as being “fair valued”. Securities with an adjustment factor greater than or less than 1, which are absent the use of significant unobservable inputs into their valuation, are categorized as “Level 2” and securities with an adjustment factor equal to 1, which are absent the use of significant unobservable inputs into their valuation, are categorized as “Level 1” pursuant to the hierarchy described below.
Any securities for which market quotations are not readily available or for which available prices are deemed unreliable are priced by the Investment Adviser at “fair value as determined in good faith”, in accordance with the Procedures. Such securities are identified on the Portfolios’ Portfolio of Investments as securities valued at “fair value as determined in good faith” and absent the use of significant unobservable inputs into their valuation, such securities would be categorized as “Level 2” pursuant to the hierarchy described below.
GAAP has established a hierarchy for NAV determination purposes in which various inputs are used in determining the value of each Portfolio’s assets or liabilities. GAAP defines fair value as the price that the Portfolio would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. GAAP establishes a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability including assumptions about risk. Such risks include the inherent risk in a particular valuation technique which is used to measure fair value. This may include the quantitative models and/or the inputs to the quantitative models used in the valuation technique described above. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.
Level 1 | unadjusted quoted prices in active markets for identical assets | |
Level 2 | other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) | |
Level 3 | significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
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Table of Contents
Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
April 30, 2019 (unaudited)
2. Summary of Significant Accounting Policies (continued)
GAAP provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased as well as guidance on identifying circumstances that indicate when a transaction is not orderly.
The following is a summary of the Portfolios’ investments classified by Level 1, Level 2 and Level 3 and security type as of April 30, 2019. Please refer to each Portfolio’s Portfolio of Investments to view individual securities classified by industry type and country.
Portfolio | Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1) | Other Significant Observable Inputs | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Global Equity | ||||||||||||||||
Common Stocks | $ 554,008,691 | $ | 371,792,992 | $ | — | $ | 925,801,683 | |||||||||
Preferred Stocks | 21,119,559 | — | — | 21,119,559 | ||||||||||||
Short Term Investments | 17,192,488 | — | — | 17,192,488 | ||||||||||||
Total Investments | $ 592,320,738 | $ | 371,792,992 | $ | — | $ | 964,113,730 | |||||||||
International Equity | ||||||||||||||||
Common Stocks | $ 4,279,259,718 | $ | 10,177,897,641 | $ | — | $ | 14,457,157,359 | |||||||||
Preferred Stocks | 236,650,901 | 297,888,945 | — | 534,539,846 | ||||||||||||
Short Term Investments | 658,059,475 | — | — | 658,059,475 | ||||||||||||
Total Investments | $ 5,173,970,094 | $ | 10,475,786,586 | $ | — | $ | 15,649,756,680 | |||||||||
International Small Companies | ||||||||||||||||
Common Stocks | $ 21,184,565 | $ | 182,664,178 | $ | — | $ | 203,848,743 | |||||||||
Participation Notes | — | 2,659,723 | — | 2,659,723 | ||||||||||||
Short Term Investments | 5,119,421 | — | — | 5,119,421 | ||||||||||||
Total Investments | $ 26,303,986 | $ | 185,323,901 | $ | — | $ | 211,627,887 | |||||||||
Institutional Emerging Markets | ||||||||||||||||
Common Stocks | $ 1,450,226,210 | $ | 3,276,983,972 | $ | — | $ | 4,727,210,182 | |||||||||
Preferred Stocks | 246,230,668 | 41,377,264 | — | 287,607,932 | ||||||||||||
Short Term Investments | 172,724,707 | — | — | 172,724,707 | ||||||||||||
Total Investments | $ 1,869,181,585 | $ | 3,318,361,236 | $ | — | $ | 5,187,542,821 | |||||||||
Emerging Markets | ||||||||||||||||
Common Stocks | $ 1,182,108,144 | $ | 2,668,014,400 | $ | — | $ | 3,850,122,544 | |||||||||
Preferred Stocks | 200,988,002 | 33,794,148 | — | 234,782,150 | ||||||||||||
Short Term Investments | 147,673,567 | — | — | 147,673,567 | ||||||||||||
Total Investments | $ 1,530,769,713 | $ | 2,701,808,548 | $ | — | $ | 4,232,578,261 | |||||||||
Frontier Emerging Markets | ||||||||||||||||
Common Stocks | $ 98,633,288 | $ | 216,741,913 | $ | — | $ | 315,375,201 | |||||||||
Preferred Stocks | 9,971,907 | — | — | 9,971,907 | ||||||||||||
Participation Notes | — | 43,687,618 | — | 43,687,618 | ||||||||||||
Short Term Investments | 2,499,159 | — | — | 2,499,159 | ||||||||||||
Total Investments | $ 111,104,354 | $ | 260,429,531 | $ | — | $ | 371,533,885 | |||||||||
Global Equity Research | ||||||||||||||||
Common Stocks | $ 3,511,918 | $ | 3,066,374 | $ | — | $ | 6,578,292 | |||||||||
Preferred Stocks | 41,025 | 13,513 | — | 54,538 | ||||||||||||
Short Term Investments | 103,433 | — | — | 103,433 | ||||||||||||
Total Investments | $ 3,656,376 | $ | 3,079,887 | $ | — | $ | 6,736,263 |
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Notes to Financial Statements (continued)
April 30, 2019 (unaudited)
2. Summary of Significant Accounting Policies (continued)
Portfolio | Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1) | Other Significant Observable Inputs | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
International Equity Research | ||||||||||||||||
Common Stocks | $ 2,104,277 | $ | 9,585,467 | $ | — | $ | 11,689,744 | |||||||||
Preferred Stocks | 162,110 | 34,975 | — | 197,085 | ||||||||||||
Short Term Investments | 255,963 | — | — | 255,963 | ||||||||||||
Total Investments | $ 2,522,350 | $ | 9,620,442 | $ | — | $ | 12,142,792 | |||||||||
Emerging Markets Research | ||||||||||||||||
Common Stocks | $ 1,947,650 | $ | 4,522,736 | $ | — | $ | 6,470,386 | |||||||||
Preferred Stocks | 229,236 | 135,924 | — | 365,160 | ||||||||||||
Participation Notes | — | 207,575 | — | 207,575 | ||||||||||||
Short Term Investments | 129,293 | — | — | 129,293 | ||||||||||||
Total Investments | $ 2,306,179 | $ | 4,866,235 | $ | — | $ | 7,172,414 |
As of April 30, 2019, there were no Level 3 investments held within the Portfolios.
Securities
For financial reporting purposes, all securities transactions are recorded on a trade date basis, as of the last business day in the reporting period. Throughout the reporting period, securities transactions are typically accounted for on a trade date – plus one business day basis. Interest income and expenses are recorded on an accrual basis. Dividend income is recorded on the ex-dividend date (except for certain foreign dividends that may be recorded as soon as the Portfolio is informed of such dividends). The Portfolios use the specific identification method for determining realized gains or losses from sales of securities.
Dividends to Shareholders
It is the policy of the Portfolios to declare dividends from net investment income annually. Net short-term and long-term capital gains distributions for the Portfolios, if any, are also normally distributed on an annual basis.
Dividends from net investment income and distributions from net realized gains from investment transactions have been determined in accordance with income tax regulations and may differ from net investment income and realized gains recorded by the Portfolios for financial reporting purposes. Differences result primarily from foreign currency transactions and timing differences related to recognition of income, and gains and losses from investment transactions. In general, to the extent that any differences, which are permanent in nature, result in over distributions to shareholders, the amount of the over distribution is reclassified within the capital accounts based on its federal tax basis treatment and may be reported as return of capital. Temporary differences do not require reclassification.
Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward foreign currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of the Portfolios’ securities are translated at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated at exchange rates prevailing when accrued. The Portfolios do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the Net realized gain (loss) on investment transactions and Change in unrealized appreciation (depreciation) on investments on the Statements of Operations.
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Notes to Financial Statements (continued)
April 30, 2019 (unaudited)
2. Summary of Significant Accounting Policies (continued)
Net realized gains and losses from foreign currency-related transactions arise from sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Portfolios’ books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized appreciation or depreciation on translation of assets and liabilities denominated in foreign currencies arise from changes in the value of assets and liabilities other than investments in securities at the period end, resulting from changes in the exchange rates.
Organization and Offering Fees
Costs incurred by the Global Equity Research Portfolio and the Emerging Markets Research Portfolio in connection with their organization were expensed as they were incurred. Costs related to the offering of shares were deferred and amortized on a straight line basis over the twelve-month period from the date of commencement of operations of the Portfolios.
Expenses
Most expenses of the Fund can be directly attributed to a particular Portfolio. Expenses which cannot be directly attributed are apportioned among the Portfolios based upon relative net assets or other appropriate measures. If an expense is incurred at the Portfolio level, it is generally apportioned among the classes of that Portfolio based upon relative net assets of each respective class. Certain expenses are incurred at the class level and charged only to that particular class. These expenses may be class specific (i.e., Distribution fees charged only to a particular class) or they may be identifiable to a particular class (i.e., the costs related to mailing shareholder reports to shareholders of a particular class).
Redemption Fees
The Fund has established fees on short-term redemptions to discourage frequent trading in Portfolio shares. Redemptions of Portfolio shares made within 90 days of purchase may be subject to a redemption fee equal to 2% of the amount redeemed. For the period or year ended April 30, 2019 and October 31, 2018, the Portfolios received the following redemption fees. These amounts are netted against “Payments for Shares Redeemed” in Note 7 - Capital Share Transactions.
Institutional Class | Institutional Class I | Institutional Class II | ||||||||||||||||||||||
Portfolio | Period Ended April 30, 2019 | Year Ended October 31, 2018 | Period Ended April 30, 2019 | Year Ended October 31, 2018 | Period Ended April 30, 2019 | Year Ended October 31, 2018 | ||||||||||||||||||
Global Equity | $ | 75,821 | $ | 14,174 | $ | — | $ | — | $ | — | $ | — | ||||||||||||
International Equity | 582,825 | 465,416 | — | — | — | — | ||||||||||||||||||
International Small Companies | 3,729 | 5,178 | — | — | — | — | ||||||||||||||||||
Institutional Emerging Markets | 112,304* | 98,733* | — | — | — | — | ||||||||||||||||||
Emerging Markets | — | — | — | — | — | — | ||||||||||||||||||
Frontier Emerging Markets | — | — | 10,901 | 15,128 | — | — | ||||||||||||||||||
Global Equity Research | — | — | — | — | — | — | ||||||||||||||||||
International Equity Research | — | — | — | — | — | — | ||||||||||||||||||
Emerging Markets Research | — | — | — | — | — | — | ||||||||||||||||||
* Formerly Class I |
| |||||||||||||||||||||||
Investor Class | Advisor Class | Institutional Class Z | ||||||||||||||||||||||
Portfolio | Period Ended April 30, | Year Ended October 31, 2018 | Period Ended April 30, 2019 | Year Ended October 31, 2018 | Period Ended April 30, 2019 | Year Ended October 31, 2018 | ||||||||||||||||||
Global Equity | $ | — | $ | — | $ | 4,704 | $ | 14,265 | $ | — | $ | — | ||||||||||||
International Equity | 21,884 | 58,517 | — | — | 1,948 | 119 | ||||||||||||||||||
International Small Companies | 796 | 5,609 | — | — | — | — | ||||||||||||||||||
Institutional Emerging Markets | — | — | — | — | — | — | ||||||||||||||||||
Emerging Markets | — | — | 44,026 | 98,576 | — | — |
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April 30, 2019 (unaudited)
2. Summary of Significant Accounting Policies (continued)
Investor Class | Advisor Class | Institutional Class Z | ||||||||||||||||||||||
Portfolio | Period Ended April 30, 2019 | Year Ended October 31, 2018 | Period Ended April 30, 2019 | Year Ended October 31, 2018 | Period Ended April 30, 2019 | Year Ended October 31, 2018 | ||||||||||||||||||
Frontier Emerging Markets | $ | 1,395 | $ | 2,538 | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Global Equity Research | — | — | — | — | — | — | ||||||||||||||||||
International Equity Research | — | 2 | — | — | — | — | ||||||||||||||||||
Emerging Markets Research | — | — | — | — | — | — |
Indemnifications
Under the Fund’s organizational document, its officers and Board are indemnified against certain liability arising out of the performance of their duties to the Portfolios. In the normal course of business, the Fund may enter into contracts that contain a variety of representations or that provide indemnification for certain liabilities. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
3. | Transactions with Affiliates and Significant Agreements |
The Board has approved investment advisory agreements with Harding Loevner LP (the “Investment Adviser”). Advisory fees are computed daily and paid monthly based on the average daily net assets of each Portfolio. The Investment Adviser has contractually agreed to reduce its fee and/or reimburse the Portfolios for other operating expenses to the extent that aggregate expenses, excluding certain non-operating expenses, exceed certain annual rates of the average daily net assets of each class.
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Notes to Financial Statements (continued)
April 30, 2019 (unaudited)
3. | Transactions with Affiliates and Significant Agreements (continued) |
The following annualized advisory fees and contractual expense limits were in effect for the period ended April 30, 2019. The advisory fees are charged at the Portfolio level as a whole and expense limitations are at the class specific level.
Portfolio | First $1 billion of assets | Next $1 billion of assets | Next $1 billion of assets | Over $3 billion of assets | Over $4 billion of assets | Over $5 billion of assets | Contractual Expense Limit* | ||||||||||||||||||||||||||||
Global Equity–Institutional Class | 0.80 | % | 0.78 | % | 0.76 | % | 0.74 | % | 0.74 | % | 0.74 | % | 0.95 | % | |||||||||||||||||||||
Global Equity–Institutional Class Z | 0.80 | % | 0.78 | % | 0.76 | % | 0.74 | % | 0.74 | % | 0.74 | % | 0.90 | % | |||||||||||||||||||||
Global Equity–Advisor Class | 0.80 | % | 0.78 | % | 0.76 | % | 0.74 | % | 0.74 | % | 0.74 | % | 1.25 | % | |||||||||||||||||||||
International Equity–Institutional Class | 0.75 | % | 0.73 | % | 0.71 | % | 0.69 | % | 0.67 | % | 0.65 | % | 1.00 | % | |||||||||||||||||||||
International Equity–Institutional Class Z | 0.75 | % | 0.73 | % | 0.71 | % | 0.69 | % | 0.67 | % | 0.65 | % | 0.80 | % | |||||||||||||||||||||
International Equity–Investor Class | 0.75 | % | 0.73 | % | 0.71 | % | 0.69 | % | 0.67 | % | 0.65 | % | 1.25 | % | |||||||||||||||||||||
International Small Companies–Institutional Class | 1.15 | % | 1.15 | % | 1.15 | % | 1.15 | % | 1.15 | % | 1.15 | % | 1.15 | % | |||||||||||||||||||||
International Small Companies–Investor Class | 1.15 | % | 1.15 | % | 1.15 | % | 1.15 | % | 1.15 | % | 1.15 | % | 1.40 | % | |||||||||||||||||||||
Institutional Emerging Markets–Institutional Class | 1.15 | % | 1.13 | % | 1.11 | % | 1.09 | % | 1.09 | % | 1.09 | % | 1.30 | % | |||||||||||||||||||||
Institutional Emerging Markets–Institutional Class Z | 1.15 | % | 1.13 | % | 1.11 | % | 1.09 | % | 1.09 | % | 1.09 | % | 1.15 | %** | |||||||||||||||||||||
Emerging Markets–Advisor Class | 1.15 | % | 1.13 | % | 1.11 | % | 1.09 | % | 1.09 | % | 1.09 | % | 1.75 | % | |||||||||||||||||||||
Frontier Emerging Markets–Institutional Class I | 1.35 | % | 1.35 | % | 1.35 | % | 1.35 | % | 1.35 | % | 1.35 | % | 1.75 | % | |||||||||||||||||||||
Frontier Emerging Markets–Institutional Class II | 1.35 | % | 1.35 | % | 1.35 | % | 1.35 | % | 1.35 | % | 1.35 | % | 1.35 | % | |||||||||||||||||||||
Frontier Emerging Markets–Investor Class | 1.35 | % | 1.35 | % | 1.35 | % | 1.35 | % | 1.35 | % | 1.35 | % | 2.00 | % | |||||||||||||||||||||
Global Equity Research–Institutional Class1 | 0.70 | % | 0.70 | % | 0.70 | % | 0.70 | % | 0.70 | % | 0.70 | % | 0.80 | % | |||||||||||||||||||||
International Equity Research–Institutional Class2 | 0.70 | % | 0.70 | % | 0.70 | % | 0.70 | % | 0.70 | % | 0.70 | % | 0.75 | % | |||||||||||||||||||||
Emerging Markets Research–Institutional Class3 | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.15 | % |
* | Effective through February 28, 2020. |
** | The Investment Adviser has contractually agreed to waive a portion of its management fee and/or reimburse the Portfolio’s Institutional Class Z shares for their other operating expenses to the extent that the aggregate operating expenses of Institutional Class Z exceed the applicable contractual management fee, currently 1.15% on the first $1 billion of average daily net assets, 1.13% on the next $1 billion, 1.11% on the next $1 billion and 1.09% for average daily net assets over $3 billion. |
1 | Prior to March 1, 2019, the Global Equity Research Portfolio’s advisory fees were 0.80% of the Portfolio’s average daily net assets and the contractual expense limit for the Institutional Class was 0.90% of the Class’s average daily net assets. |
2 | Prior to March 1, 2019, the International Equity Research Portfolio’s advisory fees were 0.75% of the Portfolio’s average daily net assets and the contractual expense limit for the Institutional Class was 0.90% of the Class’s average daily net assets. |
3 | Prior to March 1, 2019, the Emerging Markets Research Portfolio’s advisory fees were 1.15% of the Portfolio’s average daily net assets and the contractual expense limit for the Institutional Class was 1.30% of the Class’s average daily net assets. |
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Notes to Financial Statements (continued)
April 30, 2019 (unaudited)
3. | Transactions with Affiliates and Significant Agreements (continued) |
For the period ended April 30, 2019, the Investment Adviser waived and/or reimbursed the following amounts pursuant to the contractual expense limits described above:
Portfolio | Fees waived and/or reimbursed by the Investment Adviser | |||
International Small Companies–Institutional Class | $225,409 | |||
International Small Companies–Investor Class | 104,546 | |||
Institutional Emerging Markets–Institutional Class Z | 191,775 | |||
Frontier Emerging Markets–Institutional Class II | 170,766 | |||
Frontier Emerging Markets–Investor Class | 7,304 | |||
Global Equity Research–Institutional Class | 37,034 | |||
Global Equity Research–Investor Class | 22,361 | |||
International Equity Research–Institutional Class | 34,761 | |||
International Equity Research–Investor Class | 21,257 | |||
Emerging Markets Research–Institutional Class | 35,605 | |||
Emerging Markets Research–Investor Class | 22,120 |
The Fund has an administration agreement with The Northern Trust Company (“Northern Trust”), which provides certain accounting, clerical and bookkeeping services, Blue Sky, corporate secretarial services and assistance in the preparation and filing of tax returns and reports to shareholders and the SEC.
Northern Trust also serves as custodian of each Portfolio’s securities and cash, transfer agent, dividend disbursing agent and agent in connection with any accumulation, open-account or similar plans provided to the shareholders of the Portfolios. Northern Trust has agreed to waive certain transfer agent fees and expenses for Institutional Class Z of the Global Equity and International Equity Portfolios for a period of six months from the commencement of each class (through January 31, 2018 and January 16, 2018, respectively). The amounts waived are captioned as “Less Waiver of transfer agent fees and expenses” on the Statements of Operations.
Effective January 1, 2018, Foreside Fund Officer Services, LLC provides compliance support to the Fund’s Chief Compliance Officer. Prior to January 1, 2018, these services were provided by Alaric Compliance Services, LLC. Fees paid pursuant to these services are shown as “Compliance officers’ fees and expenses” on the Statements of Operations.
The Fund has adopted an Amended Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act (“Distribution Plan”). Under the Distribution Plan, the Investor Class of each of the International Equity, International Small Companies and Frontier Emerging Markets Portfolios may pay underwriters, distributors, dealers or brokers a fee at an annual rate of up to 0.25% of the average daily net assets of the Portfolio’s Investor Class shares for services or expenses arising in connection with activities primarily intended to result in the sale of Investor Class shares of the Portfolios or for Shareholder Services (defined below) consistent with those described under the Shareholder Servicing Plan.
The Fund, on behalf of the Portfolios, has agreements with various financial intermediaries and “mutual fund supermarkets”, under which customers of these intermediaries may purchase and hold Portfolio shares. These intermediaries assess fees in consideration for providing certain account maintenance, record keeping and transactional and other shareholder services (collectively, “Shareholder Services”). With the exception of Institutional Class Z, each Portfolio or class is authorized, pursuant to a Shareholder Servicing Plan, to pay to each intermediary an annual rate of up to 0.25% of its average daily net assets attributable to that intermediary (subject to the contractual expense limits described above) for such Shareholder Services. Because of the contractual expense limits on certain Portfolios’ fees and expenses, the Investment Adviser paid a portion of the Portfolios’ share of these fees during the period ended April 30, 2019. Such payments, if any, are included in the table above under the caption “Fees waived and/or reimbursed by the Investment Adviser”.
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Notes to Financial Statements (continued)
April 30, 2019 (unaudited)
3. | Transactions with Affiliates and Significant Agreements (continued) |
A Portfolio may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to having a common investment adviser, common officers, or common Directors. For the period ended April 30, 2019, no Portfolios engaged in purchases and/or sales of securities from an affiliated portfolio in compliance with Rule 17a-7 of the 1940 Act.
4. | Class Specific Expenses |
The class level expenses for the period ended April 30, 2019, were as follows for each Portfolio:
Portfolio | Distribution Fees | State Registration Filing Fees | Printing and Postage Fees | Transfer Agent Fees and Expenses | Shareholder Servicing Fees | |||||||||||||||
Global Equity–Institutional Class | $ | — | $ | 11,615 | $ | 6,161 | $ | 4,923 | $ | 201,073 | ||||||||||
Global Equity–Institutional Class Z | — | 20,609 | 2,026 | 3,023 | — | |||||||||||||||
Global Equity–Advisor Class | — | 9,173 | 8,483 | 4,288 | 105,160 | |||||||||||||||
International Equity–Institutional Class | — | 194,004 | 360,070 | 195,516 | 4,519,744 | |||||||||||||||
International Equity–Institutional Class Z | — | 104,666 | 32,124 | 15,324 | — | |||||||||||||||
International Equity–Investor Class | 512,641 | 22,803 | 21,411 | 19,465 | 296,891 | |||||||||||||||
International Small Companies–Institutional Class | — | 16,867 | 5,952 | 3,218 | 88,684 | |||||||||||||||
International Small Companies–Investor Class | 70,096 | 14,091 | 3,776 | 3,939 | 37,597 | |||||||||||||||
Institutional Emerging Markets–Institutional Class | — | 41,243 | 118,401 | 24,478 | 1,602,622 | |||||||||||||||
Institutional Emerging Markets–Institutional Class Z | — | 14,994 | 5,775 | 8,830 | — | |||||||||||||||
Frontier Emerging Markets–Institutional Class I | — | 9,575 | 8,541 | 5,896 | 86,480 | |||||||||||||||
Frontier Emerging Markets–Institutional Class II | — | 11,715 | 4,503 | 2,769 | — | |||||||||||||||
Frontier Emerging Markets–Investor Class | 30,182 | 11,805 | 2,020 | 3,920 | 16,481 | |||||||||||||||
Global Equity Research–Institutional Class | — | 18,743 | 143 | (9,187 | ) | — | ||||||||||||||
Global Equity Research–Investor Class | 465 | 11,341 | 26 | 9,187 | — | |||||||||||||||
International Equity Research–Institutional Class | — | 16,953 | 252 | (8,963 | ) | 833 | ||||||||||||||
International Equity Research–Investor Class | 882 | 10,215 | 54 | 8,963 | 94 | |||||||||||||||
Emerging Markets Research–Institutional Class | — | 18,783 | 173 | (8,972 | ) | — | ||||||||||||||
Emerging Markets Research–Investor Class | 471 | 11,341 | 26 | 8,972 | — |
5. | Investment Transactions |
Cost of purchases and proceeds from sales of investment securities, other than short-term investments, for the period ended April 30, 2019, were as follows for each Portfolio:
Portfolio | Purchase Cost of Investment Securities | Proceeds from Sales of Investment Securities | ||||||||
Global Equity | $ | 198,372,980 | $ | 154,216,257 | ||||||
International Equity | 3,833,353,723 | 3,391,770,579 | ||||||||
International Small Companies | 40,337,670 | 55,856,652 | ||||||||
Institutional Emerging Markets | 535,221,378 | 570,754,618 | ||||||||
Emerging Markets | 515,148,941 | 437,276,772 | ||||||||
Frontier Emerging Markets | 35,958,868 | 106,331,648 | ||||||||
Global Equity Research | 1,380,926 | 1,380,357 | ||||||||
International Equity Research | 2,487,714 | 2,013,315 | ||||||||
Emerging Markets Research | 1,480,268 | 1,617,237 |
6. | In-Kind Redemptions |
During the year ended October 31, 2018, the International Equity Portfolio delivered portfolio securities rather than cash in exchange for the redemption of shares for certain investors (in-kind redemptions). These investors received readily marketable securities that were valued on the redemption date using the same method employed in calculating the Portfolio’s NAV per share. The International Equity Portfolio had in-kind redemptions of approximately $61,058,983. The redemption amounts are included in “Net increase (decrease) in net assets from portfolio share transactions” on the Statements of Changes in Net Assets. Net loss of approximately $(10,565,679) on the securities resulting from such in-kind
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Notes to Financial Statements (continued)
April 30, 2019 (unaudited)
6. | In-Kind Redemptions (continued) |
redemptions are included in “Net realized gain (loss) on investments” in the Statements of Operations. For financial reporting purposes, these transactions are treated as sales of securities and the resulting gains and losses are recognized based on the market value of the securities on the date of the redemption. For tax purposes, no gains or losses are recognized.
7. | Capital Share Transactions |
Transactions in capital shares for the period ended April 30, 2019, were as follows for each Portfolio:
Shares Sold | Proceeds From Shares Sold | Shares From Reinvested Dividends | Reinvestment Dividends | Shares Redeemed | Payments for Shares | Net Increase in Shares | Net Increase in Net Assets | |||||||||||||||||||||||||
Global Equity | ||||||||||||||||||||||||||||||||
Institutional Class | 3,673,630 | $ | 119,049,081 | 1,984,044 | $ | 59,461,782 | (3,648,136 | ) | $ | (119,607,158 | ) | 2,009,538 | $ | 58,903,705 | ||||||||||||||||||
Institutional Class Z | 1,284,254 | 40,811,288 | 514,071 | 15,391,303 | (81,759 | ) | (2,722,762 | ) | 1,716,566 | 53,479,829 | ||||||||||||||||||||||
Advisor Class | 595,485 | 18,313,164 | 310,232 | 9,294,552 | (684,443 | ) | (22,351,073 | ) | 221,274 | 5,256,643 | ||||||||||||||||||||||
International Equity |
| |||||||||||||||||||||||||||||||
Institutional Class | 143,226,376 | 2,954,301,360 | 6,889,755 | 133,385,649 | (121,996,039 | ) | (2,507,757,832 | ) | 28,120,092 | 579,929,177 | ||||||||||||||||||||||
Institutional Class Z | 14,605,889 | 301,542,551 | 1,030,494 | 19,929,755 | (5,321,094 | ) | (110,958,730 | ) | 10,315,289 | 210,513,576 | ||||||||||||||||||||||
Investor Class | 4,161,665 | 86,154,759 | 185,567 | 3,594,437 | (4,322,127 | ) | (89,111,583 | ) | 25,105 | 637,613 | ||||||||||||||||||||||
International Small Companies |
| |||||||||||||||||||||||||||||||
Institutional Class | 3,115,592 | 44,113,084 | 483,963 | 6,368,951 | (3,819,397 | ) | (55,278,910 | ) | (219,842 | ) | (4,796,875 | ) | ||||||||||||||||||||
Investor Class | 793,847 | 11,031,035 | 271,646 | 3,544,980 | (888,579 | ) | (12,440,691 | ) | 176,914 | 2,135,324 | ||||||||||||||||||||||
Institutional Emerging Markets |
| |||||||||||||||||||||||||||||||
Institutional Class* | 39,297,859 | 778,085,002 | 1,735,601 | 31,674,733 | (39,504,109 | ) | (774,745,860 | ) | 1,529,351 | 35,013,875 | ||||||||||||||||||||||
Institutional Class Z** | 3,688,695 | 72,707,969 | 223,764 | 4,083,688 | (2,735,814 | ) | (54,445,040 | ) | 1,176,645 | 22,346,617 | ||||||||||||||||||||||
Emerging Markets | ||||||||||||||||||||||||||||||||
Advisor Class | 13,197,095 | 714,515,129 | 546,891 | 26,141,428 | (10,621,278 | ) | (545,249,881 | ) | 3,122,708 | 195,406,676 | ||||||||||||||||||||||
Frontier Emerging Markets |
| |||||||||||||||||||||||||||||||
Institutional Class I | 2,881,447 | 21,991,009 | 243,400 | 1,798,720 | (11,611,274 | ) | (88,830,047 | ) | (8,486,427 | ) | (65,040,318 | ) | ||||||||||||||||||||
Institutional Class II | 196,850 | 1,500,000 | 320,735 | 2,370,232 | (104 | ) | (804 | ) | 517,481 | 3,869,428 | ||||||||||||||||||||||
Investor Class | 597,682 | 4,479,511 | 25,247 | 186,071 | (1,109,235 | ) | (8,608,700 | ) | (486,306 | ) | (3,943,118 | ) | ||||||||||||||||||||
Global Equity Research |
| |||||||||||||||||||||||||||||||
Institutional Class | 51,526 | *** | 600,962 | *** | 43,928 | 466,964 | — | (212 | ) | 95,454 | 1,067,714 | |||||||||||||||||||||
Investor Class | — | 212 | 4,535 | 48,022 | (51,332 | ) | (595,962 | ) | (46,797 | ) | (547,728 | ) | ||||||||||||||||||||
International Equity Research |
| |||||||||||||||||||||||||||||||
Institutional Class | 158,799 | *** | 1,760,804 | *** | 70,702 | 728,938 | (7,505 | ) | (85,448 | ) | 221,996 | 2,404,294 | ||||||||||||||||||||
Investor Class | 1,057 | 12,336 | 8,319 | 85,106 | (102,743 | ) | (1,142,281 | ) | (93,367 | ) | (1,044,839 | ) | ||||||||||||||||||||
Emerging Markets Research |
| |||||||||||||||||||||||||||||||
Institutional Class | 55,262 | *** | 605,815 | *** | 47,469 | 473,739 | — | — | 102,731 | 1,079,554 | ||||||||||||||||||||||
Investor Class | — | — | 4,579 | 45,469 | (55,566 | ) | (605,815 | ) | (50,987 | ) | (560,346 | ) |
* | Formerly Class I |
** | Formerly Class II |
*** | Number includes shares of 51,332, 99,550, 55,566 and proceeds of $595,962, $1,109,987, $605,671 for the Global Equity Research Portfolio, International Equity Research Portfolio and Emerging Markets Research Portfolio, respectively, which were transferred due to the liquidation of the Investor Class. The transfer was completed on March 1, 2019. |
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Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
April 30, 2019 (unaudited)
7. | Capital Share Transactions (continued) |
Transactions in capital shares for the year ended October 31, 2018, were as follows for each Portfolio:
Shares Sold | Proceeds From Shares Sold | Shares From Reinvested Dividends | Reinvestment Dividends | Shares Redeemed | Payments for Shares | Net Increase | Net Increase in Net Assets | |||||||||||||||||||||||||
Global Equity | ||||||||||||||||||||||||||||||||
Institutional Class | 4,222,061 | $ | 163,660,655 | 1,985,000 | $ | 72,809,813 | (8,196,322 | ) | $ | (329,513,664 | ) | (1,989,261 | ) | $ | (93,043,196 | ) | ||||||||||||||||
Institutional Class Z* | 3,022,161 | $ | 122,288,781 | 446,208 | $ | 16,353,512 | (671,382 | ) | $ | (26,111,341 | ) | 2,796,987 | $ | 112,530,952 | ||||||||||||||||||
Advisor Class | 1,328,597 | 51,385,900 | 246,019 | 9,021,500 | (875,815 | ) | (32,335,463 | ) | 698,801 | 28,071,937 | ||||||||||||||||||||||
International Equity |
| |||||||||||||||||||||||||||||||
Institutional Class | 232,296,256 | 5,334,395,433 | 7,307,212 | 163,096,976 | (151,929,905 | ) | (3,528,355,985 | ) | 87,673,563 | 1,969,136,424 | ||||||||||||||||||||||
Institutional Class Z* | 63,032,179 | 1,500,188,135 | 155,042 | 3,458,969 | (5,832,124 | ) | (133,701,431 | ) | 57,355,097 | 1,369,945,673 | ||||||||||||||||||||||
Investor Class | 8,607,082 | 196,360,751 | 300,709 | 6,702,815 | (17,543,028 | ) | (401,985,108 | ) | (8,635,237 | ) | (198,921,542 | ) | ||||||||||||||||||||
International Small Companies |
| |||||||||||||||||||||||||||||||
Institutional Class | 4,414,710 | 75,558,465 | 101,227 | 1,699,608 | (3,275,521 | ) | (55,391,569 | ) | 1,240,416 | 21,866,504 | ||||||||||||||||||||||
Investor Class | 2,098,944 | 36,291,266 | 32,401 | 540,442 | (1,350,567 | ) | (22,875,046 | ) | 780,778 | 13,956,662 | ||||||||||||||||||||||
Institutional Emerging Markets |
| |||||||||||||||||||||||||||||||
Class I | 50,336,127 | 1,108,172,151 | 1,419,754 | 31,021,590 | (35,863,143 | ) | (784,091,967 | ) | 15,892,738 | 355,101,774 | ||||||||||||||||||||||
Class II* | 5,107,867 | 111,057,625 | 148,910 | 3,252,204 | (4,923,508 | ) | (105,789,511 | ) | 333,269 | 8,520,318 | ||||||||||||||||||||||
Emerging Markets |
| |||||||||||||||||||||||||||||||
Advisor Class | 15,590,502 | 898,061,610 | 491,096 | 28,100,532 | (14,208,794 | ) | (805,282,861 | ) | 1,872,804 | 120,879,281 | ||||||||||||||||||||||
Frontier Emerging Markets |
| |||||||||||||||||||||||||||||||
Institutional Class I | 5,301,424 | 46,483,198 | 494,375 | 4,202,186 | (8,293,448 | ) | (70,534,681 | ) | (2,497,649 | ) | (19,849,297 | ) | ||||||||||||||||||||
Institutional Class II** | 1,432,965 | 13,004,440 | 411,729 | 3,499,694 | — | — | 1,844,694 | 16,504,134 | ||||||||||||||||||||||||
Investor Class | 1,021,089 | 8,777,456 | 52,964 | 448,605 | (1,391,249 | ) | (11,530,031 | ) | (317,196 | ) | (2,303,970 | ) | ||||||||||||||||||||
Global Equity Research |
| |||||||||||||||||||||||||||||||
Institutional Class | — | — | 18,157 | 219,334 | — | (176 | ) | 18,157 | 219,158 | |||||||||||||||||||||||
Investor Class | — | 176 | 1,884 | 22,701 | — | — | 1,884 | 22,877 | ||||||||||||||||||||||||
International Equity Research |
| |||||||||||||||||||||||||||||||
Institutional Class | 50,153 | 653,962 | 42,396 | 531,220 | (12,791 | ) | (166,983 | ) | 79,758 | 1,018,199 | ||||||||||||||||||||||
Investor Class | 12,181 | 153,036 | 5,062 | 63,122 | (10,025 | ) | (131,554 | ) | 7,218 | 84,604 | ||||||||||||||||||||||
Emerging Markets Research |
| |||||||||||||||||||||||||||||||
Institutional Class | 39,249 | 500,000 | 35,810 | 435,446 | — | — | 75,059 | 935,446 | ||||||||||||||||||||||||
Investor Class | — | — | 3,750 | 45,523 | — | — | 3,750 | 45,523 |
* | Share amounts have been adjusted as a result of the reverse share split effected after the close of business on December 1, 2017. (See Note 1). |
** | Share amounts have been adjusted as a result of the share dividend effected after the close of business on December 1, 2017. (See Note 1). |
8. | Income Tax |
The cost of investments for federal income tax purposes and the components of net unrealized appreciation (depreciation) on investments at April 30, 2019, for each of the Portfolios were as follows:
Portfolio | Gross Unrealized | Gross Unrealized Depreciation | Net Unrealized Appreciation / (Depreciation) | Cost | ||||||||||||
Global Equity | $ | 334,716,268 | $ | (23,088,583 | ) | $ | 311,627,685 | $ | 652,486,045 | |||||||
International Equity | 3,284,478,098 | (337,191,138 | ) | 2,947,286,960 | 12,702,469,720 | |||||||||||
International Small Companies | 48,438,872 | (10,926,167 | ) | 37,512,705 | 174,115,182 | |||||||||||
Institutional Emerging Markets | 1,397,894,314 | (183,365,019 | ) | 1,214,529,295 | 3,973,013,526 | |||||||||||
Emerging Markets | 1,271,276,076 | (124,606,190 | ) | 1,146,669,886 | 3,085,908,375 | |||||||||||
Frontier Emerging Markets | 101,505,495 | (33,634,033 | ) | 67,871,462 | 303,662,423 | |||||||||||
Global Equity Research | 1,267,691 | (193,384 | ) | 1,074,307 | 5,661,956 | |||||||||||
International Equity Research | 1,796,509 | (494,801 | ) | 1,301,708 | 10,841,084 | |||||||||||
Emerging Markets Research | 1,209,957 | (500,896 | ) | 709,061 | 6,463,353 |
63
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Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
April 30, 2019 (unaudited)
8. | Income Tax (continued) |
It is the policy of each Portfolio of the Fund to qualify as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes; therefore, no federal income tax provision is required.
The Portfolios may be subject to taxes imposed by countries in which they invest. Such taxes are generally based on income and/or capital gains earned. Taxes are accrued based on net investment income, net realized gains and net unrealized appreciation as such income and/or gains are recorded. Taxes accrued on unrealized gains are reflected as a liability on the Statements of Assets and Liabilities under the caption “Deferred capital gains tax” and as a reduction in “Distributable earnings”. When assets subject to capital gains tax are sold, accrued taxes are relieved, and the actual amount of the taxes paid is reflected on the Statements of Operations as a reduction in “Net realized gain (loss) on Investment Transactions”. The Portfolios seek to recover a portion of foreign withholding taxes applied to income earned in jurisdictions where favorable treaty rates for US investors are available. The portion of such taxes believed to be recoverable is reflected as an asset on the Statements of Assets and Liabilities under the caption “Tax reclaim receivable”.
Management has performed an analysis of each Portfolio’s tax positions for the open tax years as of April 30, 2019, and has concluded that no provisions for income tax are required. The Portfolios’ federal tax returns for the prior three fiscal years (open tax years: October 31, 2016; October 31, 2017; October 31, 2018) remain subject to examination by the Portfolios’ major tax jurisdictions, which include the United States, the State of New Jersey and the State of Maryland. Management is not aware of any events that are reasonably possible to occur in the next twelve months that would result in the amounts of any unrecognized tax benefits significantly increasing or decreasing for the Portfolios. However, management’s conclusions regarding tax positions taken may be subject to review and adjustment at a later date based on factors including, but not limited to, new tax laws and accounting regulations and interpretations thereof.
The tax character of distributions paid during the fiscal years ended October 31, 2018 and 2017 were as follows:
Distributions From | ||||||||||||||||
Portfolio | Ordinary 2018 | Long-Term Capital Gains 2018 | Ordinary 2017 | Long-Term Capital Gains 2017 | ||||||||||||
Global Equity | 12,438,660 | $ | 89,283,118 | $ | 3,264,568 | $ | 10,109,118 | |||||||||
International Equity | 109,614,020 | 89,572,490 | 64,825,786 | — | ||||||||||||
International Small Companies | 1,712,845 | 890,383 | 1,214,051 | 3,298,574 | ||||||||||||
Institutional Emerging Markets | 38,761,437 | — | 22,513,197 | — | ||||||||||||
Emerging Markets | 28,497,360 | 1,842,865 | 17,343,528 | — | ||||||||||||
Frontier Emerging Markets | 9,138,364 | — | 3,677,574 | — | ||||||||||||
Global Equity Research | 242,035 | — | — | — | ||||||||||||
International Equity Research | 345,365 | 248,978 | 254,911 | — | ||||||||||||
Emerging Markets Research | 480,970 | — | — | — |
The Regulated Investment Company Modernization Act of 2010 (the “Act”) changed various technical rules governing the tax treatment of regulated investment companies and became effective for the Portfolios for the fiscal year ended October 31, 2012. Under the Act, each Portfolio is permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during post-enactment years are required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under previous regulation.
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Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
April 30, 2019 (unaudited)
8. | Income Tax (continued) |
At October 31, 2018, capital losses incurred that will be carried forward indefinitely under provisions of the Act are as follows:
Portfolio | Short-Term Capital Loss Carryforward | Long-Term Capital Loss Carryforward | ||||||
International Equity | $(41,247,982 | ) | $ | (44,793,573 | ) | |||
Institutional Emerging Markets | (46,112,271 | ) | (113,203,439 | ) | ||||
Emerging Markets | (17,667,551 | ) | — | |||||
Frontier Emerging Markets | (12,659,255 | ) | (85,650,794 | ) |
At October 31, 2018, the pre-enactment capital loss carryforwards and their respective years of expiration were as follows:
Portfolio | October 31, 2019 | |||
Institutional Emerging Markets | $ | (3,834,973 | ) |
9. | Foreign Exchange Contracts |
The Portfolios do not generally hedge foreign currency exposure, however, the Portfolios may enter into forward foreign exchange contracts in order to hedge their exposure to changes in foreign currency exchange rates on their foreign portfolio holdings. Each Portfolio will conduct its currency transactions either on a spot (cash) basis at the rate prevailing in the currency exchange market, or by entering into forward contracts to purchase or sell currency. Foreign currency transactions entered into on the spot markets serve to pay for foreign investment purchases or to convert to dollars, the proceeds from foreign investment sales or dividend and interest receipts. The Portfolios will disclose open forward currency contracts, if any, on the Portfolios of Investments. The Portfolios do not separately disclose open spot market transactions on the Portfolios of Investments. Such realized gain (loss) and unrealized appreciation (depreciation) on spot market transactions is included in “Net realized gain (loss) on foreign currency transactions” and “Change in unrealized appreciation (depreciation) on translation of assets and liabilities denominated in foreign currencies”, respectively, on the Portfolios’ Statements of Operations. The Portfolios held no open forward currency contracts as of or during the period ended April 30, 2019.
10. | Participation Notes |
Each Portfolio may invest in participation notes. Participation notes are promissory notes that are designed to replicate the return of a particular underlying equity or debt security, currency or market. Participation notes are issued by banks or broker-dealers or their affiliates and allow a Portfolio to gain exposure to common stocks in markets where direct investment may not be allowed. Participation notes are generally traded over-the-counter. In addition to carrying the same risks associated with a direct investment in the underlying security, participation notes are subject to the risk that the broker-dealer or bank that issues them will not fulfill its contractual obligation to complete the transaction with a Portfolio. Participation notes constitute general unsecured contractual obligations of the banks or broker-dealers that issue them, and a Portfolio would be relying on the creditworthiness of such banks or broker-dealers and would have no rights under a participation note against the issuer(s) of the underlying security(ies). Participation notes may be more volatile and less liquid than other investments held by the Portfolios.
11. | Concentration of Ownership |
At April 30, 2019, the percentage of total shares outstanding held by record shareholders each owning 10% or greater of the aggregate shares outstanding of each Portfolio were as follows:
No. of Shareholders | % Ownership | |||||||||||
Global Equity | 4 | 54.22 | %* | |||||||||
International Equity | 3 | 51.08 | %* | |||||||||
International Small Companies | 4 | 66.04 | %* | |||||||||
Institutional Emerging Markets | 2 | 56.32 | %* | |||||||||
Emerging Markets | 3 | 65.91 | %* | |||||||||
Frontier Emerging Markets | 2 | 46.51 | %* | |||||||||
Global Equity Research | 2 | 83.47 | % | |||||||||
International Equity Research | 3 | 68.26 | %* | |||||||||
Emerging Markets Research | 2 | 74.70 | % |
* | Includes omnibus positions of broker-dealers representing numerous shareholder accounts. |
65
Table of Contents
Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
April 30, 2019 (unaudited)
11. | Concentration of Ownership (continued) |
Investment activities of these shareholders may have a material effect on the Portfolios.
12. | Concentration of Risk |
Investing in securities of foreign issuers and currency transactions may involve certain considerations and risks not typically associated with investments in U.S. issuers. These risks include revaluation of currencies, adverse fluctuations in foreign currency values and possible adverse political, social and economic developments, including those particular to a specific industry, country or region, which could cause the securities and their markets to be less liquid and prices more volatile than those of comparable U.S. companies and U.S. government securities. These risks are greater with respect to securities of issuers located in emerging market countries in which the Portfolios are authorized to invest.
Frontier Emerging Markets is permitted to invest up to 35% of its total assets in companies in the same industry, if, at the time of investment, that industry represents 20% or more of the Portfolio’s benchmark index. During periods when the Portfolio has invested more than 25% of its total assets in companies in the same industry, it will operate as a concentrated portfolio and be subject to additional risks and greater volatility. Such additional risks include increased competition within the industry, or changes in legislation, or government regulations affecting the industry. The value of the Portfolio’s shares may be particularly vulnerable to factors affecting the banking industry, such as the availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, extensive government regulation, and price competition. Such risks may be magnified with respect to securities of issuers in Frontier Emerging Markets. At April 30, 2019, the Portfolio’s investment in the Banking industry amounted to 34.24% of its total assets.
13. | Line of Credit |
The Fund has a $150 million line of credit agreement with Northern Trust. Borrowings are made solely to facilitate the handling of redemptions or unusual or unanticipated short-term cash requirements. Because several Portfolios participate and collateral requirements apply, there is no assurance that an individual Portfolio will have access to the entire $150 million at any particular time. Interest is charged to each Portfolio based on its borrowings at an amount above the Federal Funds rate, subject to a minimum rate. In addition, a facility fee is computed at an annual rate of 0.15% on the line of credit and is allocated among the Portfolios.
For the period ended April 30, 2019, International Small Companies had an outstanding balance for ten days with a maximum balance of $10,700,000 at an average weighted interest rate of 1.15%. For the period ended April 30, 2019, Frontier Emerging Markets had an outstanding balance for four days with a maximum balance of $1,000,000 at an average weighted interest rate of 1.31%.
14. | Subsequent Events |
Subsequent events occurring after the date of this report have been evaluated for potential impact, for purposes of recognition or disclosure in the financial statements, through the date the report was issued and it has been determined that no other adjustments or disclosures are required beyond what is already included in the financial statements and accompanying footnotes.
66
Table of Contents
Supplemental Information
(unaudited)
Quarterly Form N-PORT and Form N-Q Portfolio Schedule
Each Portfolio will file its complete portfolio of investments with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. Previously, the Portfolios filed complete portfolios of investment with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Portfolios’ Forms N-PORT and N-Q are available on the SEC’s website at www.sec.gov. Additionally, they are available upon request by calling (877) 435-8105.
Proxy Voting Record
The Fund’s proxy voting record relating to the Portfolios’ securities during the most recent 12-month period ended June 30 is available on the Fund’s website at www.hardingloevnerfunds.com and on the SEC’s website at www.sec.gov, on Form N-PX.
Proxy Voting Policies and Procedures
The Fund’s proxy voting policies and procedures are included in Appendix B to Statement of Additional Information and is available without charge, upon request, by calling (877) 435-8105 or on the SEC’s website at www.sec.gov.
Additional Information
The Adviser updates Fact Sheets for the Portfolios each calendar quarter, which are posted to the Fund’s website at www.hardingloevnerfunds.com. This information, along with the Adviser’s commentaries on its various strategies, is available without charge, upon request, by calling (877) 435-8105.
67
Table of Contents
Directors and Principal Officers
(unaudited)
DIRECTORS AND PRINCIPAL OFFICERS OF THE FUNDS
David R. Loevner
Director and Chairman of the Board of Directors
Carolyn N. Ainslie
Director
Christine C. Carsman
Director
Jill R. Cuniff
Director
R. Kelly Doherty
Director
Charles W. Freeman, III
Director
Samuel R. Karetsky
Director
Eric Rakowski
Director
Richard T. Reiter
President
Tracy L. Dotolo
Chief Financial Officer and Treasurer
Brian D. Simon
Chief Compliance Officer, Anti-Money Laundering Compliance Officer, and Assistant Secretary
Marcia Y. Lucas
Secretary
Aaron J. Bellish
Assistant Treasurer
Ryan Bowles
Assistant Treasurer
Derek A. Jewusiak
Assistant Treasurer
Lori M. Renzulli
Assistant Secretary
68
Table of Contents
This report is intended for shareholders of Harding, Loevner Funds, Inc. It may not be used as sales literature unless preceded or accompanied by the current Prospectus, which gives details about charges, expenses, investment objectives, risks and policies of the Portfolios.
Table of Contents
Table of Contents
Item 1. Reports to Stockholders (cont.).
(b) | Not applicable. |
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) | Schedule I is included as part of the report to shareholders filed under Item 1 of this report on FormN-CSR. |
(b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures forClosed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers ofClosed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities byClosed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) | The Registrant’s Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) were effective as of a date within 90 days prior to the filing date of this report, based on their evaluation of the effectiveness of the Registrant’s disclosure controls and procedures as of the evaluation date. |
(b) | There were no significant changes in the Registrant’s internal control over financial reporting (as defined in Rule30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
Table of Contents
Item 12. Disclosure of Securities Lending Activities forClosed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
(a)(1) | Not applicable. | |
(a)(2) | Exhibit 99.CERT: Certifications pursuant to Rule30a-2(a) of the Act are attached. | |
(a)(3) | Not applicable. | |
(a)(4) | Not applicable. | |
(b) | Exhibit 99.906: Certifications pursuant toRule 30a-2(b) of the Act are attached hereto. |
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Harding, Loevner Funds, Inc.
By | /s/ Richard T. Reiter | |
Richard T. Reiter | ||
(Principal Executive Officer) |
Date: July 3, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By | /s/ Richard T. Reiter | |
Richard T. Reiter | ||
(Principal Executive Officer) |
Date: July 3, 2019
By | /s/Tracy L. Dotolo | |
Tracy L. Dotolo | ||
(Principal Financial Officer) |
Date: July 3, 2019