Harbor Capital Appreciation Fund, an investment management company, recently published its Q3 2025 investor letter. The fund primarily focuses on investing in equity securities, targeting U.S. companies with a market capitalization of at least $1 billion at the time of investment. In the third quarter of 2025, US equities performed well, driven by continued momentum in AI and strong corporate earnings. The Federal Reserve’s interest rate cut also supported the market towards the end of the quarter. The fund delivered a return of 5.11% in the quarter, compared to 10.51% for the Russell 1000® Growth Index and 8.12% for the S&P 500 Index. For a detailed look at the fund’s top five holdings and best picks in 2025, the investor letter can be downloaded from the link provided.
One of the highlighted stocks in the third-quarter investor letter was Microsoft Corporation (NASDAQ:MSFT). Microsoft is a multinational software company known for developing and supporting software, services, devices, and solutions. The stock had a one-month return of 0.52% and a 52-week gain of 11.08%. As of December 24, 2025, Microsoft Corporation closed at $488.02 per share, with a market capitalization of $3.628 trillion.
In the investor letter, Harbor Capital Appreciation Fund mentioned that Microsoft Corporation’s shares underperformed due to concerns about its relationship with Open AI following the Oracle/Open AI deal announcement. The fund’s underweight position in Microsoft relative to the index contributed positively to relative returns.
Microsoft Corporation (NASDAQ:MSFT) is also ranked second on the list of 30 Most Popular Stocks Among Hedge Funds. According to the fund’s database, 312 hedge fund portfolios held Microsoft Corporation at the end of the third quarter, compared to 294 in the previous quarter. In the first quarter of fiscal year 2026, Microsoft reported revenue of $77.7 billion, showing an 18% increase when adjusted for constant currency.
While Microsoft Corporation remains a strong investment option, the fund believes that certain AI stocks offer greater upside potential and carry less downside risk. For investors looking for an undervalued AI stock with significant potential benefits from Trump-era tariffs and the onshoring trend, a free report on the best short-term AI stock is available for further exploration.
In conclusion, Harbor Capital Appreciation Fund’s Q3 2025 investor letter provides valuable insights into the fund’s performance and top picks for the year. Investors interested in exploring the fund’s investment strategy and outlook can download the full letter for a comprehensive review.
