Record Levels of Cash Are Sitting on the Sidelines

Attractive yields on cash and market uncertainty have led to record levels of cash on the sidelines. If yields decline, investors may want to put their cash to work in other asset classes.

Past performance does not guarantee future results. As of 1/3/07-3/27/24. Data Source: ICI, 4/24.

Returns from High CD Rates May Be Too Good to Be True

When 1-year CD ratespeaked in the past, theirreturns were outpaced bymost asset classes duringthe following year.

Past performance does not guarantee future results. As of 8/84-3/24. Indices are unmanaged and not available for direct investment. Asset classes are represented by: 1-Year CD rates (Bankrate’s 12-month CD national average), Short-Term Bonds (Bloomberg 1-3 Year US Government/Credit Index), Core Bonds (Bloomberg US Aggregate Bond Index), Corporate Bonds (Bloomberg US Corporate Bond Index), Municipal Bonds (Bloomberg Municipal Bond Index), Stocks (S&P 500 Index). Data Source: Morningstar and Hartford Funds, 4/24.

Strong Fixed-Income Returns After Negative Years

Fixed-income indices have delivered 8 periods of negative returns over the past 97 years. In each of the previous negative periods, investors who stayed the course were eventually rewarded.

Past performance does not guarantee future results. are for IA SBBI US Intermediate-Term Government Bond Index from 1926-1975 and the Bloomberg US Aggregate BondIndex from 1976-2023. Data Source: Morningstar, 1/24.

A Discount on Bond Prices Now Could Mean Attractive Returns Later

The average bond price is at its lowest point since the 1980s. Since bonds typically mature at face value barring any defaults,the current price creates an opportunity for total return.

Past performance does not guarantee future results. As of 1/76-3/24. Data Source: Bloomberg, 4/24.

Income Returns to Fixed Income

The income available across fixed-income asset classes is more attractive than it’s been in many years. But inflation and tighter monetary policy mean that choosing the right bonds has become more complex.

Past performance does not guarantee future results. As of 3/31/24. Yield to worst is the minimum yield that can be received on a bond assuming the issuer doesn’t default on any of its payments. Asset classes are represented by the following indices: US Treasuries (Bloomberg US Treasury Index), IG/Investment Grade Corporates (Bloomberg US Corporate Bond Index), MBS/Mortgage-Backed Securities (Bloomberg US MBS Index), Munis/Municipal Bonds (Bloomberg Municipal Bond Index), ABS/Asset-Backed Securities (Bloomberg US ABS Index), Commercial Mortgage Backed Securities/CMBS (Bloomberg US CMBS Investment Grade Index), EM Debt (Bloomberg Emerging Markets Aggregate Bond Index), High Yield (Bloomberg US Corporate High Yield Bond Index). Data Source: Bloomberg and Morningstar, 4/24.

Opportunity for Enhanced Returns in Fixed Income

While yield-to-worst values have come down from recent highs, they still are elevated compared to long-term averages.

Past performance does not guarantee future results.  As of 4/04-3/24. Standard deviation measures the portfolio’s total-return volatility. A higher standard deviation indicates greater historical volatility. Data Source: Morningstar, Factset, and Hartford Funds, 4/24.

Municipal Bond Yields Are Attractive

The benefits of tax free income can make municipal bonds look even more attractive to investors.

Past performance does not guarantee future results.  As of 3/31/24. Tax-equivalent yield assumes 37% marginal tax bracket and Medicare tax of 3.8% on net interest income. DataSource: Bloomberg and Morningstar, 4/24.

Yields and the Fed Have Moved Together

Timing the bond market perfectly is impossible, but fixed-income yields have historically begun to decline prior to the Fed’s first rate cut.

Past performance does not guarantee future results.  As of 7/93-3/24. The Federal Funds Rate is set by the Federal Open Market Committee (FOMC) and is the rate at which commercial banks borrow and lend their excess reserves to each other overnight. Data Source: FactSet, Hartford Funds, 4/24.

How Changing Interest Rates Affect Bond Prices

Rising and falling interest rates can have a significant impact on US Treasuries.

Past performance does not guarantee future results. As of 3/24. A basis point (bps) is a unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument.The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security. For example, +100 bps is the equivalent of a 1% increasein interest rates. Changes to hypothetical return are based on the security’s duration and convexity affect return. Duration is a measure of the sensitivity of an investment’s price to changes in interest rates. Convexity is a measure of how a bond’s duration can change based on the magnitude of an interest rate change. Data Source: Bloomberg and Hartford Funds, 4/24.

Cash Has Lagged When the Fed Stops Hiking

Investors who focus on cash may sacrifice returns because other investments have significantly outperformed cash after the last Fed rate hike.

Past performance does not guarantee future results. As of 3/89-3/24. Data shown is based on the five previous time periods 1 year after the Federal Reserve finished hiking the federal funds target rate, which were 3/89-2/90, 3/95-2/96, 6/00-5/01, 7/06-6/07, and 1/19-12/19; it excludes the current interest-rate hiking cycle that began in March 2022. Asset classes are represented by the following indices: Cash (IA SBBI US 30 Day Treasury Bill Index), Municipal Bonds (Bloomberg Municipal Bond Index), US Treasuries (Bloomberg US Treasury Index), MBS (Bloomberg US MBS Index), Corporate Bonds (Bloomberg US Corporate Bond Index), High Yield (Bloomberg US Corporate High Yield Bond Index), Emerging Markets Debt (Bloomberg Emerging Markets Aggregate Bond Index). Emerging-Markets Debt were excluded from 3/89-2/90 due to limited history. Data Source: Morningstar, Factset, and Hartford Funds, 4/24.

Performance Shifts During the Fed Pause

Cash returns have been compelling before the last rate hike, but once the Fed has paused rate hikes or begun cutting rates, stocks and bonds have provided better returns.

Past performance does not guarantee future results. As of 1/90-3/24. Asset classes are represented by: Stocks (S&P 500 Index), Bonds (Bloomberg US Aggregate Bond Index), Cash (IASBBI US 30 Day Treasury Bill Index). 6 Months Before the Last Hike and 6 Months After First Rate Cut are cumulative returns. Rate Pause Period returns are annualized returns. Data Source:Morningstar, Factset, and Hartford Funds, 4/24.

Finding Fixed Income to Fit Specific Roles in a Portfolio

Seeking higher-yielding bonds can help provide more income, but it may also decrease some of bonds' diversification benefits within a portfolio.

Past performance does not guarantee future results. As of 3/31/24. Income Generators are asset classes that have historically offered higher distribution yields. Volatility Dampeners areasset classes that have historically offered lower volatility than equities. Asset classes are represented by: Cash (Bloomberg US Treasury Bill 1-3 Month Index), US Treasuries (Bloomberg US7-10 Year Treasury Bond Index), MBS (Bloomberg US MBS Index), ABS (Bloomberg US ABS Index), Global Government (Bloomberg Global Aggregate Bond Index), Munis (Bloomberg MunicipalBond Index), IG Corporates (Bloomberg US Corporate Bond Index), EM Debt (Bloomberg Emerging Markets Aggregate Bond Index), High Yield Bonds (Bloomberg Global High Yield Index). Yield is yield to maturity for all indices except Munis, which is Yield to Worst. A correlation of 1.0 indicates the investments have historically moved in the same direction; -1.0 means the investments have historically moved in opposite directions. Diversification does not ensure a profit or protect against a loss. Data Source: Bloomberg, Morningstar, 4/24.

Market Performance Is Being Driven by a Handful of Companies in 2023

The market is made up of thousands of stocks, but those with the largest market cap can have a disproportionate impact on returns.

For the S&P 500 Index:

• 73% of stocks in the Index underperformed its overall return
• 31% had flat to negative performance

Past performance does not guarantee future results. As of 12/31/23. S&P 500 Index 7 Largest Companies as measured by free-float market capitalization. Data Source: FactSet and 9Hartford Funds, 1/24.

What Happens After A Stock Hits the Top 10?

Much of the US equity returns for last year were driven by the biggest names in the S&P 500 Index. But the performance that gets a company into the top 10 doesn’t tend to last.

Past performance does not guarantee future results. As of 1/85-3/24. Companies are sorted every January by beginning-of-month market capitalization to identify first time entrants into the top 10. Data Source: FactSet, Morningstar and Hartford Funds, 4/24..

US and International Stocks Have Traded Periods of Outperformance

The current cycle of US outperformance has well exceeded the historical average.

Past performance does not guarantee future results. As of 3/31/24. US equities are represented by the S&P 500 Index; International equites are represented by the MSCI World ex USAIndex. Data Source: Morningstar, Bloomberg, and Hartford Funds, 4/24.

Finding Sector Diversification Abroad

Investors could help reduce unintended sector biases by increasing their allocations to international investments.

Past performance does not guarantee future results. of 3/31/24. Sector exposures for the US are represented by the S&P 500 Index and for International by the MSCI EAFE Index. DataSource: FactSet, 4/24.

International Value Has Outperformed Growth When Yields Are Elevated

International stocks have lagged US stocks for the last several years.But there may be an opportunity for investors that focus on value over growth internationally if Treasury rates remain high.

Past performance does not guarantee future results. As of 1/79-3/24. International Equity is represented by MSCI EAFE Index, US Equity is represented by S&P 500 Index, International Value Equity is represented by MSCI EAFE Value Index, International Growth Equity is represented by MSCI EAFE Growth Index. Data Source: Morningstar, Factset, and Hartford Funds, 4/24.

The Potential Benefit of Combining Domestic and International Equities

Domestic and international equities have historically experienced different risk-and-return characteristics. Combining them together over the long term might increase returns and/or lower portfolio volatility.

Past performance does not guarantee future results.  As of 1/87-3/24. International Stocks are represented by MSCI EAFE Index; US Stocks are represented by the S&P 500 Index. DataSource: Morningstar, 4/24.

Growth and Value Stocks Have Traded Periods of Outperformance

While it's been a long time since value outperformed growth, value has experienced extended periods of outperformance relative to growth.

Past performance does not guarantee future results. As of 3/31/24. Growth is represented by the Russell 1000 Growth Index, Value is represented by the Russell 1000 Value Index. DataSource: Morningstar and Hartford Funds, 4/24.

Value Has Outperformed Growth When Yields Are High

Growth has been on a strong run relative to value in recent years.But this run correlates to low interest rates. Over the long term, Treasury yields have typically been higher, which helped value outperform.

Past performance does not guarantee future results. As of 1/79-3/24. Growth is represented by Russell 1000 Growth Index, Value is represented by Russell 1000 Value Index. DataSource: Morningstar, Factset, and Hartford Funds, 4/24.

Equity Valuations Vary Widely

As the market continues to climb despite the Fed’s efforts to curb inflation, there are meaningful differences in equity valuations by size and style.

Past performance does not guarantee future results. As of 12/31/89-3/31/24. The price-to-earnings (P/E) ratio measures a company’s share price relative to its earnings-per-share and helps assess the relative value of a company’s stock. Based on the following indices: Large Cap Value (Russell 1000 Value Index), Large Cap Blend (Russell 1000 Index), Large Cap Growth (Russell1000 Growth Index), Mid Cap Value (Russell Mid Cap Value Index), Mid Cap Blend (Russell Mid Cap Index), Mid Cap Growth (Russell Mid Cap Growth Index), Small Cap Value (Russell 2000Value Index), Small Cap Blend (Russell 2000 Index), Small Cap Growth (Russell 2000 Growth Index). Data Source: Hartford Funds, 4/24.

A Balanced Portfolio Can Help Balance Out Volatility

After a year such as 2022 in which both stocks and bonds suffered significant declines, some investors considered abandoning balanced investing. But over the long term, combining equities and fixed income has been a winning formula.

Past performance does not guarantee future results. As of 1/1/00-12/31/23. Stocks are represented by the S&P 500 Index. Bonds are represented by Bloomberg US Aggregate BondIndex. Balanced portfolio is represented by 50% S&P 500 Index and 50% Bloomberg US Aggregate Bond Index. Data Source: Morningstar and Hartford Funds, 1/24.