- May 2018 Update
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May 2018 Update
- Global economic data showed continued strength amid politically charged events, including intensifying uncertainty in Europe on the future Italian and Spanish governments, and President Trump’s announcements to exit the Iran nuclear deal and cancel the US-North Korea summit
- Most global sovereign yields fell amid heightened volatility in the global financial markets. The political turmoil in Italy triggered a rally in most sovereign yields following safe-haven flows; UK 10-year gilt yields reached the lowest level in nine months and the US 10-year Treasury yield retracted from the seven-year peak it reached intra-month. Peripheral European sovereign spreads widened, led by Italy.
- Hartford World Bond Fund performance was positive over the month with both opportunistic and global government core sources of return contributing positively
- Core rates contributed positively to returns as volatility stemming from Italian political turmoil triggered a flight to quality with most developed market rates rallying over the month. In spite of broad US dollar (USD) appreciation, our allocation to Japanese yen (JPY) in core currency was able to contribute to performance as safe haven currencies outperformed in May.
- Macro-driven duration1 strategies contributed. The primary contributor was our tactical trading in duration. We were underweight US duration entering the month and US 10-year yields hit their highest level since 2011 on signs of US economic strength. Later in the month, we were positioned with a slight overweight duration bias in the UK, New Zealand, and Germany, which was beneficial as yields decreased primarily driven by safe-haven flows.
- Macro-driven currency strategies contributed. Our underweight to British pound (GBP) versus USD contributed. US cyclical strength continued to support the greenback with US yields rising in the first half of the month. The GBP weakened in May as ongoing soft data saw the probability for a rate hike by the Bank of England (BoE) decline.
- Allocations in high-yield credit detracted as spreads widened, driven by the re-emergence of European sovereign risks
Expenses2 % (Class A) Net Op. Exp.: 1.04% Gross Op. Exp.: 1.04%
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of the investment will fluctuate so that investors' shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For more current performance information to the most recent month-ended, click here.
Portfolio Positioning & Market Outlook
- Portfolio duration increased modestly to 2.83 years at month end as we decreased the size of our tactical short positions amidst heightened volatility to end the month. We continue to maintain a conservative duration posture at the lower end of our range. Our USD hedge ratio continues to be high as a continued reversal in recent inflation softness and a pickup in wage pressures could trigger support for the USD as well as markets re-engaging with short term interest rate differentials.
- Global growth is likely to be slightly above trend in the second half of 2018, despite the recent loss of momentum. We are managing duration tactically in this late-cycle moderating growth environment.
- Reflationary fiscal stimulus and improving labor markets should lead to higher US inflation and gradual Fed hikes. We are underweight US duration.
- A slowing UK economy, tightening credit conditions and loss of inflation momentum will lead to a shallow BoE hiking cycle. We are underweight the GBP.
- Rise in populist politics could again challenge the viability of the euro. We are underweight the euro and overweight the USD, Swiss franc and the JPY.
Important Risks: Investing involves risk, including the possible loss of principal. The fund seeks to achieve its investment objective by allocating assets among specialist portfolio managers. There is no guarantee a fund will achieve its stated objective. Security prices fluctuate in value depending on general market and economic conditions and the prospects of individual companies. ● Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. ● Obligations of U.S. Government agencies are supported by varying degrees of credit but are generally not backed by the full faith and credit of the U.S. Government. ● Investments in high-yield (“junk”) bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities. ● Mortgage related- and asset-backed securities’ risks include credit, interest-rate, prepayment, and extension risk. ● Derivatives are generally more volatile and sensitive to changes in market or economic conditions than other securities; their risks include currency, leverage, liquidity, index, pricing, and counterparty risk. ● Foreign investments may be more volatile and less liquid than U.S. investments and are subject to the risk of currency fluctuations and adverse political and economic developments. These risks may be greater for investments in emerging markets. ● The fund may invest in a smaller number of issuers and focus on investments in particular geographic regions or countries, so it may be more exposed to risks and volatility than a more broadly diversified fund. ● Privately placed, restricted (Rule 144A) securities may be more difficult to sell and price than other securities.
1Duration is a measure of the sensitivity of an asset or portfolio’s price to nominal interest rate movement.
2Expenses as shown in the fund’s most recent prospectus. Gross and Net expenses are the same.
3Benchmark is the Citigroup World Government Bond Index.
Index data for Citigroup World Government Bond Index © 2018 Citigroup Index LLC (“Citi Index”). All rights reserved. CITI is a trademark and service mark of Citigroup Inc. or its affiliates, is used and registered throughout the world, and is used with permission for certain purposes by Hartford Funds Management Group, Inc. Hartford World Bond Fund is not sponsored, endorsed, sold or promoted by Citi Index, and Citi Index makes no representation regarding the advisability of investing in such fund. Reproduction of the Citi Index data and information (collectively, “Citi Data”) in any form is prohibited except with the prior written permission of Citi Index. CITI INDEX GIVES NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF ACCURACY, ADEQUACY. MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. Citi Index is not responsible for any errors or omissions in, or for the results obtained from use of, Citi Data, and in no event shall Citi Index be liable for any direct, indirect, special or consequential damages in connection therewith.
Citigroup World Government Bond Index is a market-capitalization weighted index consisting of government bond markets. Country eligibility is determined based on market capitalization and investability criteria. All issues have a remaining maturity of at least one year.
Bloomberg Barclays U.S. Aggregate Bond Index is composed of securities from the Bloomberg Barclays Government/Credit Bond Index, Mortgage-Backed Securities Index, Asset-Backed Securities Index, and Commercial Mortgage-Backed Securities Index.
Indices are unmanaged and not available for direct investment.