- October 2018 Update
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October 2018 Update
- Global financial markets showed widespread volatility in October, led by sharp decline in equities. Disappointing economic data in the eurozone, heightened political uncertainty in Europe, softer third-quarter corporate earnings guidance from US companies, worries over the macroeconomic implications of the US-China trade conflict, and tensions relating to Saudi Arabia all contributed to market jitters.
- Global sovereign yields diverged. US Treasury yields rose, as concerns about US Federal Reserve (Fed) policy normalization and the US fiscal trajectory reduced the appeal of US Treasuries as a safe-haven. Canadian yields rose following a rate hike and the announcement of a US-Mexico-Canada trade agreement. UK and German yields declined amid the Italian budget dispute, Brexit concerns, and slowing European growth.
- The US dollar (USD) appreciated against a backdrop of strong economic data, a hawkish Fed, and safe-haven flows. The lingering threat of a no-deal Brexit outcome, the Italian fiscal standoff, and slowing eurozone economic data prompted weakness in the euro and the British pound. The Swedish krona (SEK) declined following dovish monetary policy guidance and continued political deadlock over the formation of a government.
- Hartford World Bond Fund performance was positive over the month with both global government core strategies and opportunistic sources of return contributing to performance
- In global government core rates, our conservative (low) duration1 positioning and exposure to Asia-linked countries such as Australia, New Zealand, and South Korea contributed to positive total returns
- Our core currency positions slightly detracted. Our Japanese yen (JPY) exposure contributed to performance as the JPY benefitted from safe-haven flows amid an equity market selloff, however our exposure to the euro (EUR) and Swiss franc (CHF) detracted given uncertainty around European growth and politics.
- Macro-driven duration strategies were positive, with our underweight duration bias in the US contributing to performance. The Fed remains committed to gradual monetary tightening and Fed Chair Jerome Powell stated that rates “may go past neutral”. Overweight duration positions in Australia and South Korea were also helpful, as most Asian sovereigns benefitted from the flight to quality amid the sharp sell-off in emerging markets equities.
- Macro-driven currency strategies were also positive. Our overweights to the USD and JPY versus the EUR were beneficial.
- Within opportunistic credit strategies, our high yield exposure detracted as high yield spreads widened over the month, specifically in industrial sectors
Expenses2 (Class A) Net 1.04% Gross 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.
Portfolio Positioning & Market Outlook
- Portfolio duration increased to 3.83 years at month end. We moderately increased our strategic duration to capitalize on the recent increase in US yields. We also increased our opportunistic duration exposure as a hedge against slowing growth and intensifying trade tensions.
- In opportunistic macro duration strategies, we continue to tactically manage duration given the global economy has entered a late-cycle stage, with slowing growth, rising inflation, tighter central bank policy, and intensifying trade friction. Additionally, as a result of the US policy mix of pro-cyclical fiscal stimulus alongside trade and immigration curbs, we see the potential for a boom-bust cycle and therefore have expressed a steepening bias in US duration.
- In currency, we are underweight the EUR and the British pound as the Italian budget discussions and Brexit uncertainty are likely to pressure European assets
- Our exposure to credit sectors remains opportunistic in nature. We remain positive toward high yield and securitized credit, but have grown more cautious toward investment grade credit in anticipation of rising market volatility.
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 FTSE World Government Bond Index
The Hartford World Bond Fund (the “Fund”) has been developed solely by Hartford Funds. The Fund is not in any way connected to or sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). FTSE Russell is a trading name of certain of the LSE Group companies. All rights in the FTSE World Government Bond Index (“WGBI” or the “Index”) vest in the relevant LSE Group company which owns the Index. FTSE Russell® is a trade mark of the relevant LSE Group company and is used by any other LSE Group company under license. The Index is calculated by or on behalf of FTSE Fixed Income, LLC or its affiliate, agent or partner. The LSE Group does not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the Fund. The LSE Group makes no claim, prediction, warranty or representation either as to the results to be obtained from the Fund or the suitability of the Index for the purpose to which it is being put by Hartford Funds.
FTSE 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.