- June 2018 Update
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June 2018 Update
- Market volatility persisted given ongoing global political uncertainty and escalating trade tensions. The US imposed additional tariffs on its trading partners, European Union leaders reached a deal on migration, and OPEC1 members agreed to increase oil production.
- Global sovereign yields were mixed amid the heightened trade tensions and emerging market weakness. Yields at the front end of the US Treasury curve increased as the Federal Reserve (Fed) hiked rates and signaled a total of four rate increases this year.
- The US dollar (USD) appreciated versus most major currencies, supported by the Fed’s commitment to tightening policy and safe-haven flows. The Norwegian krone was a notable exception. It appreciated following stronger industrial production, stronger regional survey data and an anticipated September rate hike.
- Hartford World Bond Fund performance was positive over the month, with both opportunistic sources of return contributing to positive performance and global government core marginally negative
- Core rates contributed positively to returns, as exposures to commodity-linked economies, such as Australia and Canada, benefitted performance. Our core currency positions detracted as the USD broadly appreciated amidst an escalation in trade tensions that prompted safe haven flows into the USD.
- Macro-driven duration2 strategies contributed. An underweight to US duration earlier in the month contributed. US economic outperformance led to Treasuries underperforming most major sovereigns. Later in the month, we shifted to overweight duration positions in the dollar bloc (New Zealand dollar [NZD], Australia primarily), which were strong contributors as escalating trade tensions and early warning signs about a loss of economic momentum in the Euro area and major emerging market’s (China) unsettled markets.
- Macro-driven currency strategies contributed. An underweight to European currencies (euro [EUR] vs a basket of currencies) was the primary contributor as slowing economic momentum and domestic political tensions ahead of the European Union summit pulled the EUR lower.
- Quantitative strategies were positive. Our long Canada 10-year vs US and UK 10-year positions were additive to performance. Canadian yields ended the month lower following weaker economic data and continued NAFTA3 concerns, resulting in spread tightening relative to the US and UK. Both US and UK yields were higher over the month.
- Allocations to investment-grade, high-yield, and emerging-market debt contributed to total returns on the month
Expenses4 % (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 3.56 years at month end. Our opportunistic short positions switched to longs in June. We continue to maintain a conservative duration posture at the lower end of our range. Our USD hedge ratio continues to be high. A continued reversal in recent inflation softness and a pickup in wage pressures could trigger support for the USD and 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. The downside risk is that heightened uncertainty related to populist policies and trade protectionism will derail growth. We are managing duration tactically in this late-cycle, moderating growth environment.
- Trade-oriented economies facing a build-up in household debt are the most exposed to rising trade tensions and monetary tightening. We are overweight duration and underweight currencies in select trade-linked countries, such as Australia, that are more dependent on external trade.
- New Zealand’s slowing domestic backdrop and sensitivity to the global trade slowdown suggests that the Reserve Bank of New Zealand will retain a dovish bias. We are underweight the NZD and overweight duration in New Zealand.
- Quantitative models indicate that the UK is expensive on most metrics. We are overweight Australia relative to the UK.
Currency Exposure (%)
|As of 6/30/18||Fund||Benchmark5|
|South African Rand||0.60||0.47|
|Offshore Chinese Renminbi||-0.45||0.00|
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.
1The Organization of Petroleum Exporting Countries (OPEC) is a group consisting of 12 of the world’s major oil-exporting nations
2Duration is a measure of the sensitivity of an asset or portfolio’s price to nominal interest rate movement.
3The North American Free Trade Agreement (NAFTA) is an agreement among the United States, Canada, and Mexico designed to remove tariff barriers between the three countries.
4Expenses as shown in the fund’s most recent prospectus. Gross and Net expenses are the same
5Benchmark 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.