- Economic data from the US disappointed, while political uncertainty in Europe and increased geopolitical tension in Asia dominated the headlines
- US Federal Reserve (Fed) members discussed reducing the central bank’s balance sheet at their March meeting, setting the stage for potential policy normalization later this year
- Most global government bond yields declined, credit spreads tightened and the US dollar (USD) experienced a mixed performance
Global Central Bank Liquidity is Peaking
Sources: Central banks, Wellington Management
- Hartford World Bond Fund returns were positive over the course of the month as both global government core exposure and opportunistic exposures contributed to returns
- In global government core exposure, our core government bond holdings added to performance as bond prices rallied over the course of the month. Weakening US data, rising geopolitical risks, and Chinese growth concerns contributed to a decline in most developed market yields.
- Our credit strategies, particularly in high yield and securitized sectors, contributed to performance as spreads continued to tighten in April
- Core currency (FX) detracted marginally, driven by our Canadian dollar (CAD) exposure as the US administration’s protectionist rhetoric weighed on the currency
- Macro-driven duration1 strategies detracted. Our underweight duration positions in the intermediate and long end of the US curve were the primary detractors, partially offset by positive performance from our overweight duration position in the front end of the New Zealand curve.
- Quantitative strategies also hurt performance. Our continued long Germany and US 10-year bonds versus short Canada 10-year bond positions detracted as spreads widened, driven by the strong rally in Canadian bonds. In our view, the market has been overly focused on recent housing stress in Canada and is pricing in a recessionary growth picture that is inconsistent with recent data.
Expenses2 % (Class A) Net Op. Exp.: 1.05% Gross Op. Exp.: 1.11%
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 decreased to 1.25 years at month end. We continued to maintain a conservative duration posture, as valuations on government bonds look rich in spite of the recent selloff in rates. We maintain a high USD hedge ratio as geopolitical uncertainty, potential US fiscal stimulus, and Fed rate hikes should support the USD.
- Recent growth momentum has slowed, yet major central banks are retaining a policy normalization bias. We are tactically managing duration.
- The Eurozone is experiencing a better growth cycle and reduced political tail risk. We are underweight duration in Germany.
- Moderating Chinese growth, US trade protectionism, and rising geopolitical risk could affect higher-beta3 trade-linked currencies. We are underweight the New Zealand dollar and the Australian dollar.
Currency Exposure (%)
|As of 4/30/17||Fund||Benchmark4|
|South African Rand||-0.58||0.43|
|New Zealand Dollar||-1.11||0.00|
A Word About Risk
All investments are subject to risk, including the possible loss of principal. There is no guarantee the Fund will achieve its stated objective. The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the Fund’s strategy for allocating assets among different asset classes and/or portfolio management teams does not work as intended, the Fund may not achieve its objective or may underperform other funds with similar investment strategies. Fixed Income risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall; these risks are currently heightened because interest rates are at, or near, historical lows. 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- and asset-backed securities’ risks include credit, interest-rate, prepayment, and extension risk. Derivatives may be riskier or more volatile than other types of investments because they are generally more sensitive to changes in market or economic conditions; risks include currency, leverage, liquidity, index, pricing, and counterparty risk. Foreign investments can be riskier and more volatile than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as political and economic developments in foreign countries and regions (e.g., “Brexit”). These risks are generally greater for investments in emerging markets. The Fund is non-diversified, so it may be more exposed to the risks associated with individual issuers than a diversified fund. Privately placed, restricted (Rule 144A) securities may be more difficult to sell and value than publicly traded securities, thus they may be potentially illiquid. The Fund may have high portfolio turnover, which could increase the Fund’s transaction costs and an investor’s tax liability.
1 Duration is a measure of the sensitivity of an asset or portfolio’s price to nominal interest rate movement.
2 Expenses stated as of the fund’s most recent prospectus. Net expenses reflect contractual expense reimbursements in instances when these reductions reduce the fund's gross expenses. Contractual reimbursements remain in effect until 2/28/18 and automatically renew for one-year terms unless terminated. Certain contractual reimbursements for Class R6 and Class F shares remain in effect until 2/28/18.
3 Beta is a measure of risk that indicates the price sensitivity of a security or a portfolio relative to a specified market index.
4 Benchmark is the Citigroup World Government Bond Index.
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.