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Market Commentary

  • Political headlines dominated the news during the month
  • After his inauguration as the 45th United States (US) president, Donald Trump signed several executive orders related to immigration, deregulation, and trade
  • Global sovereign yields increased, the US dollar (USD) declined versus most currencies, while credit spreads generally tightened

Cross-Asset Correlation Near 10-Year LowsGlobal Correlation Index1 (rolling 6-month correlation)

january-worldbond-fig-1

1Morgan Stanley Global Correlation index is a combination of average correlations between cross asset as well as regional correlations which include S&P500, MSCI Europe, Topic, MSCI EM, Russell 2000, FTSE100, 10-Year UST, 10-year German Bund, 10-Year JGB, 10-Year UK Gilt, Euro/US Dollar, US Dollar/Japanese Yen, British Pound/US Dollar, Australian Dollar/US Dollar, Canadian Dollar/US Dollar, US Dollar, Forex Emerging Markets, US and EUR Investment-Grade Spread, High-Yield Spread, Emerging-Market Sovereign Spread, and EM Local Rates. Correlation is a statistical measure of how two investments move in relation to each other. Sources: Morgan Stanley, Bloomberg


Portfolio Performance

Contributors

  • The World Bond Fund returns were positive over the course of the month as global government core exposure was slightly positive and opportunistic sources driving the majority of returns
  • In global government core exposure, our core government bond holdings added to performance despite rate movements being mixed as European rates continued their selloff while Dollar Bloc2 rates were flat to lower core currency (FX) was neutral over the course of the month due to the high USD hedge ratio implemented in the portfolio
  • Macro-driven duration3 strategies contributed to results. Our underweight positions in the United Kingdom (UK) and Germany contributed to results, as Europe led the bond sell-off for the month amid the global reflation trade, which continues to put upward pressure on global yields. Our underweight positions in European peripheral sovereigns also contributed to results as uncertainty surrounding upcoming elections and the future of the European Central Bank’s (ECB) Quantitative Easing (QE) caused a sudden jump in yields.
  • Our allocation to high yield, emerging market and securitized sectors benefitted from a total return perspective as economic data remained robust globally and credit spreads continued to tighten

Detractors

  • Macro-driven currency strategies detracted. Our overweight USD bias versus a broad basket of currencies (primarily Japanese yen, New Zealand dollar, and euro (EUR) detracted from results. The USD fell versus most G104 currencies, particularly after President Trump said that the greenback is already “too strong.”
  • Our allocation to high yield, emerging market and securitized sectors benefitted from a total return perspective as economic data remained robust globally and credit spreads continued to tighten
Monthly     Quarterly
Fund Performance (%)
Average Annual Total Return
As of 1/31/17 MTD YTD 1 Year 3 Year 5 Year Since Inception
(5/31/11)
Hartford World Bond Fund A 0.49 0.49 2.13 1.24 2.20 2.90
With 4.5% Max Sales Charge -- -- -2.47 -0.30 1.27 2.07
Citigroup World Government Bond Index -- 1.01 1.25 -0.94 -1.08 --
Morningstar Category: World Bond -- 0.93 4.63 0.66 0.86 --
Bloomberg Barclays US Aggregate Bond Index -- 0.20 1.45 2.59 2.09 --

Expenses5 % (Class A) Net Op. Exp.: 1.05% Gross Op. Exp.: 1.08%

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 continued to be defensively positioned standing at 1.73 years as of January month end. We remain bearish on duration broadly as valuations on government bonds continue to look rich in spite of the recent selloff in rates. We remain bullish on the USD broadly and were once again fully hedged at month end as we expect longer-term USD strength in expectation of further US fiscal policy and impending rate hikes from the US Federal Reserve (Fed).
  • There is a rising probability that central banks will turn less accommodative due to a globally synchronized cycle. We are underweight duration in UK, Europe, and Japan.
  • Trump policy uncertainty and currency competitiveness rhetoric could affect US reflation dynamics. We are tactically trading the US dollar and US duration.
  • UK’s Brexit negotiations around the key issues relating to the single-market access will raise uncertainty again. We remain underweight the British pound.

Sector Exposure (%)

As of 1/31/17

january-worldbond-fig-2

Contribution to Duration (%)

As of 1/31/17 Fund Benchmark6
United States 46.68 26.76
New Zealand 27.13 0.00
Canada 23.64 1.50
Australia 19.40 1.35
Mexico 14.62 0.42
Italy -10.77 6.42
United Kingdom -11.25 8.74
Japan -11.50 29.19
Poland -11.62 0.27
Germany -14.46 5.55

Currency Exposure (%)

As of 1/31/17 Fund Benchmark6
US Dollar 107.42 34.30
Denmark Krone 3.37 0.51
Swedish Krona 1.26 0.37
Mexican Peso 1.25 0.61
Polish Zloty 1.12 0.48
Japanese Yen -1.38 22.04
New Zealand Dollar -1.79 0.00
UK Sterling -1.82 5.62
Hong Kong Dollar -2.20 0.00
Euro Currency -7.30 31.21

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. 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 due to the historically low interest rate environment. 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 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. These risks are generally greater for investments in emerging markets. The Fund may have high portfolio turnover, which could increase the Fund’s transaction costs and an investor’s tax liability. 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.

2 Dollar Bloc currencies include Australian dollar, New Zealand dollar, and Canadian dollar.

3 Duration is a measure of the sensitivity of an asset or portfolio’s price to nominal interest rate movement.

4 The Group of Ten (G10) is made up of eleven industrial countries: Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States.

5 Expense ratios are as shown in the 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 February 28, 2017 and automatically renew for one-year terms unless terminated.

6 Benchmark is the Citigroup World Government Bond Index.
 

Index Definitions

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.

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