- Volatility dropped across most asset classes during May even as political news dominated headlines, with Emmanuel Macron’s win in the French presidential election, controversy embroiling Donald Trump’s presidency in the US, and corruption charges against Brazilian President Michel Temer
- US Federal Open Market Committee (FOMC) minutes hinted at a June rate hike, and most officials seemed to agree on a slow and predictable reduction of balance sheet holdings
- Most global government yields declined over the month, and the US dollar (USD) depreciated versus most global currencies, while credit spreads generally tightened
Trump administration could pursue protectionist labor agenda to increase labor force participation rate
Actual data is presented through 2016. Any dates after that represent forward looking estimates.
Actual results may vary, perhaps significantly from the forecasted/estimated periods of 2017 – 2026 data shown. | Sources: Bureau of Labor Statistics; United Nations
- 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 as the Trump reflation trade continues to unwind. Core currency (FX) also added to performance as we decreased our USD hedge ratio over the course of the month, which benefitted from USD depreciation against most major currencies as market participants seem to have gotten past their fear of US Federal Reserve (Fed) rate hikes.
- Our credit strategies contributed primarily driven by our exposure in high-yield and securitized sectors. Spreads continued to tighten in May.
- Macro-driven currency strategies detracted, primarily driven by our overweight Swedish krona (SEK) versus Euro (EUR) position. The EUR rallied versus most European and G101 currencies following the reduction of political risk after Macron’s victory.
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 duration3 increased to two years at month end, primarily driven by opportunistic strategies. Our strategic exposure continued to maintain a low/conservative duration posture, as valuations on government bonds look rich.
- We reduced our USD hedge ratio as a combination of factors (debt ceiling uncertainties, White House investigation distractions, a slower Fed hiking cycle if they move towards a balance sheet unwind later this year) could weaken the US dollar
- US rates are biased lower due to the sluggish pace of US inflation and constrained political ability to accomplish a pro-growth agenda. We are tactically overweight US duration.
- The Euro area is experiencing a better growth cycle and reduced political tail risk. We are underweight duration in Europe.
- Moderating China growth, commodity disinflation and US trade protectionism could impact select commodity-linked economies. We are overweight duration in the front-end of New Zealand and underweight the Australian dollar.
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 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.
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 Duration is a measure of the sensitivity of an asset or portfolio’s price to nominal interest rate movement.
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.