- Global economic data pointed to ongoing synchronized global economic recovery, despite political unrest in Spain and the European Central Bank’s (ECB’s) tapering announcement. The US House of Representatives paved the way for a tax reform bill, while markets focused on the upcoming nomination of a new Federal Reserve (Fed) chair.
- Most global government bond yields fell, while US front-end yields rose amid speculation about the potential for a slightly more hawkish Fed chair
- Global corporate credit markets continued to benefit from the global economic recovery, outperforming duration1-equivalent government bonds as spreads tightened further
- The US dollar (USD) performed strongly versus most major currencies, particularly given progress on US tax reform and a better-than-expected advance third-quarter gross domestic product (GDP) print
- Hartford World Bond Fund returns were positive over the course of the month as opportunistic sources of return drove the majority of performance
- Macro-driven duration strategies contributed positively to performance. Our underweight duration position in the front end of the US curve was beneficial. Speculation that President Trump would appoint a more hawkish Fed chair contributed to an increase in US front-end yields. Our overweight to Canadian duration was also helpful. Canadian yields fell as the tone of the Bank of Canada’s statement was more dovish than expected.
- Quantitative strategies were positive. Our long Canadian 10-year versus US, German and UK 10-year positions were all beneficial to performance. Uncertainty around NAFTA2 discussions as well as continued disappointment in Canadian economic activity led to relative outperformance from Canadian sovereigns.
- Allocations to credit sectors such as High Yield, Emerging Markets and Investment Grade were all beneficial to performance as spreads tightened over the month
- Global government core exposure was flat over the course of the month as positive contribution from core rates, aided by a general move lower in yields, was offset by negative performance from our core currency (FX) exposure as most currencies declined against the USD
Expenses3 % (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 increased to 1.96 years at month end due to a decrease in active short positions. We continue to maintain a conservative duration posture, as valuations on government bonds continue to look rich. We slightly increased our USD hedge ratio in expectation of near term dollar strength.
- Robust global growth and policy normalization by global central banks should lead to a gradual increase in global rates. We are underweight duration.
- The period of US growth moderation and weak inflation surprises is coming to an end. We are overweight the USD versus a basket of currencies.
- Central banks of small open economies around Europe will engage with the cyclical upturn and reduce their assessment of downside risk. We are overweight the Swedish krona and Norwegian krone versus the euro.
- We remain overweight investment-grade corporate credit with an emphasis on selective opportunities in the European banking sector. Abatement of political risk in Europe and the strength of the European economy should support the performance of euro-denominated corporate credit.
Currency Exposure (%)
|As of 10/31/17||Fund||Benchmark4|
|New Zealand Dollar||-0.72||0.00|
|South African Rand||-0.77||0.41|
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 NAFTA (North American Free Trade Agreement) is an agreement among the United States, Canada, and Mexico designed to remove tariff barriers between the three countries.
3 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.
4 Benchmark is the Citigroup World Government Bond Index.
Index data for Citigroup World Government Bond Index © 2017 Citigroup Index LLC (“Citi Index”). All rights reserved. CITI is a trademark and service mark of Citigroup Inc. or its affiliates, is used and registered throughout the world, and is used with permission for certain purposes by Hartford Funds Management Group, Inc. Hartford World Bond Fund is not sponsored, endorsed, sold or promoted by Citi Index, and Citi Index makes no representation regarding the advisability of investing in such fund. Reproduction of the Citi Index data and information (collectively, “Citi Data”) in any form is prohibited except with the prior written permission of Citi Index. CITI INDEX GIVES NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF ACCURACY, ADEQUACY. MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. Citi Index is not responsible for any errors or omissions in, or for the results obtained from use of, Citi Data, and in no event shall Citi Index be liable for any direct, indirect, special or consequential damages in connection therewith.
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.