- Global economic data was positive overall despite growing geopolitical concerns around North Korea. The US government focused on recovery efforts following the disruptive hurricane season, while the Federal Open Market Committee (FOMC) announced its plans for balance-sheet normalization.
- Most global government yields rose as major central banks adopted hawkish rhetoric. Among the major developed markets, UK yields experienced the largest increase after the Bank of England (BOE) hinted that it would start hiking policy rates in November.
- Global corporate credit markets continued to benefit from global growth prospects and outperformed duration1-equivalent government bonds as spreads tightened
- The US dollar (USD) strengthened versus most major currencies, following announcements about the FOMC’s balance-sheet reduction and President Trump’s proposed tax reforms
- Macro-driven duration strategies made a marginally positive contribution. Our net underweight to US duration was beneficial. Global bond yields rose given the major central banks’ hawkish tone.
- Allocations to investment-grade and high-yield credit strategies were positive over the course of the month as spreads tightened over the course of the month
- Hartford World Bond Fund returns were negative over the course of the month as global government core exposures detracted from returns while opportunistic sources modestly offset performance with positive returns
- In global government core exposure, both our core rates and core currency (FX) positions were detractors from performance. Our core rates exposure detracted from performance as interest rates rose broadly on hawkish rhetoric from various central banks. Our FX exposure also slightly detracted as our small exposure to non USD currencies was negative for performance as the dollar was supported by the Federal Reserve (Fed) announcement of balance sheet reduction.
- Macro-driven currency strategies detracted. Our overweight to European currencies (the Swedish krona and Norwegian krone) versus the euro detracted. The Norwegian krone fell after a weaker-than-expected inflation print. The Swedish krona fell after the Riksbank raised its growth and inflation forecasts but did not alter its dovish rate profile.
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 decreased to 1.33 years at month end due to an increase in active short positions. We continued to maintain a conservative duration posture, as valuations on government bonds continue to look rich. We have been decreasing our USD hedge ratio, but the overall level remains high as a reversal in recent inflation softness and a pickup in wage pressures could trigger support for the US dollar.
- There is a shift towards tighter monetary policy and looser fiscal policy in major developed markets. We are underweight duration.
- We are overweight duration in Canada. The high level of private-sector debt makes the Canadian economy overly sensitive to tightening financial conditions.
- Financial deregulation and fiscal stimulus at a time of very low unemployment could boost US growth. We are overweight the US dollar.
- Central banks of small open economies in 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.
Currency Exposure (%)
|As of 9/30/17||Fund||Benchmark4|
|New Zealand Dollar||-1.69||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 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.