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The Informed Investor
2Q23: Helping investors make smarter investment decisions
Asset Class and Index Definitions
ABS are represented by the Bloomberg US Aggregate ABS Index, which is a component of the Bloomberg US Aggregate Index and has three subsectors: credit and charge cards, autos, and utilities.
Bank Loans are represented by the Morningstar LSTA Leveraged Loan Index, which is a market-value-weighted index that is designed to measure the performance of the U.S. leveraged loan market based upon market weightings, spreads, and interest payments.
Bloomberg US Aggregate Bond Index is composed of securities that covers the US investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.
Cash is represented by the Bloomberg US Treasury Bill 1-3 Month Index, which is designed to measure the performance of public obligations of the US Treasury that have a remaining maturity of greater than or equal to 1 month and less than 3 months.
EM Debt is represented by the Bloomberg Emerging Markets Aggregate Bond Index, a hard-currency emerging-markets debt benchmark that includes USD-denominated debt from sovereign, quasi-sovereign, and corporate EM issuers.
Global Government Bonds are represented by the Bloomberg Global Aggregate Bond Index, a multi-currency benchmark that includes Treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.
High-Yield Bonds are represented by the Bloomberg Global High Yield Index, a multi-currency measure of the global high yield debt market.
Investment-Grade Corporate Bonds are represented by the Bloomberg US Corporate Index, which measures the investment-grade, fixed-rate, taxable corporate bond market.
MBS are represented by the Bloomberg US MBS Index, which tracks fixed-rate agency mortgage-backed passthrough securities guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).
MSCI ACWI Index is a free float-adjusted market capitalization index that measures equity market performance in the global developed and emerging markets, consisting of developed and emerging-market country indices.
MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity-market performance of emerging markets.
MSCI World ex USA Index is a free float-adjusted market capitalization index that captures large and mid-cap representation across developed markets countries—excluding the US.
Municipals are represented by the Bloomberg Municipal Bond Index, an unmanaged index that is considered representative of the broad market for investment-grade, tax-exempt bonds with a maturity of at least one year.
Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe.
Russell 1000 Value Index measures the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values.
S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
S&P 500 Price Index is a market capitalization-weighted price index composed of 500 widely held common stocks, and does not include the reinvestment of dividend payments.
US Treasuries are represented by the Bloomberg US 7-10 Year Treasury Bond Index, which measures the performance of the US Government bond market and includes public obligations of the US Treasury with a maturity of between seven and up to (but not including) 10 years.
Important Risks: Investing involves risk, including the possible loss of principal. • Foreign investments may be more volatile and less liquid than US investments and are subject to the risk of currency fluctuations and adverse political, economic, and regulatory developments. These risks may be greater, and include additional risks, for investments in emerging markets or if a fund focuses in a particular geographic region or country. • Fixed-income security risks include credit, liquidity, call, duration, event and interest-rate risk. As interest rates rise, bond prices generally fall. • Investments in high-yield (“junk”) bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities. • Municipal securities may be adversely impacted by state/local, political, economic, or market conditions. Investors may be subject to the federal Alternative Minimum Tax as well as state and local income taxes. Capital gains, if any, are taxable. • Bank loans can be difficult to value and less liquid than other types of debt instruments; they are also subject to nonpayment, collateral, bankruptcy, default, extension, prepayment, and insolvency risks. • US Treasury securities are backed by the full faith and credit of the US government as to the timely payment of principal and interest. • Commodities may be more volatile than investments in traditional securities.
Additional Information About Index Providers: "Bloomberg®" and any Bloomberg Index are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited ("BISL"), the administrator of the indices (collectively, "Bloomberg") and have been licensed for use for certain purposes by Hartford Funds. Bloomberg is not affiliated with Hartford Funds, and Bloomberg does not approve, endorse, review, or recommend any Hartford Funds product. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to Hartford Fund products.
Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.
Key lessons from successful investors throughout history:
Your behavior matters more than the market’s behavior
Patience is an undervalued investment virtue
Historical perspective can help you stay calm when others are panicking
Discussing your ideas and concerns with a financial professional can help sharpen your thinking and potentially help you avoid costly mistakes
Outlook
Asset Allocation Views*
Global Equities |
View |
Comments |
US |
⬤ |
US risks include tighter lending conditions, margin normalization, and higher relative valuations |
Japan |
⬤ |
Japanese equities could be more insulated from global issues due to Japan’s less deflationary mindset, cheap valuations, and proximity to China’s recovery |
Europe |
⬤ |
Europe remains vulnerable to macro spillovers from tighter lending standards and will continue to contend with high inflation and financial stress |
China |
⬤ |
Business sentiment is improving, and consumer surveys show higher spending intentions; its low correlation to other regions makes it attractive |
Fixed Income |
View |
Comments |
Japanese Government |
⬤ |
We view risks as asymmetric, and higher-than-expected inflation could weigh on central-bank policy |
US Government |
⬤ |
US rates are most attractive and most likely to come down in our view |
Commodities |
View |
Comments |
Commodities |
⬤ |
Gold’s potential protective characteristics could be beneficial amid market risks; within oil and copper, supply and inventories remain tight |
⬤ Overweight ⬤ Moderately Overweight ⬤ Neutral ⬤ Moderately Underweight ⬤ Underweight
Duration measures the sensitivity of an asset or portfolio’s price to nominal interest-rate movement.
*The views expressed are those of Nanette Abuhoff Jacobson, Managing Director and Multi-Asset Strategist at Wellington Management Company and Global Investment Strategist for Hartford Funds, and Wellington Management’s Investment Strategy Team. Views expressed have a 6−12 month horizon, are as of March 2023, are based on available information, and are subject to change without notice. This material is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase shares or other securities.
Outlook
Economic Snapshot
Unemployment Rate: 3.5%
Inflation Rate: 5.0%
10-Year Treasury Yield: 3.5%
Average 12-Month CD Rate: 2.43%
Brent Crude Oil Price: $79.20 per barrel
As of 3/31/23. Data Sources: FactSet; Inflation–US Department of Labor via FactSet; Average 12-Month CD Rate–Bloomberg, 4/23.
Outlook
US GDP Growth Is Decelerating
Annual Real GDP Growth Rates (%)
As of 12/31/22. Source: imf.org, 1/23. Most recent data available.
Outlook
S&P 500 Index Earnings Set a New Record
S&P 500 Index Earnings ($) and Price-to-Earnings (P/E) Ratio
Past performance does not guarantee future results. As of 3/31/23. Indices are unmanaged and not available for direct investment. P/E ratio is the ratio of the S&P 500 Index’s price divided by earnings per share. Please see representative index definitions below. Source: FactSet, 4/23.
Historical Perspective
Inflation Makes the Search for Yield Even More Challenging
Nominal and Real 10-Year Treasury Yields (%)
Past performance does not guarantee future results. As of 3/31/23. Nominal yield, also known as the coupon yield, is a bond’s yield as a fixed percentage of its par value. Real yield is the nominal yield of a bond minus the inflation rate. For illustrative purposes only. Source: FactSet, 4/23.
Historical Perspective
Investors Need to Carefully Balance Income Potential With Risk and Diversification
Fixed Income vs. Equity Correlation Chart (2007–2022)
Past performance does not guarantee future results. As of 12/31/22. Asset classes are represented by: Cash: Bloomberg US Treasury Bill 1-3 Month Index; US Treasuries: Bloomberg US 7-10 Year Treasury Bond Index; MBS: Bloomberg US MBS Index; ABS: Bloomberg US Aggregate ABS Index; Global Government: Bloomberg Global Aggregate Bond Index; Municipals: Bloomberg Municipal Bond Index; Investment-Grade Corporate: Bloomberg US Corporate Index; EM Debt: Bloomberg Emerging Markets Aggregate Bond Index; Bank Loans: Morningstar LSTA Leveraged Loan Index; High Yield Bond: Bloomberg Global High Yield Index. Yield is yield to maturity (i.e., the expected total return if a bond is held until maturity) for all indices except Municipals, which is Yield to Worst (i.e., the lowest possible yield on a bond without it defaulting). For illustrative purposes only. Please see representative index definitions below. Diversification does not ensure a profit or protect against a loss in a declining market. Data Sources: Bloomberg, S&P Dow Jones, and Morningstar, 1/23.
Historical Perspective
US Investors Are Significantly Underweight International Stocks
MSCI ACWI Index vs. Average US Investor
As of 3/31/23. Please see representative index definitions below. Data Sources: FactSet and Morningstar, 4/23.
Historical Perspective
The US Isn’t Always Best
Percentage of World’s Top-50 Stocks That Are Non-US
Past performance does not guarantee future results. As of 12/31/22. Based on the annual calendar-year returns of 50 highest-performing stocks of the MSCI ACWI Index. For illustrative purposes only. Source: FactSet, 1/23.
Historical Perspective
Intra-Year Dips in US Stocks Happen Frequently
S&P 500 Index Returns (%) and Maximum Drawdowns (%)
Past performance does not guarantee future results. As of 12/31/22. Assumes reinvestment of capital gains and dividends and no taxes. Drawdown refers to the largest market drop from peak to trough during the calendar year. Data Sources: Morningstar and Hartford Funds, 1/23.
Historical Perspective
Intra-Year Dips in International Developed Markets Stocks Happen Frequently
MSCI World ex USA Index Returns (%) and Maximum Drawdowns (%)
Past performance does not guarantee future results. As of 12/31/22. Assumes reinvestment of capital gains and dividends and no taxes. Drawdown refers to the largest market drop from peak to trough during the calendar year. Please see representative index definitions below. Data Sources: Morningstar and Hartford Funds, 1/23.
Historical Perspective
Intra-Year Dips in Emerging Market Stocks Happen Frequently
MSCI Emerging Markets Index Returns (%) and Maximum Drawdowns (%)
Past performance does not guarantee future results. As of 12/31/22. Assumes reinvestment of capital gains and dividends and no taxes. Drawdown refers to the largest market drop from peak to trough during the calendar year. Please see representative index definitions below. Data Sources: Morningstar and Hartford Funds, 1/23.
Historical Perspective
US and International Stocks Have Traded Periods of Outperformance
US Equity vs. International Equity 5-Year Monthly Rolling Returns (%)
Past performance does not guarantee future results. As of 3/31/23. The chart shows the S&P 500 Index’s returns minus the MSCI World ex USA Index’s returns. When the line is above 0,domestic stocks outperformed international stocks. When the line is below 0, international stocks outperformed domestic stocks. The performance shown above is index performance and is not representative of any Hartford Fund’s performance. Indices are unmanaged and not available for direct investment. US equity is represented by the S&P 500 Index. International equity is representedby the MSCI World ex USA Index. For illustrative purposes only. Data Sources: Morningstar, Bloomberg, and Hartford Funds, 4/23.
Historical Perspective
Growth and Value Stocks Have Traded Periods of Outperformance
Russell 1000 Growth Index vs. Russell 1000 Value Index 5-Year Monthly Rolling Returns (%)
Past performance does not guarantee future results. As of 3/31/23. The chart shows the values of the Russell 1000 Growth Index returns minus the Russell 1000 Value Index returns. When the line is above 0, growth stocks outperformed value stocks. When the line is below 0, value stocks outperformed growth stocks. The performance shown above is index performance and is not representative of any Hartford Fund’s performance. Growth stocks are represented by the Russell 1000 Growth Index. Value stocks are represented by the Russell 1000 Value Index. Please see representative index definitions below. For illustrative purposes only. Data Source: Morningstar and Hartford Funds, 4/23.
Historical Perspective
Top 10 Stock Market Drops & Recoveries
10 Worst Single-Day Percentage Declines for US Stocks (1980–2022)
Annualized (%) | ||||||
Date | Cause | One-Day Return (%) |
# Days To Reach Previous High | Return After 1 Year |
Return After 3 Year |
Return After 5 Year |
1. October 19, 1987 | Black Monday | -20.47 | 264 | 23.19 | 11.59 | 13.03 |
2. March 16, 2020 | COVID-19 Pandemic | -11.98 | 19 | 66.07 | ? | ? |
3. March 12, 2020 | COVID-19 Pandemic | -9.51 | 20 | 58.96 | ? | ? |
4. October 15, 2008 | Global Financial Crisis | -9.03 | 15 | 20.79 | 10.50 | 13.34 |
5. December 1, 2008 | Global Financial Crisis | -8.93 | 6 | 35.85 | 15.11 | 17.22 |
6. September 29, 2008 | Global Financial Crisis | -8.79 | 410 | -4.14 | 1.60 | 8.87 |
7. October 26, 1987 | Black Monday 2.0 | -8.28 | 5 | 23.59 | 10.20 | 12.92 |
8. October 9, 2008 | Global Financial Crisis | -7.62 | 3 | 17.76 | 8.30 | 12.73 |
9. March 9, 2020 | COVID-19 Pandemic | -7.60 | 57 | 41.10 | ? | ? |
10. October 27, 1997 | Asian Financial Crisis | -6.87 | 8 | 21.48 | 16.30 | 0.47 |
Past performance does not guarantee future results. Data shown is for the S&P 500 Price Index as of 12/31/22 and does not include the reinvestment of dividend payments. Please see representative index definitions below. Data Sources: Morningstar, Ned Davis Research, and Hartford Funds, 1/23.
Historical Perspective
Missing the Market’s Best Days Has Been Costly
S&P 500 Index Growth of $10,000 (1993–2022)
Past performance does not guarantee future results. As of 12/31/22. Indices are unmanaged and not available for direct investment. For illustrative purposes only. Data Sources: Ned Davis Research, Morningstar, and Hartford Funds, 1/23.
Historical Perspective
Bear Markets Are a Normal Part of Investing
S&P 500 Index Declines of 20% or More (1928–3/31/2022)
Start and End Date | % Price Decline | Length in Days |
9/7/29 - 11/13/29 | -44.67 | 67 |
4/10/30 - 12/16/30 | -44.29 | 250 |
2/24/31 - 6/2/31 | -32.86 | 98 |
6/27/31 - 10/5/31 | -43.10 | 100 |
11/9/31 - 6/1/32 | -61.81 | 205 |
9/7/32 - 2/27/33 | -40.60 | 173 |
7/18/33 - 10/21/33 | -29.75 | 95 |
2/6/34 - 3/14/35 | -31.81 | 401 |
3/6/37 - 3/31/38 | -54.50 | 390 |
11/9/38 - 4/8/39 | -26.18 | 150 |
10/25/39 - 6/10/40 | -31.95 | 229 |
11/9/40 - 4/28/42 | -34.47 | 535 |
5/29/46 - 5/17/47 | -28.78 | 353 |
6/15/48 - 6/13/49 | -20.57 | 363 |
Start and End Date | % Price Decline | Length in Days |
8/2/56 - 10/22/57 | -21.63 | 446 |
12/12/61 - 6/26/62 | -27.97 | 196 |
2/9/66 - 10/7/66 | -22.18 | 240 |
11/29/68 - 5/26/70 | -36.06 | 543 |
1/11/73 - 10/3/74 | -48.20 | 630 |
11/28/80 - 8/12/82 | -27.11 | 622 |
8/25/87 - 12/4/87 | -33.51 | 101 |
3/24/00 - 9/21/01 | -36.77 | 546 |
1/4/02 - 10/9/02 | -33.75 | 278 |
10/9/07 - 11/20/08 | -51.93 | 408 |
1/6/09 - 3/9/09 | -27.62 | 62 |
2/19/20 - 3/23/20 | -33.92 | 33 |
1/3/2022 - 3/31/2023 | -14.33 | 452 |
Average | -34.83 | 295 |
Past performance does not guarantee future results. As of 3/31/23. Source: Ned Davis Research, 4/23.
Historical Perspective
Dividend-Paying Stocks Have Significantly Outperformed Dividend Non-Payers in the Long Run
S&P 500 Index Returns by Dividend Policy: Growth of $10,000
Past performance does not guarantee future results. Chart data is for 1/1/80–3/31/23. Indices are unmanaged and not available for direct investment. For illustrative purposes only. The graph is not representative of any Hartford Fund’s performance, and does not take into account fees and charges associated with actual investments. Dividend Growers & Initiators – Grew or initiated a dividend in the past 12 months; Dividend Payers – Paid a dividend in the past 12 months; No Change – Maintained their dividend level in the past 12 months; Dividend Non-Payers – Did not pay a dividend in the past 12 months; Dividend Cutters & Eliminators – Lowered or eliminated their dividends in the past 12 months. Sources: Ned Davis Research and Hartford Funds, 4/23.
Historical Perspective
A Balanced Portfolio Can Help Balance Out Volatility
Cumulative Returns for Stocks, Bonds, and a Balanced Portfolio (2000–2022)
Years | Stocks | Bonds | Balanced | Investor Mindset |
2000-2002 | -37.6% | 33.5% | -6.4% | "Why do I own stocks?" |
2003-2007 | 82.9% | 24.2% | 51.8% | "Why do I own bonds?" |
2008 | -37.0% | 5.2% | -15.9% | "Why do I own stocks?" |
2009-2017 | 258.8% | 40.7% | 129.8% | "Why do I own bonds?" |
2018 | -4.4% | 0.0% | -2.2% | "Why do I own stocks?" |
2019-2022 | 64.1% | 0.1% | 30.11% | "Why do I own bonds?" |
Total return 1/1/00-12/31/22 | 304.6% | 145.7% | 249.74% | |
Growth of $100k | $404,572 | $245,724 | $349,743 |
Past performance does not guarantee future results. As of 12/31/22. Stocks are represented by S&P 500 Index. Bonds are represented by the Bloomberg US Aggregate Bond Index. Balanced Portfolio is represented by 50% S&P 500 Index and 50% Bloomberg US Aggregate Bond Index. For illustrative purposes only. Please see representative index definitions below. Source: Morningstar and Hartford Funds, 1/23.
Investor Behavior
Buying and Selling at the Wrong Times Could Be Costly
30-year Annualized Returns by Asset Class (%) (1992–2022)
As of 12/31/22. Performance data for indices represents a lump sum investment in 1/1/92–12/31/22 with no withdrawals. US Equities are represented by the S&P 500 Index. US Bonds are represented by the Bloomberg US Aggregate Bond Index. Index performance is not indicative of any Hartford fund’s performance. Most recent data available.
Average Equity Fund Investor and Average Fixed Income Fund Investor performance results are calculated using data supplied by the Investment Company Institute. Investor returns are represented by the change in total mutual fund assets after excluding sales, redemptions, and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses, and any other costs. After calculating investor returns in dollar terms, two percentages are calculated for the period examined: Total investor return rate and annualized investor-return rate. Total investor-return rate is determined by calculating the investor-return dollars as a percentage of the net of the sales, redemptions, and exchanges for each period.
Dalbar’s Quantitative Analysis of Investor Behavior Methodology – Dalbar’s Quantitative Analysis of Investor Behavior uses data from the Investment Company Institute (ICI), Standard & Poor’s and Bloomberg Index Products to compare mutual-fund investor returns to an appropriate set of benchmarks. Covering the period from 1/1/1992–12/31/22, the study utilizes mutual-fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.” Based on this behavior, the analysis calculates the “average investor return” for various periods. These results are then compared to the returns of respective indices.
Investor Behavior
Buying Stocks After Big Market Drops Has Historically Been Profitable
S&P 500 Index Hypothetical Growth of $10,000 (1980–2022)
Past performance does not guarantee future results. As of 12/31/22. Assumes reinvestment of capital gains and dividends and no taxes. Data Sources: Thomson Reuters and Hartford Funds, 1/23.
Investor Behavior
Many Investors Missed Out on the Post-Financial Crisis Rebound
Growth of S&P 500 Index vs. Domestic Equity Mutual Fund Flows
Past performance does not guarantee future results. As of 3/31/23. S&P 500 Price Index doesn’t reflect the reivestment of dividends and capital gains. For illustrative purposes only. Data Sources: FactSet and Investment Company Institute, 4/23.
Investor Behavior
When Markets Fall We Search—Especially for CNBC
Google searches for CNBC vs. S&P 500 Index
As of 12/31/22. This is a study of Google searches for “CNBC” compared with S&P 500 Price Index performance. There’s a correlation between poor market performance and CNBC searches.