• Products
  • Insights
  • Practice Management
  • Resources
  • About Us

It’s a gloomy time of year in more ways than one at the moment. Even the excitement of my recent move to a new house can’t distract from the literal and figurative darkness of January 2023. The war in Ukraine is dragging on and the specter of recession looms large, to name but two dark clouds over us all.

Just as a new house brings a fresh start, a fresh calendar year is an opportunity for active investors to look to the future. And as we peer through the present gloom, we see some causes for optimism. Following the poor performance and significant declines in equity and bond markets in 2022, we now see some attractive valuations. And I’m reassured that whatever comes next, we have the processes and teams to cope.

Recessions are tough for everyone. But, from an investment perspective, this is also when we can find fresh opportunities. Indeed, it’s important to remember that, historically, some of the best opportunities for equities, for example, occur in the midst of recessions. Markets always move ahead of economic news.


Investing in a New Era

Over the last couple of years, we’ve talked regularly about disruption and regime change, as we move into an era in which both inflation and interest rates nestle into higher ranges. With this in mind, I’ve previously summarized our strategic view as "think about what you did over the last decade, and do the opposite." This still stands. So, what does that mean for markets in 2023?

Let's start with the epicenter of weakness in 2022: fixed income. As I mentioned, we believe inflation will be structurally higher over the next few years due to deglobalization and decarbonization. There will still be cycles in inflation, of course, but we expect that central banks won't get back to the zero-rate policies of the 2010s. This means we can't assume that fixed income will be negatively correlated with equities over the medium term. However, with the repricing of yields in 2022 and the risk of recession in 2023, we think fixed income offers an attractive source of yield and diversification.



Stocks and Bonds Usually Go in Opposite Directions—Since 2020, Not So Much
Correlation1 between S&P 500 and Bloomberg US Aggregate Bond indices

Past performance does not guarantee future results. Indices are unmanaged and not available for direct investment. As of 12/31/22. Data based on rolling 3-year average returns of the S&P 500 Index and the Bloomberg US Aggregate Bond Index between 2013 and 2022. See below for index definitions. Source: Hartford Funds.


We expect geopolitical tension to continue to run high, but these risks are impossible for investors to time or predict given their binary nature. Our main defense is diversification and identifying exposures that might protect us from geopolitical news—but which we also like for other reasons. In this regard, we continue to believe that strategic allocations to commodities and commodity-related investments may provide some protection from geopolitics as well as inflation risks.


The last decade was dominated by the outperformance of US assets. We now see benefits to greater regional diversification.


Look Beyond the US
The last decade was dominated by the outperformance of US assets—both equities and bonds. We now see benefits to greater regional diversification. 

Within fixed income, a number of emerging markets (EM) are further along in the battle against inflation and have reasonably solid macroeconomic fundamentals. Given the high level of yields—particularly in local currency-denominated bonds—and the level of underinvestment in this asset class due to turbulence over the last decade, we see opportunities for 2023. Our EM debt team has highlighted local-currency bonds in Mexico, Brazil, Indonesia, South Africa, and a number of dollar-debt frontier markets such as Angola and Ivory Coast as being particularly appealing.

We're also starting to differentiate more within equities as regions outside of the US offer more compelling valuations. Underlying US margins, after a prolonged period of strong execution, are at record levels. As we've seen with the tech sector, cost pressures in the US are now making themselves apparent at a time when revenue growth is clearly starting to slow. Negative operating leverage—in which fixed costs comprise a greater portion of a company’s total cost structure while sales decrease simultaneously—is beginning to kick in. Yet Wall Street still expects 6-7% earnings growth for the S&P 500 Index in 2023, which seems optimistic. 


China on the Rise Again?
The rest of the world definitely looks more interesting, however, especially Asia. China is likely to accelerate quite strongly out of its extended period of strict COVID-19 lockdowns. Our Asian equities team expects a sharp recovery in consumer spending to kick in from the second quarter on, supporting domestic earnings in many sectors of the Chinese economy.

Lastly, a word on overall risk levels. While rate expectations are now more realistic and we expect interest-rate volatility to stabilize, we also expect liquidity to remain tight in the next few months. Combined with the risk of recession, we believe more pro-cyclical positions need to be balanced with lower allocations to US equities. It may be prudent to keep some dry powder for the opportunities likely to appear.


For more insights on equity and fixed-income opportunities, talk to your financial professional.


1 Correlation is a statistical measure of how two investments move in relation to each other. A correlation of 1.0 indicates the investments have historically moved in the same direction; a correlation of -1.0 means the investments have historically moved in opposite directions; and a correlation of 0 indicates no historical relationship in the movement of the investments. 

S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.

Bloomberg US Aggregate Bond Index is composed of securities from the Bloomberg Government/Credit Bond Index, Mortgage-Backed Securities Index, Asset-Backed Securities Index, and Commercial Mortgage-Backed Securities Index. 

Important Risks: Investing involves risk, including the possible loss of principal. Fixed-income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. • Investments in the commodities market may increase liquidity risk, volatility and risk of loss if adverse developments occur. • Investments linked to prices of commodities may be considered speculative. Significant exposure to commodities may subject investors to greater volatility than traditional investments. Diversification does not ensure a profit or protect against a loss in a declining market. • 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.

The views expressed herein are those of Schroders Investment Management (Schroders), are for informational purposes only, and are subject to change based on prevailing market, economic, and other conditions. The views expressed may not reflect the opinions of Hartford Funds or any other sub-adviser to our funds. The opinions stated in this document include some forecasted views. Schroders believes that they are basing their expectations and beliefs on reasonable assumptions within the bounds of what they currently know. The views and information discussed should not be construed as research, a recommendation, or investment advice, nor should they be considered an offer or solicitation to buy or sell any security. This information is current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Schroders or Hartford Funds.

 “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. 

WP737 2720903

Insight from sub-adviser Schroders Investment Management
Author Headshot
Group CIO and Co-Head of Investment



The material on this site is for informational and educational purposes only. The material should not be considered tax or legal advice and is not to be relied on as a forecast. The material is also not a recommendation or advice regarding any particular security, strategy or product. Hartford Funds does not represent that any products or strategies discussed are appropriate for any particular investor so investors should seek their own professional advice before investing. Hartford Funds does not serve as a fiduciary. Content is current as of the publication date or date indicated, and may be superseded by subsequent market and economic conditions.

Investing involves risk, including the possible loss of principal. Investors should carefully consider a fund's investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund, or ETF summary prospectus and/or prospectus, which can be obtained from a financial professional and should be read carefully before investing.

Mutual funds are distributed by Hartford Funds Distributors, LLC (HFD), Member FINRA|SIPC. ETFs are distributed by ALPS Distributors, Inc. (ALPS). Advisory services may be provided by Hartford Funds Management Company, LLC (HFMC) or its wholly owned subsidiary, Lattice Strategies LLC (Lattice). Certain funds are sub-advised by Wellington Management Company LLP and/or Schroder Investment Management North America Inc (SIMNA). Schroder Investment Management North America Ltd. (SIMNA Ltd) serves as a secondary sub-adviser to certain funds. HFMC, Lattice, Wellington Management, SIMNA, and SIMNA Ltd. are all SEC registered investment advisers. Hartford Funds refers to HFD, Lattice, and HFMC, which are not affiliated with any sub-adviser or ALPS. The funds and other products referred to on this Site may be offered and sold only to persons in the United States and its territories.

© Copyright 2023 Hartford Funds Management Group, Inc. All Rights Reserved. Not FDIC Insured | No Bank Guarantee | May Lose Value