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Hartford Schroders International Multi-Cap Value Fund

May 2018 Monthly Update

Performance (%)
% (as of 6/30/2018)
Average Annual Total Returns % (as of 6/30/2018)
YTD 1YR 3YR 5YR 10YR SI
Hartford Schroders International Multi-Cap Value  I -4.53 3.53 5.24 6.63 4.78 5.06
Benchmark -3.77 7.28 5.07 5.99 2.54 ---
Morningstar Foreign Large Value Category -4.36 4.06 3.43 5.13 2.04 ---
Performance (%)
% (as of 6/30/2018)
Average Annual Total Returns % (as of 6/30/2018)
YTD 1YR 3YR 5YR 10YR SI
Hartford Schroders International Multi-Cap Value  I -4.53 3.53 5.24 6.63 4.78 5.06
Benchmark -3.77 7.28 5.07 5.99 2.54 ---
Morningstar Foreign Large Value Category -4.36 4.06 3.43 5.13 2.04 ---
SI = Since Inception. Fund Inception: 08/30/2006
Operating Expenses:   Net 0.87% |  Gross  0.87%

Performance prior to 10/24/16 for Class I-shares reflects the performance, fees, and expenses of the Investor Class of the predecessor fund Schroder International Multi-Cap Value Fund. If Class I fees and expenses were reflected, performance would have differed. SI performance is calculated from 8/30/06.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s 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.

 

Performance Review

International equity markets posted a negative return in May. A large proportion of this negative return was driven by US dollar strength, with the US Dollar Index returning about 2.33% over the month. The MSCI ACWI ex USA Value Index returned -4.07% for the month, lagging both the MSCI ACWI ex USA Index and the MSCI ACWI ex USA Growth Index by 1.76% and 3.50%, respectively. Against this backdrop, the Fund (Class I Shares) returned -2.24% in May, outperforming its benchmark, the MSCI ACWI ex USA Index, which returned -2.31%, and its secondary benchmark, the MSCI ACWI ex USA Value Index.   

The main detractors over the month come from within more fashionable growth stocks in Asia software, including Tencent and Alibaba. More than half of the relative underperformance came from being underweight the ‘BANTS’ group, Chinese tech giants (Baidu, Alibaba, NetEase, and Tencent). We did manage to overset this with our holdings in hardware and semiconductors within Korea and Taiwan, which performed well over the month.

The largest positive contributor was materials where stock selection drove returns across a range of holdings in metals & mining and chemicals within emerging Asia and continental Europe. 

On the back of political uncertainty in Italy and Spain, jitters returned to European markets resulting in a broad based market sell-off. Against this backdrop, our exposure to financials was a negative contributor, however, our focus on better quality yet deeper value stocks within Europe saw a relative positive contribution over the month.       

 

Portfolio Positioning

We continue to see opportunities across the full spectrum, from deep value in resources and Japan to high-quality yield in consumer staples and healthcare companies.

The most significant exposure remains financials. We continue to be focused on attractively valued stocks while also being conscious of the quality of the company to assess its risk. Deep value remains within some European and Asian banks, but one of the benefits of our systematic approach is our buy and sell discipline, taking profits when stocks rally and using share price weakness as a buying opportunity. The recent relative performance of European insurance has meant valuations have risen above our view of the appropriate trade-off between value and quality resulting in some profit taking.

At an aggregate level, while we may appear to have similar exposure to defensive sectors relative to the broader index, what we own is different. Attractive valuations remain across a range of high-quality companies and we added to positions in healthcare and consumer staples over the quarter, primarily among European companies. Our exposure in telecoms saw little change over the quarter. We retained a particular focus on integrated telecom companies mainly in Asia.

Resources continue to be a significant holding in our portfolios. Our preferred holdings have been focused on chemicals and integrated oil & gas, which offer an attractive valuation given their quality attributes. We trimmed some positions as many of our energy names performed strongly over the month.

In more cyclical areas, we continue to find opportunities across a number of areas; although, overall, we are underweight relative to the Index. Most of our underweight comes from our lack of exposure to more expensive and very fashionable technology companies as well as lower quality larger auto manufacturers. Over the month, the weakness in many industrial companies led us to increase our exposure as valuations became more attractive.

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Quarterly Fund Outlook & Commentary
Client Portfolio Manager Derek Power

Important Risks: Investing involves risk, including the possible loss of principal. The Fund seeks to achieve its investment objective by allocating assets among different asset classes. There is no guarantee a fund will achieve its stated objective. Security prices fluctuate in value depending on general market and economic conditions and the prospects of individual companies. ● Foreign investments may be more volatile and less liquid than U.S. investments and are subject to the risk of currency fluctuations and adverse political and economic developments. These risks may be greater for investments in emerging markets. ● Small- and mid-cap securities can have greater risks and volatility than large-cap securities. ● Different investment styles may go in and out favor, which may cause a fund to underperform the broader stock market. ● The main risk of real estate related securities is that the value of the underlying real estate may decrease in value. ● The Fund may focus on investments in particular geographic regions or countries, so it may be more exposed to risks and volatility than a more broadly diversified fund.

The views expressed herein are those of Schroder Investment Management North America Inc. (Schroders) are for informational purposes only, and are subject to change based on prevailing market, economic, and other conditions. They may not reflect the views of Hartford Funds or any other sub-adviser to our funds and should not be construed as research or investment advice or as an offer or solicitation to buy or sell any security.

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