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Hartford Schroders US Small Cap Opportunities Fund

May 2018 Monthly Update

Performance (%)
% (as of 6/30/2018)
Average Annual Total Returns % (as of 6/30/2018)
Hartford Schroders US Small Cap Opportunities  I 3.05 10.78 9.97 12.03 9.76 12.62
Benchmark 7.66 17.57 10.96 12.46 10.60 ---
Morningstar Small Growth Category 10.97 22.66 10.73 12.73 10.07 ---
Performance (%)
% (as of 6/30/2018)
Average Annual Total Returns % (as of 6/30/2018)
Hartford Schroders US Small Cap Opportunities  I 3.05 10.78 9.97 12.03 9.76 12.62
Benchmark 7.66 17.57 10.96 12.46 10.60 ---
Morningstar Small Growth Category 10.97 22.66 10.73 12.73 10.07 ---
SI = Since Inception. Fund Inception: 08/06/1993
Operating Expenses:   Net 1.14% |  Gross  1.14%

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 U.S. Opportunities Fund. If Class I fees and expenses were reflected, performance would have differed. SI performance is calculated from 8/6/93.

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.


Market Review

This was the best month for the Russell 2000 Index since September 2017. Small caps, as represented by the Russell 2000 Index, have outperformed large caps, as represented by the S&P 500 Index2, and small- to mid-caps (smid), as represented by the Russell 2500 Index3, both year-to-date (6.07%, 2.41%, and 4.70%, respectively) and on a one-year basis (6.90%, 2.02%, and 4.70%, respectively). Microcap, as represented by the Russell Microcap Index4, led all larger cap stock categories, returning, 9.30% and 24.93%, year-to-date and one-year, respectively.                         

We suspect that this is a reflection of the market believing we are not in a late cycle economy.  Microcaps and small caps typically lead early in the cycle rather than late. The inflows into small and microcap ETFs have served to accentuate this trend. We also have observed that, in addition to small cap, lower quality, lower leverage, low to zero yield, and higher beta5 have outperformed. This is the picture of a messy market that is very difficult for our approach.

A variety of political winds were blowing in Washington during the month—tariffs, trade wars, NAFTA negotiations, a variety of investigations around potential meddling in the Presidential election, plus the pas de deux between Mr. Trump and Mr. Kim Jong Un. With all the uncertainty, the 10-year Treasury note yield reached 3.1% in mid-May and then promptly reversed course. It finished the month at 2.83%. This is a key indicator for many who are closely monitoring inflation expectations.

The earnings season has been quite robust with strong performances across the capitalization spectrum. For the balance of the year, small-cap expectations are higher than mid and large, according to Jefferies Research Services. They report that for the full year,earning expectations are now 27.9% for small cap vs. 19.6% for large caps. Both are strong numbers but this is a very strong spread favoring small.6

In terms of sectors, healthcare was the best performer with the strongest contribution to return coming from biotechnology. There was also strength in energy, technology, and REITs. Lodging and office & industrial REITs were the main contributors. The utility sector was the main laggard. 


Performance Review

The Fund (Class I Shares) returned 4.08% in May, underperforming its benchmark, the Russell 2000 Index, which returned 6.07%. Stock selection detracted from returns this month, particularly in energy, producer durables, and financial services. An underweight to biotechnology weighed on returns as the group rallied over 10% in May. Also, the average cash position of 7% also detracted from returns this month. Materials & processing was the bright spot as stock selection drove returns in the diversified chemical and building materials industries. The Fund also benefitted from an underweight in utilities, the worst performing sector in the Index this month.

In terms of the Fund’s three alpha categories, only Turnarounds outperformed in May. Both Mispriced Growth and Steady Eddies lagged this month. Given the factors driving the market, this in not an environment in which we would expect our Steady Eddies to outperform.  

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Quarterly Fund Outlook & Commentary
Product Manager of US Equities at Schroders Sarah Bratton Hughes

The Fund seeks capital appreciation by combining three diversified, uncorrelated sources of potential alpha1:

Mispriced Growth
Companies that can offer an unrecognized or underappreciated growth dynamic over the ensuing 2-3 years

Steady Eddies
Companies with stable growth characteristics, slower but more predictable revenues and earnings patterns

Companies whose growth engine appears to have broken, but there appears to be evidence that growth is returning


Alpha is a measure of the performance of a portfolio after adjusting for risk. Alpha is calculated by comparing the volatility of the portfolio and comparing it to some benchmark. The alpha is the excess return of the portfolio over the benchmark.

S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks. Indices are unmanaged and not available for direct investment.

Russell 2500 Index measures the performance of the small to mid-cap segment of the US equity universe, commonly referred to as "smid" cap. The Russell 2500 is a subset of the Russell 3000 Index.

4 Russell Microcap Index is a capitalization-weighted index of 2,000 small cap and micro cap stocks that captures the smallest 1,000 companies in the Russell 2000, plus 1,000 smaller US-based listed stocks. 

Beta is a measure of risk that indicates the price sensitivity of a security or a portfolio relative to a specified market index.

6 There can be no assurance that any estimates or projections will be achieved due to evolving market and economic conditions.

Indices are unmanaged and not available for direct investment.


Important Risks: Investing involves risk, including the possible loss of principal. 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. ● Small-cap securities can have greater risks and volatility than large-cap securities ● The main risk of real estate related securities is that the value of the underlying real estate may decrease in value. 

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.