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Charts That Got Us Thinking
Charts That Got Us Thinking

2018 Outlook: Can the party go on with less punch in the bowl?

Jump to chart out of 47 GO »

Multi-asset Views


As of January 2018 | Source: Wellington Management

Multi-asset Views

Strong returns across the board paint a benign environment


Last year’s returns paint a benign picture of the state of the world. The US dollar was the only “loser,” but this helped US multinationals, commodities, and emerging markets.


All returns are in local currency unless otherwise stated.
1 1 January 2017 – 4 December 2017
2 Based on commodity price, not represented by an index.
3 Gross returns.
4 Bitcoin actual total return = 1,700%
PM Emerging Markets Bond Index Plus was used to represent Emerging markets sovereign bonds (USD).
Past performance is not a guarantee of future results. Indexes are unmanaged and not available for direct investment. Please see representative Index Definitions below. | Sources: Bloomberg, Wellington Management

Multi-asset Views

US equity market breadth is healthy


In my view, the 1,700% rise in Bitcoin does not signal trouble in the overall equity market where gains have been broad-based.


Source: Bloomberg

Global Fundamentals

Global synchronized expansion


Global growth is good across regions as reflected in PMIs above 50.


1Purchasing Managers Index (PMI) is an indicator that measures economic health. A reading above 50 signals expansion from the current growth rate and a reading below 50 signals contraction from the current growth rate. | Sources: Haver, Markit, Wellington Management

Global Fundamentals

Where’s the tapering?


The US Federal Reserve and European Central Bank are slowing purchases, but these central banks, together with the Bank of Japan, added $1.6 trillion in purchases to their balance sheets.


European Central Bank (ECB), Bank of Japan (BOJ), and US Federal Reserve (Fed) | Source: Bloomberg

Interest Rates

Market below Fed’s rate expectations


The market expects fewer hikes than the Fed in 2018 and 2019, but higher inflation could change the market’s perceptions.


13 December 2017.
Actual results may vary, perhaps significantly, from the forecasts presented. | Sources: Federal Reserve, Bloomberg, Wellington Management

Interest Rates

Inflation expectations seem too low


Inflation expectations haven’t moved much despite the sharp rise in oil prices.


Sources: Bloomberg, Wellington Management

Interest Rates

Bond inflows have outpaced equity inflows


Inflows have been stronger to fixed income than equities, so higher rates and negative returns could have an amplified effect.


1Data starts at 31 December 2009. 2017: YTD through 31 October 2017 | Source: EPFR
Includes global open-ended mutual funds and ETFs.

Regional Equities

US consumer confidence implies stronger consumption


A strong labor market and improving housing is making consumers confident.


Sources: Conference Board, BEA, Bloomberg

Regional Equities

US manufacturing cycle is picking up


The manufacturing recovery is broadening out beyond energy because tax reform allows full expensing of capital investments.


1Purchasing Managers Index (PMI) is an indicator that measures economic health. A reading above 50 signals expansion from the current growth rate and a reading below 50 signals contraction from the current growth rate.
2PMI through November 2017, industrial production through October 2017
Sources: Haver, ISM

Regional Equities

Expect pendulum to swing back on US regulation


Regulations, which were on a steady climb, are declining now. This should help banks and small businesses that have been hurt by compliance costs.


1“Economically significant” is defined by Executive Order 12866 Section 3(f)(1). Regulatory action that is likely to result in a rule that may “have an annual effect on the economy of US$100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities” | Source: https://regulatorystudies.columbian.gwu.edu/reg-stats

Regional Equities

European consumer confidence implies stronger retail sales


Europe is earlier in its economic cycle than the US. The domestic cycle (i.e., consumption) is picking up.


1Consumer confidence through November 2017, retail sales through October 2017 | Sources: Haver, Wellington Management

Regional Equities

Leading business indicators turn positive in Europe


Manufacturing is the engine of the European economy, and it is at an all-time high for the 20 years of this survey.


1Purchasing Managers Index (PMI) is an indicator that measures economic health. A reading above 50 signals expansion from the current growth rate and a reading below 50 signals contraction from the current growth rate.
2PMI through December 2017, industrial production through October 2017
Sources: Haver, Wellington Management

Regional Equities

Earnings upside for European companies


European earnings have lagged the US during the past seven years. Even a small rise in inflation would give companies more pricing power.


Source: Barclays

Regional Equities

Japan’s manufacturing cycle is improving


Japan is emerging from secular stagnation. Manufacturing is improving, driven by a rise in capital spending, which is replacing old machinery. This helps compensate for a tight labor market.


1Purchasing Managers Index (PMI) is an indicator that measures economic health. A reading above 50 signals expansion from the current growth rate and a reading below 50 signals contraction from the current growth rate.
2PMI through November 2017, industrial production through October 2017
Sources: Haver, Wellington Management

Regional Equities

Structural reform in Japan: Women join the work force


A lesser known development in Prime Minister Abe’s push for structural reform is to increase female participation in the workforce, which is now higher than the US and leading to higher labor, income, and consumption.


1The Organisation for Economic Co-operation and Development (OECD) is an intergovernmental economic organization with 35 member countries, founded in 1960 to stimulate economic progress and world trade. | Source: OECD

Regional Equities

Upward earnings revisions


Analysts are upgrading their earnings estimates for Japanese companies after many years of downward revisions.


As of 31 October 2017
1Earnings per share (EPS) is the projected growth rate in earnings per share for the next five years.
Please see representative Index Definitions below. | Sources: IBES, Datastream, MSCI, Wellington Management

Regional Equities

Tighter financial conditions in China


China is undergoing a managed slowdown. The government is curbing excess lending by raising rates.


1Through 8 December 2017 | Source: Bloomberg

Regional Equities

Chinese consumer is emerging


Consumer confidence is surging as the property market continues to perform well. President Xi is trying to bring discipline to the banking sector while protecting consumers.


Sources: Haver, Wellington Management

Regional Equities

Valuations relatively attractive outside US


US valuations are richest, while Europe, Japan, and emerging markets are at median valuations versus their own history. In the bottom table, US richness is more pronounced because the premium versus other regions is at the high end of the range.


1Price-to-book is the ratio of a stock’s price to its book value per share.
2Shiller P/E ratio is a valuation measure, generally applied to broad equity indices, that uses real per-share earnings over a 10-year period.
Sources: MSCI, Datastream, Wellington Management

Regional Equities

Higher short-term rates help bank margins


Higher short-term rates are positive for US bank margins.


LIBOR (London Interbank Offered Rate) is the world’s most widely used benchmark for short-term interest; it is the interest rate at which banks bank borrow funds from other banks in the London interbank market. | Sources: Moody’s, Bloomberg

Regional Equities

European banks have lagged US banks


European banks have more upside because Europe is earlier in its economic cycle. Also, nonperforming loans are declining, and capital rules are more clear now.


Past performance is not a guarantee of future results. Investors cannot directly invest in an index.
Sources: Bloomberg, Wellington Management

Credit

Benign default environment


The default environment is positive. After the energy industry shake-out, defaults have declined, and they are expected to reach 2%.


Actual results may vary, perhaps significantly, from the estimated data presented | Source: Moody’s

Credit

Higher rate sensitivity in corporate bonds


Investors should be cautious with corporate bonds because the duration has reached 7.5 years. This makes these bonds more susceptible to rising interest rates than shorter-duration bonds.


1Duration is a measure of the sensitivity of an investment’s price to nominal interest-rate movement. | Source: Barclays

Credit

Debt levels increasing in investment-grade corporate bonds


Investors should also be cautious with corporate bonds due to increased debt levels, as companies have been using debt to fund mergers and acquisitions and stock buybacks.


1Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company’s operating performance. | Source: JPMorgan

Credit

Credit spreads are expensive


Credit spreads are at the rich end of their historic range. This suggests that total returns could be low. Investors should consider sovereign bonds for portfolio diversification.


1Option-adjusted spread (OAS) is a measurement tool for evaluating yield differences between similar-maturity fixed-income products with different embedded options. | Sources: Barclays, Wellington Management

Portfolio Construction

The importance of staying invested


One of the advantages that individual investors have is a long investment horizon. Investors who try to time the market risk missing the best days and substantially reducing their investment returns.


Past performance is not a guarantee of future results. Investors cannot invest directly in an index.
For illustrative purposes only. Based on monthly total returns | Sources: S&P, Wellington Management

Think Function, Not Form: Consider diversifying exposure across economic environments


While the base case is to have most exposure in assets that respond best to a growth environment, consider assets that do well in higher-inflation and weak-growth environments to hedge against a potential equity sell off.


Diversification does not ensure a profit or protect against a loss in a declining market.
EMD: Emerging Markets Debt
REITs: Real Estate Investment Trust
ILBs: Inflation-Linked Bonds
MBS: Mortgage-Backed Securities
TIPS: Treasury Inflation Protected Securities

The example presented is for illustrative purposes and reflects the current opinions of Wellington Management Global Multi-Asset StrategiesSM team as of the date appearing in this material only. This is based on historical assumptions and is not intended to be a prediction of how any asset class will perform in the future. | Economic environments are defined by year-over-year changes in GDP growth and inflation. Growth: + GDP growth, - inflation. Weak growth: - GDP growth, - inflation. Inflation: + GDP growth, + inflation. Stagflation: - GDP growth, + inflation.

Buying stocks when fear runs high has historically led to long-term gains


Assumes reinvestment of capital gains and dividends and no taxes. Past performance is not a guarantee of future returns.
1The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) is a key measure of market expectations of near‐term volatility conveyed by S&P 500 stock index option prices. VIX, commonly referred to as the "Fear Index," is the ticker symbol for the CBOE's Volatility Index and measures the market's expectation of 30-day volatility. VIX levels below 20 reflect complacency, while levels of 40 or higher reflect extremely high levels of volatility.
* This column shows the S&P 500 Index's one-day loss on the date shown in column 1.
Data Source: Morningstar, 1/18

VIX and S&P 500 Index Are Negatively Correlated


The VIX is currently at historical lows. As it rebounds, history suggests the S&P 500 Index could lose momentum.


VIX levels below 20 reflect complacency, while levels of 40 or higher reflect extremely high levels of volatility.
Past performance does not guarantee future results. Indices are unmanaged and not available for direct investment. | Source: Morningstar, 1/18.

Intra-year dips in the S&P 500 Index happen frequently


Past performance is not a guarantee of future results. The performance shown is index performance and is not representative of any investment's performance. Investors cannot invest directly in an index. 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 Source: Morningstar, 1/18

Are you an opportunistic or apprehensive investor?


1T-Bills are guaranteed as to the timely payment of principal and interest by the U.S. Government and generally have lower risk-and-return than bonds and equity. Equity investments are subject to market volatility and have greater risk than T-Bills and other cash investments.
Past performance is not a guarantee of future results. The performance shown above is index performance and is not representative of any investment's performance. Indices are unmanaged and not available for direct investment. Assumes reinvestment of capital gains and dividends and no taxes. | Data Source: Thomson Reuters, 1/18.

The cyclical nature of active and passive investing


While passive investments have performed well in recent years, active large-blend funds outperformed their passive counterparts nine out of 10 times from 2000 to 2009.


Performance for the Morningstar Large Blend Category is net of fees. “Active Large Blend” is made up of funds from the Morningstar Large Blend category that are not index or enhanced index funds. “Passive Large Blend” is represented by the Morningstar S&P 500 Tracking Category.
Past performance is not indicative of future results. Indices are unmanaged and not available for direct investment.
Data Source: Morningstar, 1/18

Are value stocks poised to outperform growth stocks after a long period of underperformance?


While growth stocks and value stocks historically alternate periods of outperformance, growth stocks have generally outperformed value stocks since January 2009.


Growth stocks are represented by S&P 500 Growth Index. Value stocks are represented by S&P 500 Value Index. The chart shows the values of the S&P 500 Value Index’s returns minus the S&P 500 Growth Index’s returns. When the line is above 0, value stocks outperformed growth stocks. When it is below 0, growth stocks outperformed value stocks.

Past performance is not a guarantee of future results. The performance shown above is index performance and is not representative of any investment's performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only. | Source: Morningstar, 1/18

Are international stocks poised to outperform US stocks after a long period of underperformance?


The average performance cycle for US equities versus international equities has historically lasted 7.2 years. US equities have outperformed international equities over the past 6.3 years, indicating the cycle may be getting ready to turn.


US Equity is represented by S&P 500 Index. International Equity is represented by MSCI World ex USA Index. The chart shows the values of 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 it is below 0, international stocks outperformed domestic stocks.

Past performance is not a guarantee of future results. The performance shown above is index performance and is not representative of any investment's performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only.
Source: Morningstar, 1/18

Growth is gaining momentum outside the US


With buoyant financial markets and a long-awaited cyclical recovery in manufacturing and trade under way, world growth is projected to rise, especially for developing economies.

Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period.
Real GDP Growth is a macroeconomic measure of the value of economic output adjusted for price changes (i.e., inflation or deflation). | Source: IMF, World Economic Outlook, 10/17

Stock market returns after significant oil price declines


West Texas Intermediate (WTI), also known as Texas light sweet, is a grade of crude oil used as a benchmark for oil prices.
Data Sources: Federal Reserve Bank of St. Louis (from 1/1/86 to present) and Bloomberg (1/1/84 – 12/31/85)

Duration risk is rising: Are you prepared?


In June, the duration of the Bloomberg Barclays US Aggregate Bond Index exceeded six years for the first time since 1978. Fixed-income investors should consider evaluating the duration risk in their portfolios.


Effective duration is a measure of the sensitivity of an investment’s price to nominal interest-rate movement. | Source: Barclays Live, 1/18. For illustrative purposes only.

Hypothetical impact of rising rates on fixed income


Chart is for illustrative purposes only. Past performance is not a guarantee of future results. The performance shown above is index performance and is not representative of any investment's performance. Investors cannot invest directly in an index. For illustrative purposes only.
Source: Bloomberg Barclays, 1/18. Fixed income sectors shown above are provided by Barclays and are represented by – Broad Market: U.S. Aggregate Bond Index; MBS: U.S. Aggregate Securitized - MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond 10-year Index; High Yield: US Corporate High Yield Bond Index; TIPS: Treasury Inflation Protected Securities (TIPS). Floating Rate: FRN (BBB); Convertibles: U.S. Convertibles Composite; ABS: U.S. ABS Index; CMBS: U.S. CMBS Index. Change in bond price is calculated using both duration and convexity according to the following formula: New Price = (Price + (Price * -Duration * Change in Interest Rates))+(0.5 * Price * Convexity * (Change in Interest Rates)^2).

Some asset classes have performed well in rising-rate periods


We examined 11 rising-rate periods since 2005 (defined as a spike of 20% or more in the yield of the 10-Year Treasury), and these asset classes performed the best.


Past performance is not a guarantee of future results. The performance shown above is index performance and is not representative of any investment's performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only.
Data Source: Morningstar, 1/18.
Stocks are represented by the S&P 500 Index, which is a market-cap-weighted price index composed of 500 widely held common stocks.
Bank loans are represented by the Credit Suisse Leveraged Loan Index, which is designed to mirror the investible universe of the US dollar-denominated leveraged loan market.
US REITs are represented by the MSCI US REIT Index, which is a free-float market-cap-weighted benchmark comprised of equity REIT securities that belong to the MSCI US Investable Market 2500 Index.
High-yield bonds are represented by the Bloomberg Barclays US Corporate High Yield Index, which is an unmanaged, broad-based market-value-weighted index that tracks the total return performance of non-investment grade, fixed-rate, publicly placed, dollar-denominated and nonconvertible debt registered with the Securities and Exchange Commission.

US interest rates could continue to stay low


It is not unprecedented for interest rates to stay low for long periods of time. There have been many times throughout history when rates stayed below 3% for an extended period of time.


Sources: Federal Reserve Economic Data (FRED) US 10-year Treasury constant maturity, 1962 – 2016; Global Financial Data (GFD), 1919 – 1962; yields implied by GFD monthly price returns for 10-year US government bond, 1899 – 1919

US debt to GDP levels are approaching record highs


US debt to Gross Domestic Spending (GDP) levels in the US are approaching levels not seen since the 1940s. Some economists believe high levels of US debt to GDP could trigger high levels of inflation like it did in the 1940s.


Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period. | Source: usgovernmentspending.com

Annual inflation is below its historical average but rising


At the end of 2017, the US inflation rate was 2.2%—significantly higher than the 0.7% for year-end 2015 but still below its long-term average of 3%. Investors concerned about rising inflation should consider the benefits of owning inflation hedges that can help offset the damaging effects of inflation.


Source: Morningstar

Tax-equivalent yields


According to Standard & Poor’s bond rating methodology, AAA and AA bonds are considered high credit quality, and AA and BBB bonds have medium credit quality. Any bonds rated below BBB are considered below-investment-grade bonds. | Source: Bloomberg

Municipal bond yields look attractive


*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.
Tax-equivalent yields are based on 39.6% federal income tax rate. Past performance is not a guarantee of future results. The performance shown above is index performance and is not representative of any investment’s performance. This chart is for illustrative purposes. Investors cannot invest directly in an index. | Data Source: Bloomberg, 1/18.
1The municipal curve is populated with U.S. municipal general obligations with an average rating of AA+ for Moody’s and S&P.
2The Bloomberg Valuation Service (BVAL) curve is populated with U.S. dollar-denominated senior-unsecured fixed-rate bonds issued by domestic companies with a BBG rating of investment grade.
3The U.S. Treasury curve is comprised of U.S. dollar-denominated U.S. Treasury active securities.
4Municipal Bonds are represented by the Bloomberg Barclays Municipal Bond Index, which covers the U.S. dollar-denominated long term tax exempt bond market.
5The Bloomberg Barclays U.S. Aggregate Bond Index is an index comprised of government securities, mortgage-backed securities, asset-backed securities, and corporate securities to simulate the universe of bonds in the market.
6The Bloomberg Barclays U.S. Treasury Index is an unmanaged index of public obligations of the U.S. Treasury with a remaining maturity of one year or more.
7Bloomberg Barclays Global Aggregate ex-USD Bond Index provides a broad-based measure of the international investment-grade bond market hedged against the U.S. dollar.

Healthcare is trading at a discount to its historical average


In 2009 and early 2010, the healthcare sector traded at near historical lows relative to the S&P 500 Index. Exciting drug pipelines and greater clarity about the shape of healthcare reform led to recovery. After the recent selloff, the sector is once again trading at a discount.


Price-to-earning ratio is the ratio of a stock’s price to its earnings per share. | Source: Factset, 1/18

Fund flows


TOP: Data includes flows through December 2017 and excludes ETFs. BOTTOM: Data includes flow through November 2017 and excludes ETFs.
ICI data subject to periodic revisions. World equity flows are inclusive of emerging market, global equity and regional equity flows.
Hybrid flows include asset allocation, balanced fund, flexible portfolio and mixed income flows.
Data as of 12/31/17. | Source: Investment Company Institute.

Multi-asset views

Strong returns across the board paint a benign environment

US equity market breadth is healthy

Global synchronized expansion

Where’s the tapering?

Market below Fed’s rate expectations

Inflation expectations seem too low

Bond inflows have outpaced equity inflows

US consumer confidence implies stronger consumption

US manufacturing cycle is picking up

Expect pendulum to swing back on US regulation

European consumer confidence implies stronger retail sales

Leading business indicators turn positive in Europe

Earnings upside for European companies

Japan’s manufacturing cycle is improving

Structural reform in Japan: Women join the work force

Upward earnings revisions

Tighter financial conditions in China

Chinese consumer is emerging

Valuations relatively attractive outside US

Higher short-term rates help bank margins

European banks have lagged US banks

Benign default environment

Higher rate sensitivity in corporate bonds

Debt levels increasing in investment-grade corporate bonds

EM inflation is declining toward DM levels

The importance of staying invested

Think Function, Not Form: Consider diversifying exposure across economic environments

Buying stocks when fear runs high has historically led to long-term gains

VIX and S&P 500 Index Are Negatively Correlated

Intra-year dips in the S&P 500 Index happen frequently

Are you an opportunistic or apprehensive investor?

The cyclical nature of active and passive investing

Are value stocks poised to outperform growth stocks after a long period of underperformance?

Are international stocks poised to outperform US stocks after a long period of underperformance?

Growth is gaining momentum outside the US

Stock market returns after significant oil price declines

Duration risk is rising: Are you prepared?

Hypothetical impact of rising rates on fixed income

Some asset classes have performed well in rising-rate periods

US interest rates could continue to stay low

US debt to GDP levels are approaching record highs

Annual inflation is below its historical average but rising

Tax-equivalent yields

Municipal bond yields look attractive

Healthcare is trading at a discount to its historical average

Fund flows

Implementation Ideas

If you agree with the economic views below, visit the fund detail pages to learn more about Hartford Funds ideas.


ECONOMIC VIEWS HARTFORD FUNDS IDEAS
Developed Market Equities
US:


Strong consumer confidence implies strong consumer consumption

I favor value-oriented sectors
Developed Market Equities
Japan and Europe:


Policy in Japan is supportive and valuations are attractive

Japanese manufacturing is improving driven by a rise in capital spending

European economy is also improving and manufacturing is booming
Emerging Markets:

Commodity prices could benefit EM

Lower EM inflation could benefit EM local debt
Fixed Income:

The Fed will raise interest rates gradually

Municipal bonds offer attractive after-tax yields
ECONOMIC VIEW:
Developed Market Equities US:
Strong consumer confidence implies strong consumer consumption

I favor value-oriented sectors
ECONOMIC VIEW:
Developed Market Equities Japan and Europe:
Policy in Japan is supportive and valuations are attractive

Japanese manufacturing is improving driven by a rise in capital spending

European economy is also improving and manufacturing is booming
ECONOMIC VIEW:
Emerging Markets:
Commodity prices could benefit EM

Lower EM inflation could benefit EM local debt
ECONOMIC VIEW:
Fixed Income:
The Fed will raise interest rates gradually

Municipal bonds offer attractive after-tax yields

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Bloomberg Barclays Global Aggregate Bond Index provides a broad-based measure of the global investment-grade fixed-rate debt markets.
Bloomberg Barclays US High Yield Corporate Bond Index is an unmanaged broad-based market-value weighted index that tracks the total return performance of non-investment grade, fixed-rate publicly placed, dollar-denominated and nonconvertible debt registered with the Securities and Exchange Commission.
Bloomberg Barclays Global Aggregate Bond Index provides a broad-based measure of the global investment-grade fixed-rate debt markets.
Bloomberg Barclays US Long Treasury Index measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury. Treasury bills are excluded by the maturity constraint, but are part of a separate Short Treasury Index.
Credit Suisse (CS) Leveraged Loan Index is designed to mirror the investible universe of the United States dollar-denominated leveraged loan market.
JP Morgan Emerging Markets Bond Index is a broad-based, unmanaged index which tracks total return for external currency denominated debt (Brady bonds, loans, Eurobonds and U.S. dollar-denominated local market instruments) in emerging markets.
MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Emerging Markets Index consists of 21 emerging market country indices.
MSCI Japan Index is a free-float adjusted market-capitalization index designed to measure large- and mid-cap Japanese equity market performance.
MSCI Japan Financials Index is a free float-weighted equity index. It was developed with a base value of 100 as of December 31, 1998.
MSCI USA Consumer Staples Index is designed to capture the large and mid cap segments of the US equity universe. All securities in the index are classified in the Consumer Staples sector as per the Global Industry Classification Standard (GICS®).
MSCI USA Materials Index is designed to capture the large and mid cap segments of the US equity universe. All securities in the index are classified in the Materials sector as per the Global Industry Classification Standard (GICS®).
MSCI Europe Index is a free-float adjusted market-capitalization-weighted index designed to measure the equity market performance of the developed markets in Europe: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.
MSCI Europe Financials Index captures large and mid cap representation across 15 Developed Markets (DM) countries in Europe*. All securities in the index are classified in the Financials sector as per the Global Industry Classification Standard (GICS®).
MSCI USA Financials Index is designed to measure the performance of the large and mid cap segments of the US equity universe. All securities in the index are classified in the Financials sector in the Global Industry Classification Standard (GICS®).
MSCI USA Energy Index is designed to capture the large and mid cap segments of the US equity universe. All securities in the index are classified in the Energy sector in the Global Industry Classification Standard (GICS®); USD (trade weighted) is a proxy for the US dollar.
MSCI USA Information Technology Index is designed to capture the large and mid cap segments of the US equity universe. All securities in the index are classified in the Information Technology sector as per the Global Industry Classification Standard (GICS®).
MSCI USA Index is designed to measure the performance of the large and mid cap segments of the US market. With 627 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in the US.
MSCI USA Industrials Index is designed to the capture large and mid cap segments of the US equity universe. All securities in the index are classified in the Industrials sector as per the Global Industry Classification Standard (GICS®).
MSCI USA Utilities Index is designed to capture the large and mid cap segments of the US equity universe. All securities in the index are classified in the Utilities sector as per the Global Industry Classification Standard (GICS®).
Nikkei 225 Index, commonly known as the Nikkei Index, is a price-weighted index for Tokyo Stock Exchange.
S&P Composite 1500 Health Care Index comprises those companies included in the S&P Composite 1500 that are classified as members of the GICS health care sector.
S&P/GSCI Industrial Metals Index provides investors with a reliable and publicly available benchmark for investment performance in the industrial metals market.

The implementation ideas discussed here reflect the views of Hartford Funds as of December 31, 2017 and are subject to change without notice. These views are not intended to be a prediction of future events or a guarantee of future results. This material should not be considered investment advice or a recommendation to buy, hold, or sell any security.

All investments are subject to risk, including the possible loss of principal. Foreign investments can be riskier 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. These risks are generally greater for investments in emerging markets. Risks of focusing investments on the health-care sector include regulatory and legal developments, patent considerations, intense competitive pressures, rapid technological changes, potential product obsolescence, and liquidity risk. Investments in the commodities market and the natural-resource sector may increase liquidity risk, volatility and risk of loss if there are adverse economic consequences in these sectors.

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 due to the historically low interest rate environment. Investments in high-yield (“junk”) bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities. Bank loans can be difficult to value and highly illiquid; they are subject to credit risk and risks of bankruptcy and insolvency. Mortgage and asset-backed securities’ risks include credit, interest-rate, prepayment, and extension risk. 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. The value of inflation-protected securities generally fluctuates with changes in real interest rates, and the market for these securities may be less developed or liquid, and more volatile, than other securities markets. U.S. Treasury securities are backed by the full faith and credit of the U.S. government as to the timely payment of principal and interest.

The Floating Rate Fund and the Floating Rate High Income Fund should not be considered an alternative to CDs or money market funds. This Fund is for investors who are looking to complement their traditional fixed-income investments.

The views expressed here are those of Nanette Abuhoff Jacobson. They should not be construed as investment advice. They are based on available information and are subject to change without notice. Portfolio positioning is at the discretion of the individual portfolio management teams; individual portfolio management teams and different fund sub-advisers may hold different views and may make different investment decisions for different clients or portfolios. This material and/or its contents are current as of 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 Wellington Management or Hartford Funds.

Investors should carefully consider a fund’s investment objectives, risks, charges and expenses. This and other important information is contained in the fund’s prospectus and summary prospectus (if available), which can be obtained by visiting hartfordfunds.com. Please read it carefully before investing.

Mutual funds are distributed by Hartford Funds Distributors, LLC (HFD), Member FINRA. Hartford Funds Management Company, LLC (HFMC) is the mutual funds’ investment manager. Certain funds are sub-advised by Wellington Management Company LLP or Schroder Investment Management North America Inc. Schroder Investment Management North America Ltd. serves as a secondary sub-adviser to certain funds. HFD and HFMC are not affiliated with any fund sub-adviser.

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