Feedback
  • Account Access
  • Contact Us

    Pre-Sales Support

    Mutual Funds and ETFs - 800-456-7526
    Monday-Thursday: 8:00 a.m. – 6:00 p.m. ET
    Friday: 8:00 a.m. – 5:00 p.m. ET

    ETF Trading Support - 415-315-6600
    Monday-Friday: 9:30 a.m. – 5:00 p.m. ET

    Post-Sales and Website Support
    888-843-7824
    Monday-Friday: 9:00 a.m. - 6:00 p.m. ET

  • Advisor Log In
Charts That Got Us Thinking

2019 Outlook: Down but not out

Jump to chart out of 51 GO »

Multi-asset Views


Nanette Abuhoff Jacobson increased her recommendation for credit to reflect higher spreads and because she doesn’t think interest rates are likely to rise much.

Nanette is a managing director and multi-asset strategist at Wellington Management and Global Investment Strategist for Hartford Funds.


As of December 2018. | Source: Wellington Management

Multi-asset Views

Multi-asset outlook process


Nanette's philosophy is that economic fundamentals, fiscal/monetary policy, and valuations drive markets on a one-year time frame. She gives less weight to valuations because they have less predictive power over a 12-month period, which is her focus.


As of December 2018 | Source: Wellington Management.

Multi-asset Views

Volatility is back!


Last year felt crazy, but in reality volatility was more a return to the norm. 2017 stands out as the aberration.


12018 YTD through 30 November 2018. | Past performance is not a guarantee of future results. Indices are unmanaged and not available for direct investment. | Source: S&P 500. | Chart data 2013 – 2018 YTD.

Please see representative index definitions below.

Risks

Trade war: Who will feel the pinch from higher import prices?


States that have China as their largest source of imports will see higher prices as a result of tariffs. Many of those states (in red) voted for President Trump. As a result, Trump could feel more political pressure to strike a deal and end the trade war.


1Includes South Korea, Germany, Venezuela, and Indonesia | Map shows country with highest 2017 US$ value of imports to each state.
Source: US Census Bureau

Risks

China retaliation can go beyond trade


The US does have a big trade deficit with China, but this ignores the the light blue box—the sales of US multinational companies into China—which are not counted as exports because they’re sold through local subsidiaries. China can inflict pain by imposing tariffs on the dark blue bar on the left and by increasing regulatory harassment / organizing boycotts on the light blue bar on the left.


1Multinational company. | Data shown is the most recent available. | Sources: BEA, US Census Bureau.

Multi-asset Views

Wide return dispersion


For almost all asset classes, nearly all losses occurred in Q4 when the Federal Reserve (Fed) got more hawkish. The Fed has recently turned more dovish, so Nanette is hopeful that 2019 will be a better year for returns.


All returns are in local currency unless otherwise stated. | JPM 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

It has paid to rotate into defensives prior to and during recessions


While Nanette doesn’t expect a recession in the next 12 months, the economic cycle is getting late, so it may make sense to consider rotating into defensive sectors. Defensive sectors outperformed cyclicals and had lower volatility in the two years prior to, as well as during, the last two recessions.


Equal-weighted defensive sectors: equal-weighted S&P 500 sector indices: Consumer Staples, Health Care, Utilities, Telecommunication Services. Equal-weighted cyclical sectors: equal-weighted S&P 500 sector indices: Consumer Discretionary, Energy, Financials, Industrials, Information Technology, and Materials. | Past performance is not a guarantee of future results. Investors cannot directly invest in an index.
Sources: Bloomberg, Wellington Management.

Global Fundamentals

Global growth has downshifted


PMI shows global growth has slowed modestly, but the change in money supply and M1 forebodes a sharper slowdown ahead. Nanette believes growth will decelerate in 2019, but not to calamitous levels.


1Purchasing Managers Index (PMI) is an indicator of the economic health of the manufacturing sector. A reading above 50 signals economic expansion; below 50 signals contraction.
2M1 is the money supply that includes physical currency and coin, demand deposits, travelers checks, other checkable deposits and negotiable order of withdrawal (NOW) accounts. Gross Domestic Product (GDP)-weighted M1 money supply includes US, Europe, Japan, and China
Sources: Bloomberg, Markit, Wellington Management | Chart data: July 1997 – October 2018. X-axis scale range is January 1998 to April 2019 due to M1 being forwarded 6 months M1 data is from July 1997 to October 2018 (i.e., first data point for M1 represents July 1997 and final data point represents October 2018). PMI data is from January 1998 – October 2018

Global Fundamentals

Tight US labor markets leading to higher wages


Wages and core inflation are likely to increase in the US in the near term. The survey shows that small businesses are increasingly reporting skilled labor shortages and so the Employment Cost Index, the broadest measure of pressure on wages, should increase. Nanette expects somewhat higher core inflation and interest rates, especially at the long end of the curve.


NFIB: skilled labor shortages is the % of respondents signaling that quality of labor is their single most important problem. Sources: BLS, NFIB, Haver | Chart data: June 1994 – September 2018

Commodities

Commodities are at their cheapest levels relative to stocks since 1970s


Commodities are very cheap relative to other asset classes.


Past performance is not a guarantee of future results. Indices are unmanaged and not available for direct investment. The chart compares the valuations of commodities relative to stocks. When the line is above the median value, commodities are expensive relative to stocks. When the line is below the median value, commodities are cheap relative to stocks.
Sources: Bloomberg, Wellington Management | Chart data: January 1970 – November 2018

Interest Rates

Fed hiking expectations have fallen


The market is expecting the federal funds rate to be between 2.25% and 2.5% at the end of 2019, which is unchanged from its current level. Nanette agrees with that assessment.


Source: Bloomberg | Chart data: 12 June 2018 – 12 December 2018

Interest Rates

Yield curve inversion has coincided with positive equity returns


Nanette doesn’t expect the yield curve to invert enough, or for long enough, to be a reliable indicator of a recession. Also, it has taken on average 17 months between an inversion and a recession, and five months between an inversion and when the S&P 500 Index peaks. Thus, despite the yield curve being pretty flat right now, she still thinks 2019 could be a solid year for risk assets.


Past performance is not a guarantee of future results.
Sources: Global Financial Data, NBER | Chart data: January 1950 – December 2018 | An inverted yield curve implies that investors expect the Fed to cut interest rates in a response to weaker economic conditions.

Regional Equities

In US, capital expenditures (capex)1 intentions leading capex spending


In the US, capex intentions rose following tax reform but have fallen due to trade concerns. They remain at healthy levels.


1Capital expenditures are funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment. | Sources: Bloomberg, Philadelphia Fed, BEA, Wellington Management | Chart data: May 1978 – November 2018. X-axis scale range is November 1978 – May 2019 due to intentions being forwarded 6 months. Capex intention is the amount CFOs plan to spend on capital expenditures, and capex actual is the amount they actually spent on capital expenditures. Intentions data (monthly) is from May 1978 to November 2018 (i.e., first data point for intentions represents May 1978 and final data point represents November 2018). Actual data (quarterly) is from 4Q78 to 3Q18.

Regional Equities

Deregulation is happening


The regulatory backdrop in DC has gotten a lot more business friendly. Nanette thinks this has been a material tailwind for US businesses.


1Presidential year: 1 February – 31 January (i.e., 1994 represents 1 February 1993 – 31 January 1994). Significant regulations, as defined by Executive Order 12866, are those that may "create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or raise novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in this Executive order." | Source: The George Washington University Regulatory Studies Center www.regulatorystudies.columbian.gwu.edu | Chart data: 1994 – 2017

Regional Equities

European consumer confidence implies stronger retail sales


The manufacturing weakness Europe has endured over the past several quarters has infected the consumer somewhat via lower confidence, but the European consumer is healthy overall.


Sources: Haver, Wellington Management | Chart data: December 2000 – November 2018. X-axis scale range is March 2001 to February 2019 due to consumer confidence being forwarded 3 months. Consumer confidence data is from December 2000 to November 2018 (i.e.,first data point for consumer confidence represents December 2000 and final data point represents November 2018). Retail sales data is from March 2001 – October 2018

Regional Equities

European sluggishness set to continue


The manufacturing side of Europe is much weaker. PMI has fallen sharply to barely over 50, and the year-over-year change in M1 (money supply) suggests a contraction.


Sources: Bloomberg | Chart data: July 1998 – November 2018. X-axis scale range is December 1998 to April 2019 due to M1 being forwarded 6 months. M1 data is from July 1998 to October 2018 (i.e.,first data point for M1 represents December 1998 and final data point represents October 2018). PMI data is from December 1998 – November 2018.

Regional Equities

Europe is more globally exposed


Europe is more sensitive to changes in the global cycle because corporations derive a lot of their revenue from overseas


As of 30 November 2018 | Source: MSCI | Please see representative index definitions below.

Regional Equities

Japanese tight labor market supports wages and consumer


Japan’s consumer is still doing well as evidenced by a tight labor market.


Source: Bloomberg | Chart data: March 1999 – October 2018. X-axis scale range is March 2000 – October 2019 due to Japan jobs to applicants data being forward 12 months (i.e., first data point for Japan jobs to applicants represents March 1999 and final data point represents October 2018. Japan hourly wage growth data: March 2000 – October 2018)

Regional Equities

Japan depends on the yen


Japan is heavily dependent on the yen. When the yen goes up, Japanese equities generally go down. The chart shows that Japan’s economy relative to the global economy also generally goes down when the yen declines. The yen could appreciate in 2019 because it is a safe-haven currency and there are many risks on the horizon.


Past performance is not a guarantee of future results.
Sources: Haver, Markit, Deutsche Bank, Wellington Management | Chart data: November 2006 – November 2018. X-axis scale range is May 2007 to May 2019 due to trade-weighted yen being forwarded 6 months. Trade-weighted yen data is from November 2006 to November 2018 (i.e., first data point for the trade-weighted yen represents November 2006 and final data point represents January 2018). Japan-global PMI data is from May 2007 – November 2018.

Regional Equities

No sign of China’s deleveraging campaign ending yet


The relative performance of emerging-market (EM) equities vs. developed-market (DM) equities depends on how much China’s authorities use monetary stimulus (M1).


Past performance is not a guarantee of future results. Indices are unmanaged and not available for direct investment. Sources: Bloomberg, Wellington Management | Chart data: China M1 (monthly) January 1996 – November 2018; MSCI EM/MSCI World (daily) 1 January 1996 – 5 December 2018

Regional Equities

Lower rates could lead to increased money supply


While M1 in China is much slower, the leading indicator of interest rates suggests it should bottom soon.


Past performance is not a guarantee of future results.
Sources: Bloomberg, Wellington Management | Chart data January 1996 – November 2018. X-axis scale range is January 1996 – August 2019 due to China 5Y swap being forwarded 9 months. China 5Y swap data: April 2006 – November 2018, (i.e., first data point for China 5Y swap represents April 2006 and final point represents November 2018); China M1: January 1996 – November 2018

Regional Equities

Emerging markets increasingly drive the global economy


EM are increasingly driving the global economy. Investors with longer time horizons should consider an allocation to EM equities and bonds.


Sources: Haver, Wellington Management | Chart data: 1991 – 2017

Regional Equities

Valuations relatively attractive outside US


Valuations are expensive in the US, cheap to fair in Europe, and cheap in Japan and EM.

The relative premium of investing in US equities is higher than what it normally is. US equities are expensive relative to other regions.


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. | As of 30 November 2018 | Sources: MSCI, Datastream, Wellington Management

Credit

Fixed income may resume diversification role


When the Fed stops raising interest rates, the correlation between stocks and bonds tends to fall. This means bonds could play a better diversification role going forward.


Past performance is not a guarantee of future results.
Source: Datastream | Chart data: 30 June 1988 – 5 December 2018

Credit

Benign default environment


Spreads could rally since defaults are low. This reflects the strength of the US economy.


Actual results may vary, perhaps significantly, from the estimated data presented. | Source: Moody’s | Chart data: actual December 1996 – October 2018, estimated September 2018 – October 2019

Credit

Credit spreads are fair


Credit spreads widened materially in Q4 and now provide some value.


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

Credit

Bank loan valuations look attractive


The yield advantage of high-yield bonds relative to bank loans is lower than normal, so bank loan valuations look attractive.


Past performance is not a guarantee of future results.
Investors cannot invest directly in an index. For illustrative purposes only. | The chart shows the difference in yield for the Credit Suisse Leveraged Loan Index, which is designed to mirror the investible universe of the US dollar-denominated leveraged loan market, and the Bloomberg Barclays High Yield Corporate 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 SEC. | Sources: Barclays, Credit Suisse, JPMorgan | Chart data: January 1992 – November 2018 | Please see representative index definitions below.

Credit

No bank loan maturity wall for some time


There are no major maturities in bank loans for a few years, so there shouldn’t be any liquidity issues in the near term.


Source: S&P | Please see representative index definitions below.

Credit

Wider spreads can indicate better excess returns
High yield


The horizontal axis breaks down starting spread levels by quintile and shows a strong relationship between starting spread levels and 3-year forward excess returns. Wider spreads tend to lead to higher forward excess returns.


Past performance is not a guarantee of future results.
1An OAS (Option-Adjusted Spread) is a measurement tool for evaluating yield differences between similar-maturity fixed-income products with different embedded options. | The line shows the general trend that wide spreads on high yield lead to higher returns and vice versa.
Sources: Barclays, Wellington Management

Credit

Wider spreads can indicate better excess returns
Corporates


The horizontal axis breaks down starting spread levels by quintile and shows a strong relationship between starting spread levels and 3-year forward excess returns. Wider spreads tend to lead to higher forward excess returns.


Past performance is not a guarantee of future results.
1An OAS (Option-Adjusted Spread) is a measurement tool for evaluating yield differences between similar-maturity fixed-income products with different embedded options. | The line shows the general trend that wide spreads on corporates lead to higher returns and vice versa.
Sources: Barclays, Wellington Management

Credit

EM currency weakness has led to economic stabilization


EM currencies have weakened, which tends to lead to trade balances increasing. This helps economic stability in EM. This is one of the reasons we increased our allocation to emerging market bonds.


Sources: Haver, Wellington Management | Chart data January 2010 – November 2018 (EM FX through November 2018, trade balance through September 2018)

Risks

Rise of populism in Europe


Populism is more obviously seen in the UK with Brexit but in reality is occurring throughout the rest of the EU and the world.


September 2018 | Source: BBC

Portfolio Construction

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


Diversify exposure across economic environments.


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


*This column shows the S&P 500 Index’s one-day loss on the date shown in column 1.
Past performance is not a guarantee of future results. Assumes reinvestment of capital gains and dividends and no taxes.
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.
Data Sources: Morningstar and Hartford Funds, 1/19

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 Sources: Morningstar and Hartford Funds, 1/19

Intra-year dips in emerging-market equities 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 Sources: Morningstar and Hartford Funds, 1/19

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 Sources: Thomson Reuters and Hartford Funds, 1/19.

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 and Hartford Funds, 1/19

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. Please see representative index definitions below. | Data Sources: Morningstar and Hartford Funds, 1/19

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 7.3 years. US equities have outperformed international equities over the past 7.8 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. | Data Sources: Morningstar and Hartford Funds, 1/19

Stock market returns after significant oil price declines


Past performance is not a guarantee of future results. Investors cannot directly invest in an index. 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 Economic Data, Morningstar Direct, and Hartford Funds.

Dividend-paying stocks have significantly outperformed dividend non-payers in the long run


Companies that grew or initiated a dividend have historically enjoyed a significant performance advantage.


Past performance is no guarantee of future results. 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. Indices are unmanaged and not available for direct investment.
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

Source: Ned Davis Research, 1/19.

Timing the market is impossible


If you missed some of the market’s best months over the past 30 years, you would have been better off buying lower-risk Treasury Bills.


Index past performance is not indicative of future results. For illustrative purposes only. The performance shown is index performance and is not indicative of any investment. Investors cannot invest directly in an index.
Data Sourcse: Ned Davis Research and Hartford Funds, 1/19.

Asset class returns vs. the average investor


According to a study by Dalbar, the average US equity investor has dramatically underperformed the US equity market index by buying and selling at the wrong times.


For illustrative purposes only.
Past performance is not a guarantee of future returns. Indices are unmanaged and not available for direct investment.
US Equities: S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
Bonds: Bloomberg Barclays U.S. Aggregate Bond Index is composed of securities from the Barclays Government/Credit Bond Index, Mortgage-Backed Securities Index, Asset-Backed Securities Index, and Commercial Mortgage-Backed Securities Index.
Inflation: CPI-All Urban Consumers is a measure of inflation that includes all urban households and urban places of 2,500 inhabitants or more. The index excludes rural consumers and the military and institutional population and represents the buying habits of approximately 80% of the U.S. population.
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 Barclays Index Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period ending December 31, 2016, 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. | Source: Dalbar, 2018.

Duration risk is rising: Are you prepared?


In June of 2017, 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.
Data Sources: Bloomberg and Hartford Funds, 1/19. For illustrative purposes only.

Hypothetical impact of rising rates on fixed income


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.
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) | Data Sources: Bloomberg and Hartford Funds, 1/19.

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.
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.
Data Sources: Morningstar and Hartford Funds, 1/19.

Annual inflation is below its historical average but rising


At the end of 2018, 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.


Data Sources: Morningstar and Hartford Funds, 1/19.

Tax-equivalent yields1


1The tax-equivalent yield is the pretax yield that a taxable bond needs to possess for its yield to be equal to that of a tax-free municipal bond.
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. | Data Sources: Bloomberg and Hartford Funds, 1/19.

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.
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.
Data Sources: Bloomberg and Hartford Funds, 1/19.

Fund flows


TOP: Data includes flows through 11/18 and excludes ETFs. BOTTOM: Data includes flow through 11/18 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 12/31/18. | Data Sources: Investment Company Institute and Hartford Funds, 1/19.

Multi-asset views

Multi-asset outlook process

Volatility is back!

Trade war: Who will feel the pinch from higher import prices?

China retaliation can go beyond trade

Wide return dispersion

It has paid to rotate into defensives prior to and during recessions

Global growth has downshifted

Tight US labor markets leading to higher wages

Commodities are at their cheapest levels relative to stocks since 1970s

Fed hiking expectations have fallen

Yield curve inversion has coincided with positive equity returns

In US, capex intentions leading capex spending

Deregulation is happening

European consumer confidence implies stronger retail sales

European sluggishness set to continue

Europe is more globally exposed

Japanese tight labor market supports wages and consumer

Japan depends on the yen

No sign of China’s deleveraging campaign ending yet

Lower rates could lead to increased money supply

Emerging markets increasingly drive the global economy

Valuations relatively attractive outside US

Fixed income may resume diversification role

Benign default environment

Credit spreads are fair

Bank loan valuations look attractive

No bank loan maturity wall for some time

Wider spreads indicate better excess returns: High Yield

Wider spreads indicate better excess returns: Corporates

EM currency weakness has led to economic stabilization

Rise of populism in Europe

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

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

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

Intra-year dips in emerging-market equities 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?

Stock market returns after significant oil price declines

Dividend-paying stocks have significantly outperformed dividend non-payers in the long run

Timing the market is impossible

Asset class returns vs. the average investor

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

Annual inflation is below its historical average but rising

Tax-equivalent yields

Municipal bond yields look attractive

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
US Equities

Favor US equities relative to Europe, Japan, and EM

US consumers continue to power the economy and are supported by a strong job market and higher wages

Favor defensive sector
Fixed Income

Cheaper valuations may offer an opportunity to upgrade the quality of credit portfolios

Bank loans are more attractive than high-yield bonds
Commodities and Inflation Hedges

The global economy should drive modest increases in inflation

Consider broad commodities exposure, including precious metals, as a potential hedge against higher inflation and lower growth
ECONOMIC VIEW:
US Equities:
Favor US equities relative to Europe, Japan, and EM

US consumers continue to power the economy and are supported by a strong job market and higher wages

Favor defensive sectors
ECONOMIC VIEW:
Fixed Income:
Cheaper valuations may offer an opportunity to upgrade the quality of credit portfolios

Bank loans are more attractive than high-yield bonds
ECONOMIC VIEW:
Commodities and Inflation Hedges:
The global economy should drive modest increases in inflation

Consider broad commodities exposure, including precious metals, as a potential hedge against higher inflation and lower growth

1Credit exposure is the credit ratings for the underlying securities of the Fund as provided by Standard and Poor’s (S&P), Moody’s Investors Service, or Fitch and typically range from AAA/Aaa (highest) to C/D (lowest). If S&P, Moody’s, and Fitch assign different ratings, the median rating is used. If only two agencies assign ratings, the lower rating is used. Securities that are not rated by any of the three agencies are listed as “Not Rated.” Ratings do not apply to the Fund itself or to Fund shares. Ratings may change.

Order

Financial Advisors: Order a Charts That Got Us Thinking flipbook that you can use in client meetings.



View Nanette's Monthly Commentary » Subscribe to Charts That Got Us Thinking »

Index Definitions
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 US Aggregate Bond Index is composed of securities from the Barclays Government/Credit Bond Index, Mortgage-Backed Securities Index, Asset-Backed Securities Index, and Commercial Mortgage-Backed Securities Index.
Bloomberg Barclays US Corporate Index is a market-weighted index of investment-grade corporate fixed-rate debt issues with maturities of one year or more.
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.
Bloomberg Barclays US MBS Fixed Rate Index measures the performance of investment grade fixed-rate mortgage-backed pass-through securities of Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).
Bloomberg Barclays Municipal Bond 10-year Index is a sub-index of the Barclays Municipal Bond Index. It is a rules-based market value-weighted index of bonds with maturities of 10 years engineered for the tax-exempt bond market.
Bloomberg Barclays US FRN (BBB) is a subset of the US Floating-Rate Note (FRN) Index, which measures the performance of USD denominated, investment-grade, floating-rate notes across corporate and government-related sector.
Bloomberg Barclays U.S. Convertibles Composite includes all four major classes of USD equity-linked securities including: convertible cash coupon bonds, zero-coupon bonds, preferred convertibles with fixed par amounts and mandatory equity-linked securities.
Bloomberg Barclays U.S. Fixed-Rate Asset-Backed Securities (ABS) Index covers fixed-rate ABS with the following collateral types: credit cards, autos, home equity loans and stranded-cost utility (rate reduction bonds).
Bloomberg Barclays U.S. CMBS Index measures the market of conduit and fusion Commercial Mortgage-Backed Securities deals with a minimum current deal size of $300 million.
Core PCE price Index is the less volatile measure of the PCE price index which excludes the more volatile and seasonal food and energy prices.
Credit Suisse (CS) Leveraged Loan Index is designed to mirror the investible universe of the United States dollar-denominated leveraged loan market.
JP Morgan GBI Emerging Markets Global Diversified Index is a comprehensive global, local emerging-markets index, and consists of liquid, fixed-rate, domestic-currency government bonds.
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 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 USA Consumer Discretionary Index is designed to capture the large and mid cap segments of the US equity universe.
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 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 World ex USA Index captures large and mid cap representation across developed market countries, excluding the US.
Russell 1000 Index measures the performance of the large-cap segment of the US equity universe.
Russell 2000 Index measures the performance of the small-cap segment of the US equity universe.
S&P GSCI Commodity Index consists of 24 commodity futures on physical commodities across five sectors: energy, agriculture, livestock, industrial metals, and precious metals.
S&P/LSTA Leveraged Loan Index is a market-value-weighted index that is designed to measure the performance of the U.S. leverage loan market based upon market weightings, spreads and interest payments.
S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
S&P 500 Growth Index is a subset of the S&P 500 Index. It includes full market-capitalization weightings in the most growth-oriented third of the S&P 500 Index, and a half market- cap stake in the stocks within the S&P 500 Index that have both value and growth characteristics.
S&P 500 Value Index is a subset of the S&P 500 Index. It includes full market-capitalization weightings in the most value-oriented third of the S&P 500 Index, and a half market-cap stake in the stocks within the S&P 500 Index that have both value and growth characteristics.

Nanette’s economic views and the implementation ideas from Hartford Funds are as of December 31, 2018 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.

Important Risks: Investing involves risk, including the possible loss of principal. • 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. • Commodity investments are subject to additional risks.
• Fixed income security risks include credit, liquidity, call, duration, 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. • The value of inflation-protected securities (IPS) generally fluctuates with changes in real interest rates, and the market for IPS may be less developed or liquid, and more volatile, than other securities markets. • 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. • Loans can be difficult to value and highly illiquid; they are also subject to nonpayment, collateral, bankruptcy, default, extension, prepayment and insolvency risks.

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.

01/19 NAJ_FLP_0119 210275