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Charts That Got Us Thinking

Charts That Got Us Thinking

2Q17: Is this a synchronized global recovery?

Jump to chart out of 45 GO »

YTD performance: Reflationary trade in doubt


During the first quarter:

  • Yields and the US dollar fell
  • Equities beat bonds
  • Interest-rate sensitive sectors such as utilities were competitive with cyclicals such as financials
  • Oil was the big loser
  • Emerging markets were the big winner


* Based on commodity price, not represented by an index.
1Through 31 March 2017 | Past performance is not indicative of future results. The performance shown above is index performance and is not representative of a fund’s performance. Indexes are unmanaged and not available for direct investment.
Please see Index Definitions below.
Sources: Bloomberg, Wellington

Global synchronized expansion


The underpinnings of the reflationary trade are intact with all regions’ PMIs well over 50, indicating expanding economies worldwide.


Purchasing 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

Deflation looks defeated


Deflation was a prominent risk as recently as a year ago. Now, even Japan has escaped deflation risk as observed in 10-year breakevens.


Deflation is a general decrease in prices. | Source: Bloomberg

The feedback loop of oil prices and production


Higher prices lead to higher oil production, however, oil is likely at the lower end of the range considering the potential extension of the production cuts and the heavy-demand season.


Sources: Baker Hughes, Energy Information Administration, Bloomberg

Tight labor markets leading to higher wages


A shortage of skilled labor is leading to higher wages.


1Employment Cost Index quarterly data through December 2016, NFIB: skilled labor shortages two-quarter moving average data through December 2016 then January 2017 and February 2017 monthly data. | NFIB: skilled labor shortages is the % of respondents signaling that quality of labor is their single most important problem. | Sources: BLS, NFIB, Haver

US consumer confidence implies stronger consumption


US consumer confidence tends to lead consumption, which is 2/3 of the US economy.


1Consumer confidence – expectations through March 2017, real consumption through December 2016.
Consumer Confidence is an index that measures how optimistic or pessimistic consumers are with respect to the economy in the near future. A high number indicates high confidence, while a low number indicates low confidence. | Sources: Conference Board, BEA, Bloomberg

Capex intentions set to turn around


The confidence story is not only for consumers, but also for the business side, too; low business confidence has been a hindrance for the US economy.


1Expected growth in capital spending over next 12 months. Intention through 1Q17, actual through 4Q16
Capex intention is the amount CFOs plan to spend on capital expenditures, and capex actual is the amount they actually spent on capital expenditures. | Sources: Duke University, Haver

Expect pendulum to swing back on regulation


CEOs indicate that the rollback of regulations will be beneficial for hiring and capital investment. Banks could especially benefit.


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 Most current data available used.

Business leaders are optimistic


Optimism among business leaders has increased significantly, which seems to lead real GDP growth.


1Duke/CFO Outlook: Optimism Index, US economy (scale: 0 – 100, 100 = most optimistic)
Gross Domestic Product (GDP) is the monetary value of all finished goods and services produced within a country’s borders in a specific time period. | Sources: Duke, Haver, Wellington Management

Market’s Fed funds expectations rising


After the presidential election, the market’s expectations of policy rates jumped, but they are still somewhat below the Federal Reserve’s (Fed) forecast.


Federal funds rate is the rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight. | Source: Bloomberg

US dollar strength supported by monetary policy divergence


The US dollar is driven by two important factors: monetary policy and the level of real rates. Tighter central bank policy and higher rates in the US are supportive of the US dollar.


Note: real yields (i.e., yields after adjusting for inflation) are from inflation-linked bonds | Source: Bloomberg

Key US political dates


While it’s difficult to predict US politics, Washington DC’s calendar gives a roadmap of important deadlines and the tight time frame in which to implement tax reform this year.

Small-cap equities are more domestically focused


Small-cap equities’ revenues come mostly from the US, whereas large-cap equities’ revenues derive about 35% of their revenues from outside the US. Protectionist policies in the form of tariffs or other measures that hurt big export markets such as China or emerging markets would likely hurt large caps more than small caps.


Large-cap stocks are represented by the Russell 1000 Index, which measures the performance of the large-cap segment of the U.S. equity universe.
Small-cap stocks are measured by the Russell 2000 Index, which measures the performance of the small-cap segment of the U.S. equity universe. | Sources: FactSet, Wellington Management

Japanese equities track the yen


The Bank of Japan’s aggressive monetary policy has injected substantial liquidity into the financial system. This has led to a weakened yen, which is good for exporters—a critical part of the economy.


Past performance is no guarantee of future results. The performance shown above is index performance and is not representative of any fund’s performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only.
The right-hand scale shows how many Japanese Yen are equal to one US dollar.
MSCI Japan Index is a free-float adjusted market-capitalization index designed to measure large- and mid-cap Japanese equity market performance. | Source: Bloomberg

Japan Inc’s profitability: Abenomics effect


Beyond a weak yen, profit margins have been rising strongly in Japan with companies’ greater focus on return on assets, return on equity, and use of excess cash for buybacks and dividends.


Abenomics refers to the economic policies of Japan’s prime minster, Shinzo Abe.
Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA is indicative of how efficient a management is at using its assets to generate earnings.
Return on equity (ROE) is a measure of profitability that calculates how many dollars of profit a company generates with each dollar of shareholders’ equity. | Sources: Haver, Evercore ISI, Wellington Management

European consumer confidence implies stronger retail sales


Similar to the US but earlier in its recovery cycle, Europe’s economy is getting stronger, underpinned by rising employment and income, which should also lead to higher consumption.


1Retail sales through January 2017, consumer confidence through March 2017 | Sources: Haver, Wellington Management

Leading business indicators turn positive in Europe


The European PMI hit 56, a 6-year high and consistent with 6% industrial production growth and 3% GDP. However, uncertainty regarding the outcome of the French election is hanging over markets.


1PMI through March 2017, industrial production through February 2017
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.
A PMI reading above 50 signals expansion from the current growth rate, while a reading below 50 signals contraction from the current growth rate.
Sources: Haver, Wellington Management

Markets pricing in less risk of Le Pen victory


Credit markets were reflecting a lot of concern early in the year. Recently, however, French equities have moved higher and French credit derivative spreads have narrowed, reflecting less concern.


Past performance is no guarantee of future results. The performance shown above is index performance and is not representative of any fund’s performance. Indices are unmanaged and not available for direct investment.
French Sovereign Credit Default Swap (CDS) – A credit derivative similar to insurance because it provides the buyer of the contract with protection against default or other negative credit event.
The MSCI France index is a free-float weighted equity index that reflects the performance of equities listed in France.
For illustrative purposes only. | Source: Bloomberg

French election doesn’t look like Brexit or Trump


Le Pen is currently trailing Macron by 20 percentage points in the polls, which is a much wider gap than in the Brexit referendum or the US presidential election.


1The polling numbers are based on data available 100 calendar days prior to the referendum /election. In each case, multiple polls were released and so we applied a simple average. French Presidential elections typically consist of two rounds and so we use polls for the expected second round of voting between Marine Le Pen and Emmanuel Macron. | Sources: UK polls – Ipsos Mori, YouGov, ComRes, ICM and Survation; US national polls – NBC, Ipsos/Reuters, and USC/Los Angeles; French polls – Ifop-Fiducial, Ipsos, and OpinionWay.

Emerging economies’ current accounts have improved


Emerging market fundamentals have improved after currencies’ steep declines in recent years allowed countries to rebalance their trade and stabilize their economies.


The current account is an important indicator of an economy’s health. It is defined as the sum of the balance of trade (goods and services exports less imports), net income from abroad, and net current transfers.
JP Morgan Global Bond Index – EM Global Diversified tracks the local currency bonds issued by emerging market governments up to a market cap weight of 10% per country.
Sources: Haver, Wellington Management

Caution on China: Higher rates


One risk to monitor is China and its interest rates. Higher rates could damage the property cycle— a key growth engine.


Source: Bloomberg

Valuations are expensive across most asset classes


Equity and credit valuations are expensive. For equities to perform, earnings have to beat the market’s expectations and credit conditions have to improve.

As of 31 March 2017
1Option-adjusted spread (OAS) measures fixed-income yields while taking into account any embedded options.
2A basis point is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.
3Price-to-Book Ratio (P/B ratio) is the ratio of a stock’s price to its book value per share. Green shading represents relatively inexpensive valuations, red shading represents relatively expensive valuations.
US high yield is represented by the Bloomberg Barclays US Corporate High Yield Index ; US high yield ex energy is represented by the Bloomberg Barclays US Corporate High Yield Index ex Energy; US IG corporate is represented by the Bloomberg Barclays US Corporate Index; Global high yield is represented by the Bloomberg Barclays Global High Yield Index; Euro IG corporate is represented by the Bloomberg Barclays Euro Corporate Index; EMBI+ is an abbreviation for the JPMorgan Emerging Markets Bond Index Plus; US is represented by the MSCI USA Index; Europe is represented by the MSCI Europe Index; Japan is represented by the MSCI Japan Index; EM is represented by the MSCI Emerging Markets Index
Sources: Bloomberg, Datastream, Wellington Management

Peak defaults probably behind us


Credit fundamentals are healthy. Defaults peaked in the high yield market in 2016 during the shakeup of the energy and metals/mining industries. These industries are now healing, and default rates should fall.


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

Bank loan valuations still attractive


Bank loans offer similar yield as high-yield bonds, yet they’ve historically had a stronger recovery rate and could appreciate if rates rise given their floating-rate characteristics.


Past performance is not a guarantee of future results. The performance shown is index performance and is not representative of any funds’ performance. Investors cannot invest directly in an index.
The chart shows the yield for high-yield bonds minus the yield for bank loans. Bank loans, represented by the Credit Suisse Leveraged Loan Index, are below-investment-grade, senior secured, short-term loans made by banks to corporations. They are rated below-investment-grade because there is a greater possibility that the issuer may be unable to make interest and principal payments on those securities. High-yield bonds, or “junk bonds,“ represented by the Bloomberg Barclays US Corporate High Yield Bond Index, are rated below-investmentgrade because there is a greater possibility that the issuer may be unable to make interest and principal payments on those securities.
Sources: Bloomberg Barclays, Credit Suisse, JPMorgan

Low-volatility equities are expensive


Low-volatility (low-vol) equities are concentrated in sectors such as consumer staples and utilities, while high-volatility equities are concentrated in financials. Even though low-vol equity valuations are a bit cheaper since the election, they are still well above the long-term median on a price-to-book basis.


1Data through 25 March 2017
Price-to-Earnings Ratio (P/E ratio) is the ratio of a stock’s price to its earnings per share based on 12-month forward projections.
Price-to-Book (P/B ratio) is the ratio of a stock’s price to its book value per share. Low-volatility stocks are defined as the 150 lowest volatility stocks of the largest 1,500 US equities. High-volatility stocks are defined as the 150 most volatile stocks of the largest 1,500 US equities.
Source: Wellington Management

Financials valuations are still attractive


Valuations for US and European financials are attractive relative to the market. The potential for higher interest rates, regulatory relief, and better economic activity are all supportive for financials.


Past performance is no guarantee of future results. The performance shown above is index performance and is not representative of any fund’s performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only.
Please see Index Definitions below.
Source: Datastream

Think Function, Not Form: Diversify exposure across economic environments


While most assets tend to perform well in a growth environment with benign inflation, think about whether you have assets that perform well in an inflationary environment, either with growth (top right hand) or without (bottom righthand).


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’s Asset Allocation Strategies Group 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, 1/17

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 funds’ performance. Investors cannot invest directly in an index. Assumes reinvestment of capital gains and dividends and no taxes. | Data Source: Morningstar, 1/17

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 fund’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, 1/17.

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


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 fund’s performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only. | Source: Morningstar, 1/17

Domestic stocks and international stocks alternate periods of outperformance


Domestic stocks are represented by S&P 500 Index. International stocks are 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 fund’s performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only. | Source: Morningstar, 1/17

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)

Asset class returns vs. the average investor


According to a study by Dalbar, the average mutual fund investor has dramatically underperformed market indexes 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, 4/17.

Hypothetical impact of rising rates on fixed income


Chart is for illustrative purposes only. Past performance is not a guarantee of future results.
1Calculation assumes 2-year Treasury interest rate falls 0.67% to 0.00%, as interest rates can only fall to 0.00%.
Source: Bloomberg Barclays. 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 10 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.
Data Source: Morningstar, 4/17.
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.
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 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.

US stock reactions to fast vs. slow rate hikes


During fast rate-hike cycles, stocks have historically lost an average of 2.7% after one year. By contrast, slow rate-hike cycles have historically resulted in an average stock gain of 10.8% after one year.


Source: S&P Dow Jones Indices, Ned Davis Research. Analysis of 12 post-war tightening cycles. In a “fast” cycle, rate hikes took place after back-to-back FOMC meetings (there are typically eight per year), “slow” cycles weren’t consecutive. Before tightening cycles (left of the green line), stocks moved in a similar fashion. After tightening cycles (right of the green line), stocks performed significantly better after slow cycles than after fast ones. To normalize S&P Index values for different time periods, the S&P value is shown as 100 on the date of the rate hike.

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 many years.


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 2016, the US inflation rate was 2.1%—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 fund’s performance. This chart is for illustrative purposes. It does not reflect any particular investment. Investors cannot invest directly in an index. | Data Source: Bloomberg, 4/17.
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.

The drug revolution unfolds


We’re seeing more drug approvals today than at any other period in history as scientists increasingly learn how to apply knowledge gained from mapping the human genome.


1The term “drug mechanism” refers to a specific way of manipulating disease pathobiology such that the disease manifestations are mitigated. A mechanism is "innovative" if that particular approach has not yet been exploited by a commercially-available drug for a particular disease state. The term "innovative drug launch" thus refers to the first U.S. commercial approval for a particular disease state of a drug with a mechanism of action that has not previously been brought to bear on that disease state. Should a second drug come to market with the identical mechanism of action directed at the identical disease state, it would not be considered "innovative." However, a drug with a known mechanism that is developed in a new way, to treat a different disease state, is considered "innovative". Each data point is a rolling 10 year count of the number of innovative drugs approved. A 10 year rolling count is used as the drug cycle (from identification of a drug candidate in research to FDA approval). Actual approvals might vary from expectations, perhaps significantly. | Data Sources: Credit Suisse and Wellington Management

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, 4/17

Fund flows


TOP: Data includes flows through December 2016 and excludes ETFs. BOTTOM: Data includes flow through November 2016 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 3/31/17. | Source: Investment Company Institute.

YTD performance: Reflationary trade in doubt

Global synchronized expansion

Deflation looks defeated

The feedback loop of oil prices and production

Tight labor markets leading to higher wages

US consumer confidence implies stronger consumption

Capex intentions set to turn around

Expect pendulum to swing back on regulation

Business leaders are optimistic

Market’s Fed funds expectations rising

US dollar strength supported by monetary policy divergence

Key US political dates

Small-cap equities are more domestically focused

Japanese equities track the yen

Japan Inc’s profitability: Abenomics effect

European consumer confidence implies stronger retail sales

Leading business indicators turn positive in Europe

Markets pricing in less risk of Le Pen victory

French election doesn’t look like Brexit or Trump

Emerging economies’ current accounts have improved

Caution on China: Higher rates

Valuations are expensive across most asset classes

Peak defaults probably behind us

Bank loan valuations still attractive

Low-volatility equities are expensive

Financials valuations are still attractive

Think Function, Not Form: Diversify 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

Are you an opportunistic or apprehensive investor?

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

Domestic stocks and international stocks alternate periods of outperformance

Stock market returns after significant oil price declines

Asset class returns vs. the average investor

Hypothetical impact of rising rates on fixed income

Some asset classes have performed well in rising-rate periods

US stock reactions to fast vs. slow rate hikes

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

The drug revolution unfolds

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
Global Economy:

Signs point to a synchronized global uptick in growth

Favor small- and mid-cap stocks over large-cap stocks
Developed Market Equities:

We favor US and Japanese equities over European equities
Fixed Income:

The Fed will raise interest rates gradually

Bank loan valuations are still attractive
Inflation Hedges:

The reflationary trend remains intact
ECONOMIC VIEW:
Global Economy:
Signs point to a synchronized global uptick in growth

Favor small- and mid-cap stocks over large-cap stocks
ECONOMIC VIEW:
Developed Market Equities:
We favor US and Japanese equities over European equities
ECONOMIC VIEW:
Fixed Income:
The Fed will raise interest rates gradually

Bank loan valuations are still attractive
ECONOMIC VIEW:
Inflation Hedges:
The reflationary trend remains intact

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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.
Bloomberg Barclays Global Aggregate Bond Index provides a broad-based measure of the global investment-grade fixed-rate debt markets.
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 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®).
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.
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®).
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 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 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 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 as per the Global Industry Classification Standard.
Industrial Metals are represented by Bloomberg S&P GSCI Total Return CME – a widely recognized leading measure of general commodity price movements and inflation in the world economy.
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.

The implementation ideas discussed here reflect the views of Hartford Funds as of March 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. Small- and mid-cap securities can have greater risk and volatility than large-cap securities. 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 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.

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.

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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