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Hartford Schroders Emerging Markets Multi-Sector Bond Fund

October 2019 Monthly Update

Performance (%)
% (as of 11/30/2019)
Average Annual Total Returns % (as of 11/30/2019)
Hartford Schroders Emerging Markets Multi-Sector Bond  I 8.32 9.08 5.37 3.61 --- 3.50
Benchmark 11.29 12.54 6.37 3.84 --- ---
Morningstar Emerging Markets Bond Category 9.80 10.87 5.21 2.87 --- ---
Performance (%)
% (as of 9/30/2019)
Average Annual Total Returns % (as of 9/30/2019)
Hartford Schroders Emerging Markets Multi-Sector Bond  I 7.24 6.15 3.28 2.93 --- 3.43
Benchmark 10.52 10.83 4.30 3.89 --- ---
Morningstar Emerging Markets Bond Category 9.33 8.47 3.66 2.78 --- ---
SI = Since Inception. Fund Inception: 06/25/2013
Operating Expenses:   Net 0.91% |  Gross  1.03%
Performance prior to 10/24/16 for Class I-shares reflects the performance, fees, and expenses of the Investor Class of the Predecessor Fund. If Class I fees and expenses were reflected, performance would have differed. SI performance is calculated from 6/25/13.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted.


Market Review

Emerging market debt (EMD) posted positive total returns across the board in October. Dollar-denominated sovereigns, represented by the J.P. Morgan EMBI Global Diversified Index,1 and corporates, represented by the J.P. Morgan CEMBI Broad Diversified Index,2 returned 0.28% and 0.85%, respectively. Local currency sovereigns, represented by the J.P. Morgan GBI-EM Global Diversified Index,3 were supported by a weaker US dollar (USD) and were the best-performing EMD sector, returning 2.90% for the month. Geopolitical concerns resulting from protests in Chile and Lebanon contributed to some cautiousness across emerging markets (EM) to start the month. However, bonds rallied in the latter half of the month following hopeful comments on the US-China trade deal as well as the US Federal Reserve’s (Fed’s) latest rate cut. Within the dollar-denominated sovereigns, Europe was the top-performing region while the Middle East underperformed, weighed down by Lebanon. In corporates, Jamaica and Israel were the top-performing countries. Mongolia and Ecuador lagged. Consumer sectors performed best during October while pulp and paper names lagged.


Portfolio Positioning 

The Fund (Class I Shares) returned 2.59% in October, outperforming the blended benchmark, which returned 1.39%. This was led by issue selection within dollar-denominated sovereigns and corporates. Within the dollar-denominated sovereign and quasi-sovereign segment, our overweight to Argentina and Mexico (Pemex) contributed, along with our underweight to Lebanon. Lebanon was the worst-performing sovereign country as rising political instability, coupled with protests, led to a sell-off. Issue selection within our mix of Latin American corporates also contributed as names such as YPF Energia Electrica S.A., Alpha Holdings S.A. de C.V., and Credivalores-Crediservicios SAS led. Within local currency sovereigns, our underweight to Chile and overweight to Brazil and Indonesia all contributed to excess returns for the period. Brazil was the top-performing component of the local currency sovereigns in October. We continue to maintain a long duration4 posture against the benchmark, ending the month approximately 1.4 years overweight.


Market Outlook

We must confess that dollar-denominated sovereigns’ yield of 5.09% as of month-end seems low to anyone following EM for an extended period. But, like everything else in global fixed income, one's frame of reference for value must evolve in a world where Greece can issue 13-week treasury bills at a yield of -2 basis points5 as they did in October.

In this brave new world of semi-permanent quantitative easing and the destruction of future income for as far as the eye can see, a more reliable way to gauge value in EM is to look at historical spreads6 to Treasuries, especially in the context of global monetary cycles. We are now 10 months removed from the latest Fed shift, and it is clear that the current spread tightening can go further, absent shifts in the broad macro environment. The spread tightening 10 months following the 2016 Fed pivot was about 31%, whereas it is less than 20% today.

If spreads begin to creep lower from here—and we believe a turn in USD would likely help induce this as it did in 2017—then absolute yields for the dollar-denominated sovereigns could well fall to just over 4%. In a historical context that seems an unlikely scenario to have an average EM sovereign bond trading at that yield level. In today's framework that could represent a fair income opportunity, should we see that day arrive.

1 J.P. Morgan EMBI Global Diversified Index tracks total returns for traded external debt instruments in the emerging markets. It limits the weights of those index countries with larger debt stocks by only including specified portions of these countries’ eligible current face amounts of debt outstanding.

2 J.P. Morgan CEMBI Broad Diversified Index is a global, liquid corporate emerging-markets benchmark that tracks US-denominated corporate bonds issued by emerging-markets entities.

3 J.P. Morgan GBI-EM Global Diversified Index is a comprehensive global, local emerging-markets index, and consists of liquid, fixed-rate, domestic-currency government bonds. 

4 Duration is a measure of the sensitivity of an investment’s price to nominal interest-rate movement.

5 A basis point is a unit that 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.

6 Spreads are the difference in yields between two fixed-income securities with the same maturity, but originating from different investment sectors.

Indices are unmanaged and not available for direct investment.


Important Risks: Investing involves risk, including the possible loss of principal. Security prices fluctuate in value depending on general market and economic conditions and the prospects of individual companies. ● 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. ● Restricted securities may be more difficult to sell and price than other securities. ● Derivatives are generally more volatile and sensitive to changes in market or economic conditions than other securities; their risks include currency, leverage, liquidity, index, pricing, and counterparty risk. ● 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 or if the Fund focuses in a particular geographic region or country. ● The Fund may have high portfolio turnover, which could increase its transaction costs and an investor’s tax liability. ● The Fund invests in a smaller number of issuers, so it may be more exposed to risks and volatility than a more broadly diversified fund.


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