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Hartford Schroders Emerging Markets Multi-Sector Bond Fund

November 2019 Monthly Update

Performance (%)
% (as of 12/31/2019)
Average Annual Total Returns % (as of 12/31/2019)
Hartford Schroders Emerging Markets Multi-Sector Bond  I 11.52 11.52 5.64 5.00 --- 3.92
Benchmark 13.93 13.93 6.73 5.05 --- ---
Morningstar Emerging Markets Bond Category 12.22 12.22 5.49 4.17 --- ---
Performance (%)
% (as of 12/31/2019)
Average Annual Total Returns % (as of 12/31/2019)
Hartford Schroders Emerging Markets Multi-Sector Bond  I 11.52 11.52 5.64 5.00 --- 3.92
Benchmark 13.93 13.93 6.73 5.05 --- ---
Morningstar Emerging Markets Bond Category 12.22 12.22 5.49 4.17 --- ---
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 mixed results in November. Dollar-denominated sovereigns, represented by the J.P. Morgan EMBI Global Diversified Index1 and corporates, represented by the J.P. Morgan CEMBI Broad Diversified Index,2 returned -0.48% and 0.38% respectively. Local currency sovereigns, represented by the J.P. Morgan GBI-EM Global Diversified Index,3 returned -1.82%, hurt by a stronger US dollar (USD). The USD gained 1% during the month, as measured by the Bloomberg Dollar Spot Index.4 Within the dollar-denominated sovereigns, Europe continued to outperform and was the only region to post positive total returns during the month. Latin America and the Middle East were the worst performing regions, weighed down by Ecuador and Lebanon. Ecuador detracted as President Moreno’s latest reform attempt was rejected by congress. After multiple unsuccessful attempts to generate fiscal reform, investors have grown more cautious about the prospects of reform from the Moreno administration. The corporate segment was the top performer in November, led by strong performance in Europe and the Middle East. Israel and Argentina were the notable outperformers. At the sector level, consumer names performed best, while the transport sector lagged. Within local currency sovereigns, Latin America led underperformance. Argentina, Chile, and Brazil were the worst performing local currency countries due to sharp currency depreciation during the period. Leading the charge were the Chilean peso and Brazilian real which both depreciated more than 5% in November.


Portfolio Positioning 

The Fund (Class I Shares) returned -1.54% in November, underperforming its blended index, which returned -0.64%. Positive sector selection was offset by negative issue selection within hard currencies. Issue selection within the sovereign and quasi-sovereign segment was the largest detractor for the month, led by our overweight to Ecuador. Within the corporate segment, names like TV Azteca, Gran Tierra, and ABM Investama were the leading detractors. Sector selection was positive for the month given our overweight to corporates, the top performing segment, and underweight to local currency sovereigns, the worst performing segment. Within local currency sovereigns, the overweight to Mexico and Indonesia detracted while the underweight to Colombia contributed. We continue to maintain a long duration5 posture against the benchmark, ending the month approximately 0.7 years overweight.


Market Outlook

There has been a well-publicized theme of social unrest in many emerging countries recently as further attempts at fiscal tightening reach their presumed political limits. We have seen this in Chile, Ecuador, and now Colombia. The countries with the least ability to accommodate this are those that are non-investment grade. In our view, this has been well priced in. In the dollar-denominated sovereigns index, year-to-date (YTD) the dispersion is striking: 15.82% returns for investment-grade (IG) sovereigns versus 9.54% for non-IG.

But, it would be a mistake to extrapolate this across EMD more broadly. For the corporates index, YTD returns indicate minimal difference, with 12.07% for IG and 11.87% for non-IG. What is the difference? Most corporates, even non-IG ones, reside in more stable countries like Mexico, Brazil, China, and Russia. The lesson is that this is not a "risk off" trend that is specific to the entire asset class. In our view, the market has differentiated rationally. While we expect some of the most stressed sovereigns like Lebanon to continue to face challenges fiscally, other non-IG sovereigns that do not fall victim to significant and very public fiscal constraints are likely to do fine. Following a year of double-digit returns, it may be natural to make the broad assumption the asset class has few further gains to offer. The dispersion we have seen suggests that this is not necessarily the case.

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 The Bloomberg Dollar Spot Index tracks the performance of a basket of 10 leading global currencies versus the US Dollar.

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

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.