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Hartford Schroders International Multi-Cap Value Fund

December 2019 Monthly Update

Performance (%)
% (as of 12/31/2019)
Average Annual Total Returns % (as of 12/31/2019)
YTD 1YR 3YR 5YR 10YR SI
Hartford Schroders International Multi-Cap Value  I 18.57 18.57 7.34 5.07 5.94 4.86
Benchmark 21.51 21.51 9.87 5.51 4.97 ---
Morningstar Foreign Large Value Category 18.03 18.03 6.92 4.03 4.19 ---
Performance (%)
% (as of 12/31/2019)
Average Annual Total Returns % (as of 12/31/2019)
YTD 1YR 3YR 5YR 10YR SI
Hartford Schroders International Multi-Cap Value  I 18.57 18.57 7.34 5.07 5.94 4.86
Benchmark 21.51 21.51 9.87 5.51 4.97 ---
Morningstar Foreign Large Value Category 18.03 18.03 6.92 4.03 4.19 ---
SI = Since Inception. Fund Inception: 08/30/2006
Operating Expenses:   Net 0.86% |  Gross  0.86%
Performance prior to 10/24/16 for Class I-shares reflects the performance, fees, and expenses of the Investor Class of the predecessor fund Schroder International Multi-Cap Value Fund. If Class I fees and expenses were reflected, performance would have differed. SI performance is calculated from 8/30/06.

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.

 

Performance Review

The geopolitical risks that harried markets for much of 2019 faded in Q4, helping equity markets around the world to post gains. The month of December saw progress around Brexit and the US-China trade conflict drove positive market performance. A landslide general election victory for the Conservative Party in the UK eased near-term political uncertainty, leading to strong performance in UK equities, especially in domestically focused areas. Eurozone equities notched up a strong advance over Q4 on upside surprises in economic data, with top-performing sectors including information technology, consumer discretionary, and materials. Trade discussions between the US and China produced a “phase one” deal to ease tensions, and trade-sensitive markets—including China, Korea, and Taiwan—rallied strongly, helping emerging-market (EM) equities to outperform developed. US dollar weakness was also positive for EM markets, in particular Brazil and South Africa, and a pick-up in crude oil prices toward year-end was supportive of the Russian and Colombian markets.

From a style perspective, the MSCI ACWI ex USA Growth Index1 continued to outperform the MSCI ACWI ex USA Value Index,2 albeit less significantly than it had for the first three quarters of the year. Indeed, in the month of December, the Value Index performance managed to just edge out the Growth Index, returning 4.52% and 4.15%, respectively. The MSCI Minimum Volatility Index3 and MSCI Momentum Index4 lagged in a more risk-on environment. This latter area is full of defensive names that serve as bond proxies. The Fund is underweight these areas, such as consumer staples, as they have become expensive. Real estate and utilities also lagged. Healthcare (where the strategy is overweight) and technology outperformed, with materials and consumer discretionary also doing well.

In the fourth quarter, the Fund (Class I Shares) returned 9.83%, outperforming its benchmark, the MSCI ACWI ex USA Index, which returned 8.92%. Overweights in both index and off-index materials/resources names, as well as industrials and financials, contributed, as did exposure in non-index technology stocks. Underweights to expensive consumer staples (especially in Europe) also benefitted the Fund. Stock selection was especially strong in the UK, Japan, and Pacific regions. Our long-standing overweight to the UK (especially in domestically oriented areas such as consumer discretionary, retailers, and homebuilders) paid off, as did positions in Canadian financials and materials stocks in Pacific ex Japan. All of this was only partially offset by a drag from our consistent underweight to overpriced “glamour” technology names in Asia.

While trade sensitive names such as TSMC, Baidu, and Alibaba did well over the quarter, the overall performance of the high-growth BANTS names—which includes Baidu, Alibaba, Naspers, Tencent, and Samsung—was less of a headwind to our diversified approach. This has included better performance for small and mid-cap international names in the latter part of the year. In addition, while value as a style continued to lag broader markets, the more cyclical value sectors, including materials, energy, and financials, saw a reasonably strong end to the quarter.

For the full year 2019, the Fund underperformed its benchmark, returning 18.57% versus 21.51%, but significantly outperformed the Value Index, which posted 15.72%. Our performance against the benchmark was challenged by the ongoing leadership of growth names. Detractors included consumer discretionary names in EM Asia (exemplified by the BANTS stocks), as well as energy, technology, and communication services names in continental Europe. However, we do note that this drag was less pronounced as the year wore on because market broadness improved, allowing us to partially offset it with outperformance in other areas, including our overweights in healthcare and industrials, and avoidance of rich consumer staples. Against the Value Index in particular, the Fund benefited from strong broad-based stock selection across all sectors and regions, including overweights in technology and industrials, as well as selective stock picking in materials, financials, and communication services. Regionally, stock-picking in UK consumer, Japanese healthcare, and EM Asia technology contributed.    

 

Portfolio Positioning

Our process focuses on finding stocks that offer the right combination of affordability and business health and we continue to see many areas of the international markets being overlooked. This means we see opportunities across the full spectrum of value, from deep value in resources, financials, and Japan, to high-quality yield in consumer staples and healthcare companies.

At the sector level, there has been rotation within the Fund over both the quarter and year, reflecting some significant market movements, particularly in the run up to, and after, September.

The Fund retains a high-conviction positioning within the healthcare sector, in particular within European and UK pharmaceuticals. Although we have trimmed some positions here recently, we still see this as a high-quality and dividend-paying value opportunity.

Within financials, we continue to be focused on attractively valued stocks while also being conscious of the quality of the company to assess its risk. Through the quarter, we have taken profits in our positions, namely within our European and UK banks, as they saw a bounce over the quarter. Many of these European names are deeper value opportunities and riskier, given their lower profitability and higher levels of leverage, and so warrant tightly controlled risk-adjusted positions. We maintain a high conviction in life and health insurance in both developed and EM and added to a number of positions over the quarter as these are higher-quality financials and dividend-paying value opportunities. 

Some of the trimming within financials has funded increased positions within materials (broad based across industries) and consumer discretionary (developed and emerging Asia). We currently see many of these areas as high-conviction value, as we believe the market has significantly discounted many of these names, given the economic climate, despite their strong capital structure and profitability.

We have also added positions in selected consumer staples, primarily within food and drink, and in Europe. From a sector perspective, we do not view consumer staples as a value area and had been taking profits here for much of the first half of the year. However, the sharp market rotation after September started to provide some new opportunities.

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1 MSCI ACWI ex USA Growth Index is a free-float adjusted market-cap weighted index designed to capture large- and mid-cap securities that exhibit overall growth style characteristics across developed and emerging market countries, excluding the U.S.

2 MSCI ACWI ex USA Value Index is a free-float adjusted market-cap weighted index designed to capture large- and mid-cap securities that exhibit overall value style characteristics across developed and emerging market countries, excluding the U.S.

3 The MSCI Minimum Volatility Indexes are designed to serve as transparent benchmarks for minimum variance (or managed volatility) equity strategies.

4 The MSCI Momentum Indexes aim to reflect the performance of an equity momentum strategy by identifying stocks with high price performance in recent history, up to 12-months..

 

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. ● 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. ● Small- and mid-cap securities can have greater risks and volatility than large-cap securities. ● Different investment styles may go in and out favor, which may cause the Fund to underperform the broader stock market.

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.

Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI's express written consent.

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