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Hartford Schroders Tax-Aware Bond Fund

April 2020 Monthly Update

Performance (%)
% (as of 4/30/2020)
Average Annual Total Returns % (as of 4/30/2020)
YTD 1YR 3YR 5YR 10YR SI
Hartford Schroders Tax-Aware Bond  I 0.78 4.56 3.73 3.53 --- 4.82
Benchmark -1.88 2.16 3.27 3.04 --- ---
Morningstar Intermediate Core Bond Category 3.62 8.87 4.35 3.21 --- ---
Performance (%)
% (as of 3/31/2020)
Average Annual Total Returns % (as of 3/31/2020)
YTD 1YR 3YR 5YR 10YR SI
Hartford Schroders Tax-Aware Bond  I -0.18 3.78 3.65 3.13 --- 4.75
Benchmark -0.63 3.85 3.96 3.19 --- ---
Morningstar Intermediate Core Bond Category 1.56 6.65 3.96 2.86 --- ---
SI = Since Inception. Fund Inception: 10/03/2011
Operating Expenses:   Net 0.49% |  Gross  0.61%
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 Broad Tax-Aware Value Bond Fund. If Class I fees and expenses were reflected, performance would have differed. SI performance is calculated from 10/03/11.

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

The markets rebounded significantly in April on the backs of massive amounts of stimulus and support from global central banks. Positive developments with regards to COVID-19 in terms of slowing rates of new infections and deaths also contributed to the positive market sentiment as did positive headlines surrounding clinical trials. All of this transpired in the face of negative economic news of historical significance including GDP shrinking 4.8%—the first contraction since 2014 and the biggest drop since 2008—as well as nearly 30 million unemployed since late March and a route in the price of oil given a global supply glut. The divergence between domestic equities (S&P 500 Index1 was up 12.82% over the month) and other risk assets along with a very uncertain economic future left some investors wondering if the market was getting ahead of itself. Certainly, the Treasury market was not on the same page as equities as evident by the persistently low yields across maturities.

For the month, spreads as measured by the Bloomberg Barclays Corporate Bond Index2 were tighter by 70 basis points (bps).3 Utilities led the way in terms of performance, followed by industrials and financials, reflecting the unevenness of the rally. Across the broader sectors of the Bloomberg Barclays US Aggregate Bond Index,4 corporates were still the leader as securitized and non-corporates trailed and sovereigns materially underperformed. Tax-exempt municipals also lagged as political rhetoric regarding the impact from COVID-19 on state budgets and the possibility of bankruptcy offset the positive impact from government buying programs. Treasuries, which began the month at very low levels, showed that investors were not willing to sell even in the face of mounting supply to fund government stimulus packages.

 

Performance And Positioning Review

For the month, the Fund (Class I Shares) returned 0.96% as risk asset in the portfolio, predominantly corporates, benefitted from tighter credit spreads. For comparison purposes only, the Fund’s benchmark—Bloomberg Barclays Municipal Bond Index—returned -1.26% for the same period and the Bloomberg Barclays US Aggregate Bond Index returned 1.78%. Given that rates were fairly range bound for the period, price appreciation due to spread compression was the main factor, although not all bonds contributed equally. Financials and industrials were the biggest contributors as they are two of the largest allocations in the Fund (21% and 11% respectively) and corporates outperformed all other investment-grade fixed income assets. Given the bifurcation in the tax-exempt municipal bond market, high-quality and strong balance sheet issuers were rewarded (i.e., corporate supported) whereas federal agency, leasing, and housing lagged.  

 

Market Outlook 

Going forward, it’s hard to see spreads continuing the trend without material improvements to the economic data. Given our belief that the recovery is expected to be uneven, it’s possible that valuations are stretched given how much they have recovered from their widest levels, at least for investment-grade credit. In fact, the uneven nature of the recovery leaves us cautious and at this time we are not adding to our investment-grade bond exposure. We took advantage of material new issue concessions earlier in the month which, late in March, allowed us to add risk back at an attractive level. The focus within credit has shifted towards stronger balance sheets and away from the highly levered as we feel that issue selection will play an important role in achieving excess returns for the rest of the quarter. The portfolio maintains ample liquidity in the form of Treasuries to exchange for risk assets should opportunity arise and valuations improve.

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1 S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.

2 Bloomberg Barclays US Corporate Bond Index is a market-weighted index of investment-grade corporate fixed-rate debt issues with maturities of one year or more.

3 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.

4 Bloomberg Barclays US Aggregate Bond Index is composed of securities from the Bloomberg Barclays Government/Credit Bond Index, Mortgage-Backed Securities Index, Asset-Backed Securities Index, and Commercial Mortgage-Backed Securities Index.

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. Mortgage-related and asset-backed securities’ risks include credit, interest-rate, prepayment, and extension risk.The purchase of securities in the To-Be-Announced (TBA) market can result in additional price and counterparty risk. Obligations of U.S. Government agencies are supported by varying degrees of credit but are generally not backed by the full faith and credit of the U.S. Government. Municipal securities may be adversely impacted by state/local, political, economic, or market conditions; these risks may be magnified if the Fund focuses its assets in municipal securities of issuers in a few select states. Investors may be subject to the federal Alternative Minimum Tax as well as state and local income taxes. Capital gains, if any, are taxable. 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. The Fund may have high portfolio turnover, which could increase its transaction costs and an investor’s tax liability. 

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.

Additional Information Regarding Bloomberg Barclays Indices Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

 

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