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Hartford Schroders US MidCap Opportunities Fund

December 2019 Monthly Update

Effective 5/1/19, the Fund (formerly known as the Hartford Schroders US Small/Mid Cap Opportunities Fund) changed its name, principal investment strategy and benchmark. Returns prior to 5/1/19 reflect the performance of the Fund's prior strategy. Please see the Fund’s prospectus for additional information.

Performance (%)
% (as of 12/31/2019)
Average Annual Total Returns % (as of 12/31/2019)
YTD 1YR 3YR 5YR 10YR SI
Hartford Schroders US MidCap Opportunities  I 28.05 28.05 9.61 9.66 11.92 9.21
Benchmark 30.54 30.54 12.06 9.33 13.19 ---
Morningstar Mid-Cap Blend Category 25.87 25.87 8.94 7.01 10.73 ---
Performance (%)
% (as of 12/31/2019)
Average Annual Total Returns % (as of 12/31/2019)
YTD 1YR 3YR 5YR 10YR SI
Hartford Schroders US MidCap Opportunities  I 28.05 28.05 9.61 9.66 11.92 9.21
Benchmark 30.54 30.54 12.06 9.33 13.19 ---
Morningstar Mid-Cap Blend Category 25.87 25.87 8.94 7.01 10.73 ---
SI = Since Inception. Fund Inception: 03/31/2006
Operating Expenses:   Net 0.95% |  Gross  0.95%
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 U.S. Small and Mid Cap Opportunities Fund. If Class I fees and expenses were reflected, performance would have differed. SI performance is calculated from 3/31/06.

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.

 

Market Review

It was another good month for US equities, with strong returns across the capitalization spectrum. Key headline items for the month included US/China trade negotiations, domestic economic data such as Purchasing Manager’s Index2 (soft), labor data (strong), and the Federal Reserve (Fed) holding rates steady and expanding their balance sheet. Oil prices, represented by West Texas intermediate, rose by more than 10% during the month. As we approached Christmas and the New Year, trading levels became predictably slow.

The strongest sector in the Russell MidCap Index was energy, driven by higher oil prices. Consumer staples and technology also outperformed. Real estate investment trusts were the laggard for the month followed by materials & processing, utilities, and healthcare. Smaller-cap and higher-beta3 stocks outperformed for the month.

 

Performance Review

The Fund (Class I Shares) returned 2.36% in December, outperforming the Russell Midcap Index, which returned 2.29%. The “Mispriced Growth” group was our strongest performing alpha type. “Steady Eddies” also outperformed while the “Turnarounds” lagged modestly. Energy was our strongest contributing sector as our crude oil producer holdings soared. We also had strong contributions from consumer staples (food stocks performed well) and healthcare outperformed (driven by our biotechnology holdings). 

Key contributors included Parsley Energy, On Semiconductor, and Catalent. Parsley Energy is a crude oil producer and benefitted from the spike in the price of oil. On Semiconductor is a large supplier of semiconductors for the automotive and industrial markets. The stock did well due to strong growth expectations and attractive valuations. Catalent, a provider of advanced delivery technologies and development solutions for drugs, announced the acquisition of a manufacturing facility from Bristol-Meyers Squibb in Italy. The facility has a track record in successful commercial product launches.

Key detractors included Hexcel, LivaNova, and Assurant. Hexcel is a composites company for commercial aerospace, space and defense, and industrial markets. Boeing is a major customer whose production curtailment announcement for the 737Max plane is expected to have a negative impact on Hexcel. LivaNova is a medical device company. Their core business is a moderate grower and some analysts do not see immediate catalysts on the horizon to future growth. Assurant, a provider of risk management solutions, announced the departure of two members of management.

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The Fund seeks capital appreciation by combining three diversified, uncorrelated sources of potential alpha1:

Mispriced Growth
Companies that can offer an unrecognized or underappreciated growth dynamic over the ensuing 2-3 years

Steady Eddies
Companies with stable growth characteristics, slower but more predictable revenues and earnings patterns

Turnarounds
Companies whose growth engine appears to have broken, but there appears to be evidence that growth is returning

1 Alpha is a measure of the performance of a portfolio after adjusting for risk. Alpha is calculated by comparing the volatility of the portfolio and comparing it to some benchmark. The alpha is the excess return of the portfolio over the benchmark.

2 Purchasing Managers' Index (PMI) is an indicator of the economic health of the manufacturing sector.

3 Beta is a measure of risk that indicates the price sensitivity of a security or a portfolio relative to a specified market 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. ● Mid-cap securities can have greater risks and volatility than large-cap securities. ● The main risk of real estate related securities is that the value of the underlying real estate may decrease in value.

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.

 

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