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Hartford Schroders US Small Cap Opportunities Fund

April 2019 Monthly Update

Performance (%)
% (as of 5/31/2019)
Average Annual Total Returns % (as of 5/31/2019)
YTD 1YR 3YR 5YR 10YR SI
Hartford Schroders US Small Cap Opportunities  I 10.41 -4.41 8.90 7.55 12.09 11.95
Benchmark 9.26 -9.04 9.75 6.71 12.84 ---
Morningstar Small Blend Category 8.31 -9.63 7.41 4.84 11.67 ---
Performance (%)
% (as of 3/31/2019)
Average Annual Total Returns % (as of 3/31/2019)
YTD 1YR 3YR 5YR 10YR SI
Hartford Schroders US Small Cap Opportunities  I 13.14 2.48 10.74 7.69 14.16 12.14
Benchmark 14.58 2.05 12.92 7.05 15.36 ---
Morningstar Small Blend Category 13.30 -0.19 10.07 5.37 14.34 ---
SI = Since Inception. Fund Inception: 08/06/1993
Operating Expenses:   Net 1.17% |  Gross  1.19%
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. Opportunities Fund. If Class I fees and expenses were reflected, performance would have differed. SI performance is calculated from 8/6/93.

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

Equities generated robust returns in April after pausing in March. Notably, the year-to-date returns through April would be very good returns for a full year. We do note that the US stock indices did not regain the highs reached in early September 2018 in April.

Factors driving the re-acceleration of US equities included the US Federal Reserve’s dovish stance on rates, continuing strength in the labor market, and Q1 GDP growth above expectations. Easy money can be a good background for equities. Concerns about an imminent recession have all but disappeared.

For the Russell 2000 Index, we saw companies with attractive (i.e. lower) valuations leading. In addition, strong sales growth, low yield, higher beta,2 and higher foreign sales were strong factors in the Index.

The strongest-performing sectors were technology, producer durables, and financial services. These more economically sensitive sectors responded to the return of growth optimism for the US economy. The primary laggard was healthcare with pharmaceuticals and biotechnology the two weakest industries. However, areas such as medical equipment and healthcare management services also performed poorly.

 

Performance Review

The Fund (Class I Shares) returned 4.78% in April, outperforming the Russell 2000 Index, which returned 3.40%. Both stock selection and sector allocation effects were positive. Our strongest-performing sectors were healthcare, consumer discretionary, and energy. Our major detractor was cash. We had modest detraction in materials & processing and technology.

Within healthcare, stock selection and allocation were positive. We were underweight in biotech, which contributed, and we had positive stock selection in the group. Our results in consumer discretionary were a function of positive stock selection across a number of industries including auto parts, textiles apparel & shoes, and specialty retail. Our positive stock selection in energy was a result of good stock selection in the oil producer industry. In materials (which detracted), the issue was what we did not hold. The same was also true for technology.

In terms of the strategy’s alpha sources, all three categories posted positive returns. Our overweight to larger-cap names in the space was a positive contributor during the month.

Key contributors included Western Alliance Bancorp, EnPro Industries, Inc., and Advanced Disposal Services, Inc. Western Alliance, an Arizona-headquartered regional bank, rallied after reporting a strong first quarter that surpassed investor expectations. EnPro rose along with the market in April and pulled back in early May after issuing a confusing earnings report. Advanced Disposal Services announced an acquisition by Waste Management, Inc., which caused the stock price to rise sharply.

Key detractors included Steel Dynamics, Inc., Masimo Corporation, and Syneos Health, Inc. Steel Dynamics pulled back on concerns about steel pricing and potential fallout from trade disputes.  Masimo and Syneos both dropped sharply mid-month on concerns about a “Medicare-for-All” policy being promoted by several prominent Democratic politicians.

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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 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. ● Small-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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