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Hartford Schroders US Small Cap Opportunities 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 US Small Cap Opportunities  I 32.03 32.03 10.55 9.71 11.67 12.43
Benchmark 25.52 25.52 8.59 8.23 11.83 ---
Morningstar Small Blend Category 23.51 23.51 6.60 6.70 10.60 ---
Performance (%)
% (as of 12/31/2019)
Average Annual Total Returns % (as of 12/31/2019)
YTD 1YR 3YR 5YR 10YR SI
Hartford Schroders US Small Cap Opportunities  I 32.03 32.03 10.55 9.71 11.67 12.43
Benchmark 25.52 25.52 8.59 8.23 11.83 ---
Morningstar Small Blend Category 23.51 23.51 6.60 6.70 10.60 ---
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

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 sectors in the Russell 2000 Index were energy (driven by higher oil prices), consumer staples, and healthcare with biotechnology rising by over 44%. Real estate investment trusts were the laggard for the month. Smaller-cap and higher-beta3 stocks outperformed for the month.

 

Performance Review

The Fund (Class I Shares) returned 3.62% in December, outperforming its benchmark, the Russell 2000 Index, which returned 2.88%. “Mispriced Growth” names lead the way for the portfolio, with Intra-Cellular Therapies being the strongest contributor in that group, and the “Steady Eddies” also outperformed. “Turnarounds” lagged modestly. Our strongest contributing sector was energy as our exploration and production holdings soared. We also had strong contributions from consumer staples—our stocks in food and food processing performed well—and healthcare—our biotechnology exposure outperformed the group. 

Key contributors included Intra-Cellular Therapies, Darling Ingredients, and Cineplex. Intra-Cellular soared over 200% when the FDA approved their antipsychotic drug for the treatment of adult schizophrenia. Darling Ingredients reported results above consensus due to strong performance in their food segment. The company recycles natural animal-based by-products to reclaim fats, oils, proteins, etc. which can be repurposed for personal, commercial, and industrial products. Cineplex is a film distribution company. The stock rose when they agreed to be acquired by Cineworld at an attractive premium.

Key detractors included Cheesecake Factory, Apogee Enterprises and Hexcel Corporation. Cheesecake Factory fell on concerns over valuations and the impact of an acquisition on next year’s results. Apogee Enterprises is engaged in the design and development of glass solutions for commercial buildings. They reported disappointing results and lowered 2020 guidance. Hexcel is a composites company for commercial aerospace, space and defense, and industrial markets. Boeing is a major customer whose announcement of production curtailment of the 737Max plane is expected to have a negative impact on Hexcel.

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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. ● 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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