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Hartford Multifactor Developed Markets (ex-US) ETF Performance Update

Ticker: RODM

Subscribe to this Quarterly Update

Performance Commentary

General Observations

  • After a tough fourth quarter of 2018, equity markets rallied in the first quarter of 2019. The MSCI World ex-USA Index returned 10.45%. LRODMX underperformed it by 1.56%.
  • LRODMX’s focus on Value, Momentum, and Quality exposures had a relatively minimal impact on performance in the first quarter. Value underperformed in the Developed ex-US universe, while Momentum and Quality each had small positive returns, offsetting the effect from Value.
  • LRODMX aims to reduce portfolio-level volatility, resulting in exposure to the (low) Volatility factor, which was a key detractor in the first quarter. (low) Volatility was the worst-performing factor in the first quarter, which is typically the case during sharp equity rallies. The biggest detractor was LRODMX’s exposure to smaller companies (Size factor) which also underperformed in the first quarter. Country exposures, in aggregate, helped partially offset the Volatility and Size effects. Overweight allocations to Canada and Hong Kong were among LRODMX’s biggest contributors.

Opportunistic Thoughts

  • On the surface, one might see that the MSCI EAFE Small Cap Index outperformed the MSCI EAFE Index by 0.68% in the first quarter. How is that possible if, from a factor-based perspective, the (small) Size factor underperformed? As you would expect, the MSCI EAFE Small Cap Index has a very significant exposure to the (small) Size factor, and that was by far its biggest detractor in the first quarter. But from a factor-based perspective, EAFE Small Cap is not only delivering (small) Size exposure. It currently also delivers a negative exposure to (low) Volatility; or a higher volatility exposure. (low) Volatility was the worst-performing factor in the first quarter, giving a big boost to the relative performance of EAFE Small Cap. EAFE Small Cap also delivers differing country and sector allocations than EAFE, which, when combined with its (high) Volatility exposure, were enough to offset its (small) Size exposure.

Key Statistics

Approach: Risk-first multifactor; systematic, rules-based

Asset Class: Developed Markets (ex-US)

AUM: $2.03 Billion (as of 3/31/19)

Underlying Index: Hartford Risk-Optimized Multifactor Developed Markets (ex-US) Index

Performance Index: MSCI World ex-USA Net Total Return Index

Peer Group: Morningstar US ETF Foreign Large Blend

Expense Ratio: 0.29%

(Data as of 3/31/15 - 3/31/19)1

Absolute Analysis (NAV returns) RODM Performance Index
Average Annual Total Return (%) 5.50 2.63
Volatility (% annualized) 10.76 12.23
Relative Analysis (NAV returns) RODM Rank vs Peers (%)
Average Annual Total Return (%) 5.50 4%
Volatility (% annualized) 10.76 16%
Information Ratio 1.05 1%
Alpha (% annualized) 2.92 4%
Beta 0.86 73%
Sharpe Ratio (Rf=0) 0.46 4%
Sortino Ratio 0.71 4%
Upside Capture (%) 92.01 27%
Downside Capture (%) 73.28 20%
Overall Capture Ratio 1.26 8%

        = Top quartile or higher

Investment Attributes

Our results are largely driven by a process that emphasizes 3 key investment attributes while keeping costs low (29 bps in International Developed).

  • Improve Diversification: Reduce concentration found in cap weighted indices (less exposure to the most concentrated companies/countries)
  • Improve Valuation: Lower the valuation ratios while helping to protect against value traps by considering quality and momentum in addition to value.
  • Emphasize client experience: Utilize broadened diversification and representative exposure to the universe to enable a strong investment return with a lower volatility profile than the index

1Source: Morningstar, analysis: Hartford Funds as of 3/31/19. ETF performance data based on NAV returns and are net of management fees and expenses. Period of analysis is from 3/1/18 through 3/31/19. The Market Performance for RODM over the same period is 5.49%. RODM's inception date is 2/25/15. Rank versus peers’ % for Volatility, Beta, Upside Capture and Downside Capture were adjusted for contextual consistency with all other metrics. Please refer to the attached RODM fact sheet (will link to fact sheet) for the fund's standardized performance as well as additional important information.  

Past performance is not a guarantee of future results.

Ordinary Brokerage commissions apply and will reduce returns.

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. ● Investments focused in a sector, industry or group of industries may increase volatility and risk. ● The Fund is not actively managed but rather attempts to track the performance of an index. The Fund’s returns may diverge from that of the index. Diversification does not ensure a profit or protect against a loss in a declining market.

ETF Objective: Hartford Multifactor Developed Markets (ex-US) ETF (”RODM”) seeks to provide investment results that, before fees and expenses, correspond to the total return performance of the Hartford Risk-Optimized Multifactor Developed Markets (ex-US) Index (Bloomberg Ticker: LRODMX), which tracks the performance of companies located in major developed markets of Europe, Canada, and the Pacific Region.

Investors should carefully consider a fund’s investment objectives, risks, charges and expenses. This and other important information is contained in a fund’s full prospectus and summary prospectus, which can be obtained by visiting hartfordfunds.com. Please read it carefully before investing.