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Hartford World Bond Fund Monthly Positioning & Outlook

Tickers: A: HWDAX C: HWDCX F: HWDFX I: HWDIX R3: HWDRX R4: HWDSX R5: HWDTX R6: HWDVX Y: HWDYX

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Market Commentary

  • Credit spreads widened across most sectors, fueled by concerns of an economic downturn. The trade war between the US and China intensified with both countries announcing additional tariffs. Political uncertainty in Europe persisted.
  • Most global sovereign yields fell sharply amid rising global recession worries and escalating trade tensions. The 2-10-year segment of the US Treasury yield curve inverted. The US Federal Reserve’s (Fed’s) policy rhetoric did not fully validate market expectations of future rate cuts. The entire German yield curve fell into negative territory with the 10-year bund yield dropping as low as -0.7%. Gilt yields fell as Brexit uncertainty persisted. Market expectations of a Bank of England rate cut increased after Prime Minister Boris Johnson’s move to suspend parliament from mid-September through October 14th.
  • The US dollar (USD), along with the Japanese yen (JPY) and Swiss franc, gained versus most currencies. Perceived safe-haven currencies outperformed as another round of tariff escalations led to a resurfacing of trade tensions. The Chinese yuan dipped to a decade low after US President Trump unexpectedly announced 10% tariffs on $300 billion worth of US imports from China and the US Treasury labeled China as a “currency manipulator.” Currencies of oil-exporting countries (Canadian dollar, Norwegian krone) declined as crude fell in August, weighed down by escalating trade tensions and demand fears. The Reserve Bank of New Zealand’s bigger-than-expected rate cut contributed to the New Zealand dollar decline.

Portfolio Performance

  • On a total return basis, Hartford World Bond Fund performance was positive over the month with both global government core strategies and opportunistic sources contributing to returns. The Fund underperformed, however, on an excess return basis relative to the FTSE World Government Bond Index given the Index’s exposure to countries like the UK and Italy, which experienced a strong rally in yields.
  • In global government core rates, our exposure to developed-market economies, particularly dollar-bloc countries, contributed to performance as sovereign yields fell strongly over the month.
  • In core currency, performance was largely flat. Our high USD exposure helped preserve capital as the USD appreciated versus most major currencies.
  • Macro-driven duration1 strategies contributed. Our long duration positions in the US (5-year and 10-year) and New Zealand were the primary contributors as global sovereign yields generally declined, driven by fears of a global recession and trade-linked uncertainty. Conversely, the Reserve Bank of New Zealand caught the market completely off guard with a surprise 50 basis points2 easing in interest rates.
  • Our macro-driven currency strategies contributed to performance. Our short to the euro (EUR) versus the USD contributed. News of a German GDP contraction in the second quarter weighed on the EUR during the month while the US gained against most currencies as continued fears of a global growth slowdown benefitted safe-haven currencies.
  • Within opportunistic sources, our exposures across all spread sectors contributed. The sharp decline in sovereign rates resulted in positive total return for high-yield and investment-grade sectors even as spreads widened over the month.
Monthly     Quarterly
Performance (%)
Average Annual Total Return
As of 8/31/19 MTD YTD 1 Year 3 Year 5 Year Since Inception
(5/31/11)
Hartford World Bond Fund I 1.20 4.85 6.76 3.34 2.62 3.50
Hartford World Bond Fund F 1.30 4.89 6.84 3.44 2.68 3.54
Hartford World Bond Fund Y 1.29 4.95 6.87 3.44 2.73 3.60
FTSE World Government Bond Index 2.66 7.67 8.44 1.85 1.38 --
Morningstar Category: World Bond 0.55 6.13 6.32 2.44 1.50 --
Bloomberg Barclays US Aggregate Bond Index 2.59 9.10 10.17 3.09 3.35 --

Expenses

  Net Gross
Class I    0.76%    0.76%  
Class F    0.67%  0.67%
Class Y    0.74%  0.78%

Expenses as shown in the Fund’s most recent prospectus. Gross expenses do not reflect contractual fee waivers or expense reimbursement arrangements. Net expenses reflect such arrangements only with respect to Class Y. These arrangements remain in effect until 2/29/20 unless the Fund’s Board of Directors approves an earlier termination.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of the investment will fluctuate so that investors' 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.

Share Class Inception: I, Y – 5/31/11; F – 2/28/17

Performance shown prior to the inception of a class reflects performance and operating expenses of another class(es) (excluding sales charges, if applicable). Had fees and expenses of a class been reflected for the periods prior to the inception of that class, performance would be different. Since inception (SI) performance is from 5/31/11. Performance and expenses for other share classes will vary. Additional information is in the prospectus. Performance and expenses for other share classes will vary. Additional information is in the prospectus.


Portfolio Positioning & Market Outlook

  • Portfolio duration increased to 3.19 years at month end, largely driven by our opportunistic sources.
  • In core currency, we retain a high exposure to USD. We also added exposure to JPY as a hedge against trade risks and dovish Fed policy.
  • In macro duration strategies, we are long duration given the increasing possibility that the Fed will have to validate market expectations of a rate-cutting cycle. We have a steepening bias in UK gilts given our view that significant fiscal spending will be required to stabilize the economy.
  • In macro currency strategies, we are short EUR as Europe faces a deepening industrial recession, a dovish European Central Bank, and the rising risk of auto tariffs.

Sector Exposure (%)

As of 8/31/19

wb-figure-2-8.31.19

Contribution to Duration (%)

As of 8/31/19 Fund Benchmark3
United States 32.98 29.89
Canada 21.08 1.29
New Zealand 18.05 0.00
Sweden 7.87 0.19
Singapore
7.61 0.27
South Korea
7.15 0.00
Australia
5.57 1.32
Norway
5.29 0.10
South Africa -5.80 0.38
Poland
-7.18 0.23

Currency Exposure (%)

As of 8/31/19 Fund Benchmark3
US Dollar 90.59 38.98
Japanese Yen 10.04 19.07
Mexican Peso 1.04 0.61
Norwegian Krone 0.64 0.19
Australian Dollar 0.63 1.58
Brazilian Real 0.33 0.00
Polish Zloty -0.42 0.46
Offshore Chinese Renminbi -0.44 0.00
Euro Currency -0.90 30.73
Turkish Lira -1.02 0.00

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. The Fund may allocate a portion of its assets to specialist portfolio managers, which may not work as intended. ● Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. ● 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. ● Investments in high-yield (“junk”) bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities. ● Mortgage related- and asset-backed securities’ risks include credit, interest-rate, prepayment, and extension risk. ● 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. These risks may be greater for investments in emerging markets or if the Fund focuses in a particular geographic region or country. ● The Fund may invest in a smaller number of issuers, so it may be more exposed to risks and volatility than a more broadly diversified fund. ● Restricted securities may be more difficult to sell and price than other securities.

1Duration is a measure of the sensitivity of an investment’s price to nominal interest-rate movement.

2A basis point 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.

3Benchmark is the FTSE World Government Bond Index

 

 

Index Definitions

FTSE World Government Bond Index is a market-capitalization weighted index consisting of government bond markets. Country eligibility is determined based on market capitalization and investability criteria. All issues have a remaining maturity of at least one year.

Bloomberg Barclays U.S. 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.

All rights in the FTSE World Government Bond Index (the “Index”) vest in the applicable company in the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”) which owns the Index. FTSE® and Russell® (together “FTSE Russell”) are trademarks of the relevant LSE Group company and are used by any other LSE Group company under license. The LSE Group does not accept any liability whatsoever to any person arising out of the use of, reliance on or any error in the Index. The LSE Group makes no claim, prediction, warranty or representation as to the results or the suitability of the Index for the purpose to which it is being used by Hartford Funds.

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.

Indices are unmanaged and not available for direct investment.

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