- The pace of global growth was on a stable footing as trade tensions between the US and China eased, Chinese President Xi Jinping vowed to liberalize the country’s economy, and high level talks between the US and North Korea raised hopes of regional peace
- Most global sovereign yields rose. The US and Canadian 10-year yields increased the most, partially driven by an increase in oil prices as well as concerns about rising US inflation.
- The US dollar (USD) appreciated versus most major currencies, propelled by strong economic data and rising yields. The Swedish krona (SEK) weakened the most among the G101 currencies on lower than expected Consumer Price Index (CPI)2 and the Riksbank’s dovish stance on future interest rate hikes.
- Hartford World Bond Fund outperformed its benchmark in April with opportunistic sources of returns positive and global government core exposure marginally negative
- In spite of global rates largely rising and the USD appreciating in April, our core currency and rate positions were only marginally negative due to our high hedge ratios and strategic duration3 at the lower end of our range
- Macro-driven duration strategies contributed. Most of the positive performance came from our underweight duration positioning in the short and intermediate portions of the US curve. US yields increased in part driven by oil’s move to US$75/bbl, as well as concerns about rising inflation in the US.
- Macro-driven currency strategies detracted. Our overweight to SEK vs euro (EUR) and British pound (GBP) was the biggest detractor. SEK weakened the most amongst G10 currencies, as the Riksbank remained stubbornly dovish, keeping its policy rate unchanged and pushing back its own forecast for when it would begin hiking rates to Q4 2018.
- Allocations in investment grade and high yield corporate credit benefitted performance as spreads tightened during the month driven by an easing of US-China trade tensions, a slowdown in supply volumes, and better demand from yield-sensitive investors following the sharp rise in interest rates
Expenses4 % (Class A) Net Op. Exp.: 1.04% Gross Op. Exp.: 1.04%
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. For more current performance information to the most recent month-ended, click here.
Portfolio Positioning & Market Outlook
- Portfolio duration decreased to 2.62 years at month end as our opportunistic interest rate positions switched back to shorts from longs during the month. We continue to maintain a conservative duration posture at the lower end of our range. Our USD hedge ratio continues to be high as a reversal in recent inflation softness and a pickup in wage pressures could trigger support for the USD as well as markets re-engaging with short term interest rate differentials.
- Global growth outside the US is moderating – major central banks apart from the US Federal Reserve (Fed) will get incrementally dovish. We are managing duration tactically in this late-cycle moderating growth environment.
- A slowing UK economy, tightening credit conditions, and loss of inflation momentum will lead to a shallow Bank of England (BoE) hiking cycle. We are underweight the GBP.
- Reflationary fiscal stimulus, rising inflation pressures, and easing of trade tensions supports gradual Fed hikes. We are underweight US duration and overweight the USD.
- Major European central banks (European Central Bank, BoE) will normalize policy at a slower pace relative to market expectations. We are overweight duration in select European countries.
Currency Exposure (%)
|As of 4/30/18||Fund||Benchmark5|
|Offshore Chinese Renminbi||0.32||0.00|
|New Zealand Dollar||-0.56||0.00|
Important Risks: Investing involves risk, including the possible loss of principal. The fund seeks to achieve its investment objective by allocating assets among specialist portfolio managers. There is no guarantee a fund will achieve its stated objective. Security prices fluctuate in value depending on general market and economic conditions and the prospects of individual companies. ● 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. ● The fund may invest in a smaller number of issuers and focus on investments in particular geographic regions or countries, so it may be more exposed to risks and volatility than a more broadly diversified fund. ● Privately placed, restricted (Rule 144A) securities may be more difficult to sell and price than other securities.
1The Group of Ten (G10) is made up of eleven industrial countries: Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States.
2The CPI in the United States is defined by the Bureau of Labor Statistics as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services."
3Duration is a measure of the sensitivity of an asset or portfolio’s price to nominal interest rate movement.
4Expenses as shown in the fund’s most recent prospectus. Gross and Net expenses are the same.
5Benchmark is the Citigroup World Government Bond Index.
Index data for Citigroup World Government Bond Index © 2018 Citigroup Index LLC (“Citi Index”). All rights reserved. CITI is a trademark and service mark of Citigroup Inc. or its affiliates, is used and registered throughout the world, and is used with permission for certain purposes by Hartford Funds Management Group, Inc. Hartford World Bond Fund is not sponsored, endorsed, sold or promoted by Citi Index, and Citi Index makes no representation regarding the advisability of investing in such fund. Reproduction of the Citi Index data and information (collectively, “Citi Data”) in any form is prohibited except with the prior written permission of Citi Index. CITI INDEX GIVES NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF ACCURACY, ADEQUACY. MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. Citi Index is not responsible for any errors or omissions in, or for the results obtained from use of, Citi Data, and in no event shall Citi Index be liable for any direct, indirect, special or consequential damages in connection therewith.
Citigroup 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.
Indices are unmanaged and not available for direct investment.