- Market volatility subsided after peaking in the previous month amid the unfolding health crisis and eroding economic outlook. Financial markets rebounded on optimism over drug trials for COVID-19 (coronavirus) treatment and possible vaccines, and as governments planned gradual lockdown exits.
- Most global sovereign yields fell but remained range-bound. US Treasury yields ended slightly lower, but fluctuated intra-month, influenced by news of easing lockdown restrictions, the US Federal Reserve’s (Fed‘s) dovish rhetoric, stabilization in oil prices, and disappointing economic data. In Europe, weak economic data kept bund yields low. As news emerged of the EU failing to agree on a COVID-19 fiscal rescue package, peripheral European government bonds sold off. Australian yields increased modestly, seemingly more engaged with the recovery narrative compared to other developed countries.
- The US dollar depreciated versus most G10 currencies, except for the euro (EUR) and Swiss franc. Most foreign exchange gains happened towards the end of the month, as media reports suggested some regions will begin easing lockdown measures, and that drug trials looked promising. The Australian dollar saw the largest gain across the G10 currencies, outperforming the New Zealand dollar (NZD), likely driven by the Reserve Bank of New Zealand Governor’s statement that they are open to direct monetization of government debt. The EUR was the weakest-performing G10 currency. EU leaders and finance ministers struggled to strike a significant fiscal deal while eurozone economic data deteriorated amid the ongoing lockdown.
- On a total return basis, Hartford World Bond Fund performance was positive on the month due to global sovereign yields falling and credit spreads tightening significantly. On a relative basis, the portfolio outperformed primarily due to its opportunistic credit sources with investment-grade, high-yield, and securitized allocations each contributing.
- In core market rates, performance was positive, primarily due to allocations to Canada and New Zealand. Both the Bank of Canada and Reserve Bank of New Zealand continued to signal support for their respective economies, pushing yields lower.
- Core currency marginally contributed due to the Fund’s exposure to the Japanese yen (JPY), which appreciated moderately on the month.
- Macro-driven currency strategies contributed. Our underweight EUR versus USD and JPY position contributed. The combination of news emerging about the EU failing to agree on a COVID-19 fiscal rescue package and continued weak economic data resulted in the euro being the worst-performing G10 currency on the month.
- Quantitative strategies detracted. Our shorts to higher-beta1 currencies such as the NZD, Canadian dollar, and Russian ruble detracted as media reports suggested some regions will begin easing lockdown measures late in the month, leading to a general risk-on move in foreign-exchange markets. Partially offsetting this was a directional long position in the front-end of the US, which contributed positively as US rates moved marginally lower on the month.
- In opportunistic credit strategies, our allocations to investment grade, high yield, and securitized each contributed as global credit spreads generally tightened after the significant widening seen in March. The combination of the Fed’s corporate-buying program, signs of gradual openings of global economies following a crippling lockdown, and positive news on a possible vaccine for COVID-19 by the fall, led to a tightening in spreads.
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 2/28/21 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.
Fund Inception: 05/31/2011
Share Class Inception: I, Y – 05/31/11; F – 02/28/17
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 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
- Over the month, we decreased the Fund’s duration2 slightly to 3.51 years, driven by a decrease in strategic duration, and by taking profits in exposures in the US and Dollar Bloc as rates have rallied significantly year-to-date. We increased our opportunistic duration positioning given the negative growth shock from coronavirus fallout.
- In strategic market currency, the Fund maintained its USD hedge ratio and holds strategic exposure to the JPY. We view the JPY as an attractive hedge against increased market volatility. In opportunistic currency, we have a short EUR position as there is a lack of solidarity among euro-area members—which could prevent certain member states from implementing the required fiscal stimulus.
- The Fund’s exposure to credit sectors remains opportunistic in nature. We remain overweight investment grade, high yield, and securitized. In high yield, we believe that attractive valuations more than compensate investors for forward-looking credit losses.
Currency Exposure (%)
|As of 4/30/20||Fund||Benchmark3|
|South African Rand
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. ● 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. ● 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. ● 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. ● 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.
1Beta is a measure of risk that indicates the price sensitivity of a security or a portfolio relative to a specified market index.
2Duration is a measure of the sensitivity of an investment’s price to nominal interest-rate movement.
3Benchmark is the FTSE World Government Bond Index.
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.
The views expressed herein are those of Wellington Management, are for informational purposes only, and are subject to change based on prevailing market, economic, and other conditions. The views expressed may not reflect the opinions of Hartford Funds or any other sub-adviser to our funds. They should not be construed as research or investment advice nor should they be considered an offer or solicitation to buy or sell any security. This information is current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management or Hartford Funds.