- Credit spreads ground tighter and most fixed-income sectors outperformed duration-equivalent Treasuries as global economic data continued to improve. The pandemic worsened in emerging markets, trumping strides in the US and Europe.
- Global sovereign yields ended mixed. US yields ended lower in a modest respite following four consecutive monthly increases. Global infection case counts rose, driven by emerging markets even as the US and Europe saw improvement. In Europe, German bund yields edged higher amid a significant ramping-up of the European vaccine rollout and robust eurozone data. Italian yields also moved higher, partially driven by the increased fiscal deficit. Australian government bonds rallied after the Reserve Bank of Australia extended its quantitative easing program while inflation surprised to the downside.
- The US dollar experienced a broad-based decline versus most major currencies, driven by lower US Treasury yields and persistent dovish Federal Reserve (Fed) rhetoric despite clear signs of inflationary pressures in the US. Within the G10, the Swiss franc (CHF) and Swedish krona (SEK) were the top performers. Riksbank raised its growth expectations for 2021 signaling some optimism about the pace of recovery. The Euro (EUR) was supported by generally improving economic data and a pickup in vaccination rollouts. Commodity-linked currencies rallied, supported by commodity prices and declining US Treasury yields although select central banks maintained dovish rhetoric.
- On a total return basis, Hartford World Bond Fund performance was positive on the month as rates, currency, and credit all contributed. On a relative basis against the benchmark1 the portfolio underperformed, as the Fund’s higher US dollar (USD) exposure detracted from performance as the USD declined versus most major currencies during the month.
- In duration2, performance was positive driven by our exposure to the dollar bloc (Australia, New Zealand) and commodity-linked countries (Norway). Australian government bonds rallied after the Reserve Bank of Australia extended its quantitative easing program while inflation surprised to the downside.
- Currency contributed to total return due to our non-USD exposure. The key contributor was our exposure commodity-linked currencies (Norwegian krone - NOK, New Zealand dollar - NZD), which rallied and were supported by commodity prices, and declining US Treasury yields, even though select central banks such as the New Zealand Central Bank (RBNZ) maintain dovish rhetoric.
- Macro-driven duration strategies marginally detracted. Our overweights to US and Australia 30-year bonds contributed to performance, though these contributions were offset by underweights to US, Australia, and New Zealand 10-year bonds. In April, we reengaged with a theme from earlier in the year - that massive fiscal stimulus, rising inflation, and a possible tapering of quantitative easing purchases by the end of this year would lead to higher yields, particularly at the 10-year key rate.
- Macro-driven currency strategies were negative. Our underweight EUR versus USD positions detracted. The USD experienced a broad-based decline driven by lower US Treasury yields and relentlessly dovish Fed rhetoric.
- Credit strategies were positive. Our overweight to corporate credit risk contributed as spreads tightened modestly. While wary of tight valuations, we believe that US and European economies should continue to benefit from reopening, with European Central Bank (ECB) corporate bond purchases and US fiscal spending providing additional support. As such, we continue to hold a modest overweight.
Expenses as shown in the Fund’s most recent prospectus.
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 reduced the Fund’s duration to 1.53 years, driven by opportunistic macro strategies. We are underweight duration in the UK as we expect a strong economic rebound with moderately higher inflation. We are tactically trading duration in the US and dollar bloc economies given uncertainty surrounding the longevity of the cycle and whether the current rebound will only claw back from the impact of the pandemic and return to the pre-crisis world of secular stagnation.
- In currency, the Fund meaningfully increased its non-USD exposure. We are tactically managing our US dollar exposure given that in the near-term, rising US yields and the prospect of a return to US growth outperformance could led to broad USD strength, while we see potential for gradual US dollar depreciation later into 2021. In tactical currency strategies, we moderately favor developed market commodity-linked currencies and are underweight select safe-haven and emerging market currencies given supply bottlenecks and pent-up consumer demand will support commodity inflation, while rising US yields and idiosyncratic political concerns could pressure select high-beta3 currencies.
- The Fund’s exposure to credit sectors remains opportunistic in nature. We remain long investment-grade, high-yield, and securitized credit.
Currency Exposure (%)
|As of 4/30/21||Fund||Benchmark1|
|New Zealand Dollar||3.77||---|
|South Korean Won
|South African Rand
|Offshore Chinese Renminbi||-1.97||---|
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, economic and regulatory developments. These risks may be greater, and include additional risks, 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, regulatory 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. ● The purchase of securities in the To-Be-Announced (TBA) market can result in higher portfolio turnover and related expenses as well as price and counterparty risk. ● The Fund may have high portfolio turnover, which could increase its transaction costs and an investor’s tax liability.
1Benchmark is the FTSE World Government Bond Index.
2Duration is a measure of the sensitivity of an investment’s price to nominal interest-rate movement.
3Beta is a measure of risk that indicates the price sensitivity of a security or a portfolio relative to a specified market 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.
The Hartford World Bond Fund is not promoted, sponsored or endorsed by, nor in any way affiliated with the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). All rights in the FTSE World Government Bond Index (the “Index”) vest in the LSE Group. FTSE is a trade mark of the relevant LSE Group company and is used by any other LSE Group company under license. All rights in the Index vest in the relevant LSE Group company which owns the index. 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.
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.