- Mounting trade tensions and emerging markets turmoil dominated headlines in August. Trade disputes between the US and China intensified. The US levied sanctions against Iran and Turkey, while tensions with Mexico eased post the NAFTA1 deal.
- Most global sovereign yields fell because emerging markets contagion fears and trade tensions resulted in a flight to safety. Global corporate credit markets underperformed duration-equivalent government bonds amid emerging market contagion concerns and expectations for increased supply.
- The US dollar (USD) rallied in the first half of the month, driven by trade tensions and emerging markets contagion fears, then partially reversed course on optimism over trade talks and as President Trump expressed displeasure with the Federal Reserve (Fed) rate hikes. Trade tensions and Turkey contagion fears weighed on the Australian dollar (AUD), New Zealand dollar (NZD), Norwegian krone (NOK), Swedish krona (SEK), Canadian dollar (CAD), and Renminbi (RMB), but supported safe-haven currencies, including the Swiss franc (CHF) and the Japanese yen (JPY).
- Hartford World Bond Fund performance was positive over the month. Strategic exposures were the primary contributors, while opportunistic sources of return contributed modestly.
- Our strategic country exposures consisting of high quality global sovereign debt generated positive performance. Most global sovereign yields fell as emerging markets contagion fears and trade tensions resulted in a flight to safety. Our strategic currency positions also contributed. Our high exposure to the USD helped preserve capital, while our JPY exposure contributed as trade tensions and Turkey contagion fears supported safe-haven currencies.
- Macro-driven duration2 strategies detracted. Our underweight to US duration detracted because US yields fell along with most developed market yields during the month. Partially offsetting the above were positive results in our overweight duration positions in New Zealand and Australia. The Reserve Bank of Australia (RBA) left rates unchanged at 1.50% and lowered its near-term inflation forecast. The Reserve Bank of New Zealand (RBNZ) left rates unchanged and pushed its first rate hike to Q3 2020.
- Credit strategies largely benefitted from our high-yield and securitized allocation. Both sectors remain rather insulated from broader global macro worries and continue to see healthy positive returns driven by continued strong US economic data.
Expenses3 (Class A) Net 1.04% Gross 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.
Portfolio Positioning & Market Outlook
- Portfolio duration increased to 3.5 years at month end. We moved to a tactical long duration position in the US in our opportunistic sources. We continue to maintain a conservative duration posture at the lower end of our range. Our USD hedge ratio continues to be high. Constructive US data momentum and continued Fed hikes will give the dollar more space to rally.
- Global growth momentum is moderating, however the US economy remains resilient. We continue to trade duration tactically as markets engage further with the late cycle theme.
- Trade-oriented economies that had a build-up in household debt are the most exposed to rising trade tensions and Fed monetary tightening. We are overweight duration in New Zealand and Australia.
- US fiscal stimulus at a time of full employment and resource scarcity will reinforce the Fed’s tightening path, and USD liquidity tightening could spill over to the most vulnerable parts of the world. The negative sentiment surrounding China will be compounded by the introduction of US tariffs on an additional $200bn of goods in the next few weeks. We are underweight Renminbi (CNH), Indian rupee (INR) and select Asian trade-linked currencies.
Currency Exposure (%)
|As of 8/31/18||Fund||Benchmark4|
|South African Rand||0.57||0.44|
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 North American Free Trade Agreement (NAFTA) is an agreement among the United States, Canada, and Mexico designed to remove tariff barriers between the three countries
2Duration is a measure of the sensitivity of an asset or portfolio’s price to nominal interest rate movement
3Expenses as shown in the fund’s most recent prospectus. Gross and Net expenses are the same
4Benchmark is the FTSE World Government Bond Index
The Hartford World Bond Fund (the “Fund”) has been developed solely by Hartford Funds. The Fund is not in any way connected to or sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). FTSE Russell is a trading name of certain of the LSE Group companies. All rights in the FTSE World Government Bond Index (“WGBI” or the “Index”) vest in the relevant LSE Group company which owns the Index. FTSE Russell® is a trade mark of the relevant LSE Group company and is used by any other LSE Group company under license. The Index is calculated by or on behalf of FTSE Fixed Income, LLC or its affiliate, agent or partner. The LSE Group does not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the Fund. The LSE Group makes no claim, prediction, warranty or representation either as to the results to be obtained from the Fund or the suitability of the Index for the purpose to which it is being put by Hartford Funds.
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.
Indices are unmanaged and not available for direct investment.