- Positive economic data releases, accommodative global monetary policies, and a healthy demand for credit supported most spread sectors. Global coronavirus cases peaked, and geopolitical tensions resurfaced between the US and China.
- Most global sovereign yields steepened, led by the US. The Federal Reserve’s (Fed) policy-shift announcement was interpreted by the market as being more tolerant of higher inflation, causing a sell-off in longer-dated securities. The 10-year inflation-breakeven rate finished the month at a year-to-date peak, and the 10-year US Treasury Inflation-Protected Securities yield closed the month at a record low. Japanese government bonds (JGBs) sold off briefly following news of Prime Minister Shinzo Abe’s resignation. Italian government bonds (BTPs) rallied, benefiting from the country’s perceived status as a key beneficiary of the EU Recovery Fund.
- The US dollar weakened versus most currencies, following signs of a gradual global economic recovery and progress on the US-China trade deal. The Fed’s announcement of the monetary-policy framework change to target an average inflation rate also likely weighed on the US dollar. The euro (EUR) rallied against the greenback on continued positive eurozone economic data, but the rally was capped off on rising coronavirus cases and geopolitical risks. The Norwegian krone (NOK) was the best G10 currency performer, likely aided by the rise in Brent crude oil prices
- On a total-return basis, World Bond performance was marginally positive on the month as credit contributed, currency was neutral, and duration1 was negative. On a relative basis, the portfolio outperformed as the fund’s lower-duration positioning and exposure to spread sectors benefitted. Steepening global yield curves benefitted the fund’s lower duration and continued spread tightening benefitted the fund’s high-yield and securitized exposures.
- In core duration, performance was negative. The primary detractors were our positions in commodity sensitive economies such as Australia and Norway as total returns were negative across sovereign bond markets.
- Core currency contributed to total returns due our non-USD exposure. The key contributor was our exposure to the NOK, which was the best-performing G10 currency.
- Macro-driven currency strategies were negative. Our short EUR and British pound (GBP) versus USD position detracted. Signs of a gradual global economic recovery, and positive eurozone economic data also supported European currencies versus the greenback.
- Macro-driven duration strategies were negative. Our long US duration position detracted as a drop in the US COVID-19 count and record treasury auctions pressured US yields higher early in the month. Our short German duration position partially offset performance. Yields increased late in the month after Germany extended its job-support package until end of 2021.
- In opportunistic credit strategies, our allocations to high-yield, securitized and investment-grade credit contributed. Better-than-expected corporate earnings and data releases tightened 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 duration to 2.46 years, driven by a decrease in opportunistic duration. We moved short US duration position as the Fed’s change in policy framework to target 2% average inflation over time should steepen the curve. Core duration remained in-line with previous months, and we continue to favor relatively higher-yielding markets.
- In core-market currency, the Fund maintained its non-USD exposure. We removed our exposures to the EUR as it reached a two-year high against the dollar, and the details and delayed timing will likely lead to some disappointment relative to market expectations. In opportunistic currency, we are short the GBP as we believe it is vulnerable due to higher probability of a second COVID-19 wave, and we discern no tangible progress in UK-EU trade negotiations.
- The Fund’s exposure to credit sectors remains opportunistic in nature. We remain long investment grade, high yield and securitized.
Currency Exposure (%)
|As of 8/31/20||Fund||Benchmark2|
|South African Rand||-1.12||---|
|Offshore Chinese Renminbi
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.
1Duration is a measure of the sensitivity of an investment’s price to nominal interest-rate movement.
2Benchmark 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.