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Market Commentary

  • Global economic momentum was sustained amid politically-charged events, including the passage of a sweeping US tax reform bill, guilty plea by US national security adviser Flynn on the Russia probe, a Brexit deal between the UK and EU, pro-independence Catalonia election, and dissolution of the Italian parliament ahead of 2018 elections
  • Most global sovereign yield curves continued to flatten, led by the US, Canada, and Australia. UK gilts yields fell amid the Brexit debate. In Canada, short and medium-term yields rose on robust economic data and higher-than-expected inflation. Australian yields moved higher, helped by the Reserve Bank of Australia’s meeting minutes, which illustrated a positive view on unemployment and inflation.
  • Global corporate credit markets outperformed duration1-equivalent government bonds, helped by the positive global economic backdrop
  • The US dollar (USD) depreciated versus most major currencies as the initial boost from tax reform was offset by political setbacks for President Trump in the Alabama Senate election and the guilty plea of his former national security adviser. The New Zealand dollar (NZD) was the top-performing G102 currency, aided by hawkish monetary policy rhetoric from the Reserve Bank of New Zealand governor.

Portfolio Performance

Contributors

  • Hartford World Bond Fund core currency (FX) was slightly positive for performance, benefitting from our long exposure to the Norwegian krone (NOK).
  • Macro-driven currency strategies contributed. Our overweight to the Swedish krona (SEK) contributed. The SEK was supported by hawkish policy rhetoric and encouraging data. Riksbank governor Ingves stated that he was not concerned about a housing market slowdown, and expected inflation to remain around 2% going forward.
  • Allocations to investment grade, high yield, and securitized credit sectors contributed positively as spreads following the passing of US tax reform and the continued support of strong economic data

Detractors

  • The Fund’s returns were negative over the course of the month as global government core exposure returns were flat while opportunistic sources detracted
  • In core exposure, our core rates position detracted from performance, impacted most by underperformance from Canada and Australia
  • Macro-driven duration strategies detracted. Our overweight duration position in Australia detracted as front-end yields increased after the recent strength in their respective labor market data.
Monthly     Quarterly
Fund Performance (%)
Average Annual Total Return
As of 12/31/17 MTD YTD 1 Year 3 Year 5 Year Since Inception
(5/31/11)
Hartford World Bond Fund A 0.00 2.35 2.35 1.17 1.14 2.78
With 4.5% Max Sales Charge -- -- -2.26 -0.37 0.21 2.06
Citigroup World Government Bond Index 0.16 7.49 7.49 1.74 0.12 --
Morningstar Category: World Bond 0.25 6.88 6.88 2.08 0.99 --
Bloomberg Barclays US Aggregate Bond Index 0.46 3.54 3.54 2.24 2.10 --

Expenses3 % (Class A) Net Op. Exp.: 1.05% Gross Op. Exp.: 1.11%

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 1.72 years at month end due to an increase in active short positions. We continued to maintain a conservative duration posture, as valuations on government bonds continue to look rich. 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.
  • Robust global growth and policy normalization by global central banks should lead to a gradual increase in global rates. We are underweight duration in US, UK and Germany.
  • A vulnerable housing market and high level of consumer debt will limit interest-rate hikes in select countries. We are overweight duration in Australia and New Zealand, and underweight the Australian dollar (AUD) and New Zealand dollar (NZD).
  • Central banks of small open economies around Europe will engage with the cyclical upturn and reduce their assessment of downside risk. We are overweight the SEK and NOK versus the euro.
  • We remain overweight investment-grade corporate credit with an emphasis on selective opportunities in the European banking sector. The economy in Europe continues to grow above trend, and this cyclical strength supports the performance of European corporate credit, particularly European financials.

Sector Exposure (%)

As of 12/31/17

dec2017-worldbond-fig-2

Contribution to Duration (%)

As of 12/31/17 Fund Benchmark3
Australia 28.88 1.44
Canada 27.08 1.47
New Zealand 26.55 0.00
Norway
23.09 0.14
Euro Currency 14.95 0.00
Sweden 13.46 0.29
Denmark 11.83 0.56
Singapore 10.37 0.27
United Kingdom -22.50 9.18
Germany -26.48 5.58

Currency Exposure (%)

As of 12/31/17 Fund Benchmark3
US Dollar 102.20 34.15
Swedish Krona 6.88 0.39
Denmark Krone 3.77 0.50
Norwegian Krone 3.39 0.24
Polish Zloty 2.42 0.52
Turkish Lira -0.70 0.00
Australian Dollar -0.81 1.75
Japanese Yen -1.98 19.77
UK Sterling -3.07 5.76
Euro Currency -13.09 33.22

A Word About Risk

All investments are subject to risk, including the possible loss of principal. There is no guarantee the Fund will achieve its stated objective. The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the Fund’s strategy for allocating assets among different asset classes and/or portfolio management teams does not work as intended, the Fund may not achieve its objective or may underperform other funds with similar investment strategies. Fixed Income risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall; these risks are currently heightened because interest rates are at, or near, historical lows. 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- and asset-backed securities’ risks include credit, interest-rate, prepayment, and extension risk. Derivatives may be riskier or more volatile than other types of investments because they are generally more sensitive to changes in market or economic conditions; risks include currency, leverage, liquidity, index, pricing, and counterparty risk. Foreign investments can be riskier and more volatile than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as political and economic developments in foreign countries and regions (e.g., “Brexit”). These risks are generally greater for investments in emerging markets. The Fund is non-diversified, so it may be more exposed to the risks associated with individual issuers than a diversified fund. Privately placed, restricted (Rule 144A) securities may be more difficult to sell and value than publicly traded securities, thus they may be potentially illiquid. The Fund may have high portfolio turnover, which could increase the Fund’s transaction costs and an investor’s tax liability.

1 Duration is a measure of the sensitivity of an asset or portfolio’s price to nominal interest rate movement.

The 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.

3 Expenses stated as of the fund’s most recent prospectus. Net expenses reflect contractual expense reimbursements in instances when these reductions reduce the fund's gross expenses. Contractual reimbursements remain in effect until 2/28/18 and automatically renew for one-year terms unless terminated. Certain contractual reimbursements for Class R6 and Class F shares remain in effect until 2/28/18.

4 Benchmark 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.

 

Index Definitions

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.

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