- Global credit spreads widened significantly amid elevated market volatility and diminishing global growth prospects. In the US, a partial government shutdown and bleaker economic outlook marred results. In Europe, Brexit uncertainty continued, the European Central Bank (ECB) ended its quantitative easing program, and the Italian parliament voted to pass a 2.04% budget deficit target for 2019.
- Most global sovereign yields fell over the period amid a worsening global growth outlook, an uptick in US political risk, and a further decline in oil prices. US Treasury yields fell on the prospect of fewer US Federal Reserve (Fed) rate hikes in 2019 and a deteriorating global economic outlook. Canadian yields declined, owing to dovish Bank of Canada rhetoric and falling oil prices. Softer-than-expected Chinese activity data and trade uncertainty contributed to a drop in Australian yields.
- The US dollar (USD) weakened versus most major currencies on an expected slower pace of future Fed tightening policy. The Japanese yen (JPY) was the best-performing G10 currency against the USD, amid falling US Treasury yields, US-China trade uncertainty, and safe-haven flows. European currencies appreciated, with the notable exception of the Norwegian krone (NOK), which declined on lower oil prices. The New Zealand dollar (NZD) and Australian dollar (AUD) declined following weaker-than-expected third quarter GDP and rising trade uncertainty.
- Hartford World Bond Fund performance was positive over the month with both global government core strategies and opportunistic sources of return contributing to performance
- In global government core rates, our exposures in the US and Canada contributed to performance as dovish rhetoric from the Fed and the Bank of Canada weighed on yields. Canadian yields were further driven lower by collapsing oil prices. Our exposure in Australia also contributed as trade uncertainty and softer-than-expected Chinese activity data weighed on Australian yields.
- Our core currency positions contributed primarily driven by our exposure to the JPY. The JPY was the best performer among G10 currencies. US Treasury yields fell, US-China trade uncertainty remained, and equity market weakness led to safe-haven flows.
- Macro-driven duration1 strategies were positive. Our tactical overweight duration positions in the US and UK contributed as perceived safe havens rallied during the month amid worsening global growth outlook.
- Macro-driven currency strategies contributed. Our overweight to the JPY versus the USD and the euro (EUR) was the primary contributor. An underweight to the NZD also contributed. The kiwi declined following weaker than expected Q3 GDP and rising expectations of a Reserve Bank of New Zealand (RBNZ) policy rate cut.
- Within opportunistic credit strategies, our high yield exposure detracted as spreads widened
Expenses2 (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 decreased to 3.84 years at month end primarily driven by our opportunistic strategies. We have moved to a tactical short duration position in Germany driven by technicals as net supply will increase following the ECB’s end of quantitative easing.
- In opportunistic macro duration strategies, we continue to tactically manage duration given the global economy has entered a late-cycle stage, with slowing growth, rising inflation, tighter central bank policy, and intensifying trade friction. We are generally overweight interest rate duration across major markets, particularly in the US, given the political risks and a potential slowdown in the domestic economy this year. An exception to this is our tactical duration positioning in Germany, as noted above.
- In strategic market currency, we have reduced our USD exposure and added to our EUR and Swiss franc (CHF) exposure as Fed policy convergence with the rest of the world could trigger the start of a gradual dollar downtrend
- Our exposure to credit sectors remains opportunistic in nature. We remain positive toward high-yield and securitized credit, but have moved more cautious toward investment grade credit. We continue to focus the portfolio on those issuers in which we have the highest conviction.
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.
1Duration is a measure of the sensitivity of an asset or portfolio’s price to nominal interest rate movement
2Expenses as shown in the fund’s most recent prospectus. Gross and Net expenses are the same
3Benchmark 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.