- Global economic data was largely positive amid the volatility spike in the first part of the month. In the US, the new US Federal Reserve (Fed) chair, Jerome Powell, struck a hawkish tone with an optimistic view of the economy. Governor Haruhiko Kuroda was nominated for an additional term at the Bank of Japan.
- Most global sovereign yields fell amid the extended global equity selloff. The notable exception was the US yield curve, which shifted higher on anticipated interest rate hikes.
- The US dollar (USD) appreciated versus most major currencies supported by optimistic Fed chair rhetoric and US inflation data. The Japanese yen (JPY) also appreciated following the spike in equity market volatility. The Swedish krona (SEK) weakened the most among major currencies based on a decline in expectations of upcoming policy normalization.
- Hartford World Bond Fund performance was positive over the course of the month, outperforming its benchmark, as both global government core exposure and opportunistic sources contributed positively
- Our core exposure contributed positively as most developed market yields rallied during the month with the exception of the US. Our core currency (FX) exposure positively contributed as well, in spite of USD appreciation as our JPY exposure benefitted amidst a flight to quality on the heels of renewed equity market volatility.
- Macro-driven duration1 strategies contributed. Our tactical long duration positions in Germany and New Zealand, based on our view of a moderation in the pace of global growth, contributed.
- Macro-driven currency strategies contributed driven by our underweight to the British pound (GBP), the New Zealand dollar and overweight to the USD and the JPY. The USD and JPY gained versus most currencies in a flight to perceived safe haven currencies driven by rising concerns about political risk (Brexit, Italian elections, Germany coalition talks) and an aggressive pace of Fed interest-rate hikes combined with signs of moderation in global economic data, albeit from high levels.
- Our overweight to the Swedish krona (SEK) versus the euro detracted. The SEK fell the most among major currencies after Riksbank minutes revealed that even hawkish-leaning board members debated pushing back the first rate hike.
- Our allocation to Investment Grade and High Yield Corporates detracted as spreads widened following increased rate hiking fears, stemming from rising US inflation
Expenses2 % (Class A) Net Op. Exp.: 1.04% Gross Op. Exp.: 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. For more current performance information to the most recent month-ended, click here.
Portfolio Positioning & Market Outlook
- Portfolio duration increased to 2.32 years at month end due to a decrease 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 has moved modestly lower, but continues to be high as a continued reversal in recent inflation softness and a pickup in wage pressures could trigger support for the USD.
- The pace of global growth, especially outside the US, is moderating after a strong uptrend early in the year. We reduced our underweight duration position at the aggregate portfolio level.
- We believe the Fed will tighten policy quicker than market expectations, given the upside growth and inflation risks from fiscal stimulus. We remain underweight duration in US and favor an overweight to the USD.
- The increasingly confrontational tone in Brexit negotiations illustrates the wide differences between the stance of the United Kingdom and the European Union. We remain underweight the GBP.
- We remain overweight investment grade corporate credit with an emphasis on selective opportunities in the European banking sector. Despite the current mid-cycle economic slowdown in Europe, European banks should also experience further improvement in their credit fundamentals as non-performing loans continue to decline.
Currency Exposure (%)
|As of 2/28/18||Fund||Benchmark3|
|New Zealand Dollar||-0.71||0.00|
|South African Rand||-0.82||0.53|
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 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.
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.