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Market Commentary

  • Spreads widened across fixed income sectors, sovereign yields fell, and volatility increased, fueled by the alarming spread of COVID-19 (coronavirus) outside of China.
  • Most global sovereign yields fell sharply, as coronavirus outbreak concerns intensified. The 10-year US Treasury yield reached a record low. However, Italian government securities (BTPs) declined and the 10-year spread of BTPs over bunds widened, in part reflecting the country’s position as the epicenter of the European COVID-19 outbreak.
  • Perceived safe-haven currencies including the Japanese yen (JPY) and the US dollar (USD) outperformed most currencies. The British pound declined following Prime Minister Johnson’s comments that there is “no need” for a free trade agreement to involve accepting EU rules on a range of policy matters. The first reported COVID-19 case in New Zealand saw the New Zealand dollar reach a five-year low versus the USD.

Portfolio Performance

  • On a total return basis, Hartford World Bond Fund performance was positive over the month with global government core and opportunistic sources contributing. The Fund underperformed on an excess return basis relative to the FTSE World Government Bond Index, primarily due to the Fund’s lower duration1 positioning as declining yields drove a rally in global governments.
  • In global government core rates, performance was positive as intensifying coronavirus fears resulted in broadly declining government yields. US Treasuries led gains in global governments which benefitted the Fund as the US is one of the Fund’s largest core country allocations.
  • Core currency detracted due to our non-USD exposure. Perceived safe-havens outperformed amid the elevated uncertainty during the month resulting in a detraction from our exposure to higher-beta2 currencies such as the Swedish krona (SEK), Norwegian krone, and the euro (EUR).
  • Our macro-driven currency strategies contributed to performance. Our JPY position drove positive performance as the JPY rallied over the month, particularly during the last week of the month when coronavirus fears intensified.
  • Macro-driven duration strategies marginally detracted from performance. Underweight duration positioning in the UK, South Korea, and Germany resulted in negative total returns, but was partially offset by our overweight’s in the US, Australia, and New Zealand.
  • Within opportunistic credit sources, total returns were neutral. Our long high-yield positioning detracted from total returns as high-yield spreads widened. Offsetting this was positive results from our tactical short to emerging market (EM) currencies, such as the South African rand and Turkish lira, as EM currencies broadly declined.
Monthly     Quarterly
Performance (%)
Average Annual Total Return
As of 2/29//20 MTD YTD 1 Year 3 Year 5 Year Since Inception
(5/31/11)
Hartford World Bond Fund I 0.28 0.38 3.75 3.44 2.39 3.24
Hartford World Bond Fund F 0.19 0.28 3.84 3.52 2.44 3.27
Hartford World Bond Fund Y 0.19 0.28 3.76 3.48 2.48 3.33
FTSE World Government Bond Index 0.99 2.63 8.17 4.54 2.86 --
Morningstar Category: World Bond -0.31 0.43 5.40 3.55 2.33 --
Bloomberg Barclays US Aggregate Bond Index 1.80 3.76 11.68 5.01 3.58 --

Expenses

  Net Gross
Class I    0.75%    0.75%  
Class F    0.65%  0.65%
Class Y    0.74%  0.75%

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

  • Portfolio duration increased to 4.18 years as the Fund increased duration in both strategic and opportunistic sources due to the expectation of monetary stimulus and an economic slowdown following the coronavirus outbreak. In both strategic and opportunistic duration, positioning is focused in countries where central banks are willing to deploy further policy easing and unconventional measures such as the US, Australia, and New Zealand.
  • In core market currency, we increased our USD exposure and we reduced our European bloc (SEK, EUR, Swiss franc) exposure as we think European currencies will continue to face headwinds in the current environment. Monetary policy is close to exhaustion in Europe and a fiscal response will be slower relative to other countries. As Europe enters recession, it may have to deal with a Schengen crisis from internal dynamics or a new wave of immigration from Turkey. Rising unemployment in the eurozone would be a severe test of “integration.”
  • Our exposure to credit sectors remains opportunistic in nature. Despite spread widening in credit sectors, we do think the securitized sector could benefit from any weakness in the corporate space as long as consumer metrics remain good and consumer confidence does not roll over.

Sector Exposure (%)

As of 2/29/20

wb-figure-2-2.29.20

Contribution to Duration (%)

As of 2/29/20 Fund Benchmark3
United States 40.62 31.64
Canada 15.56 1.28
New Zealand 13.64 ---
Australia 11.06 1.25
South Korea
7.62 ---
Sweden
6.00 0.17
Norway
4.75 0.09
Japan 2.70 24.71
Germany
-2.45 4.84
United Kingdom
-6.17 8.78

Currency Exposure (%)

As of 2/29/20 Fund Benchmark3
US Dollar 81.75 40.25
Japanese Yen 17.07 18.26
Norwegian Krone 4.90 0.19
Euro Currency
0.95 30.18
Australian Dollar
0.67 1.50
Canadian Dollar
-0.43 1.55
Russian Ruble
-0.47 ---
Swedish Krona
-0.57 0.23
South African Rand -0.65 0.44
Turkish Lira -1.74 ---

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.

2Beta is a measure of risk that indicates the price sensitivity of a security or a portfolio relative to a specified market index.

3Benchmark is the FTSE World Government Bond Index.

 

 

Index Definitions

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.

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