- Positive global economic momentum continued amid rising volatility and a hawkish tone from major central banks
- On the political front, the US House of Representatives passed a short-term spending bill to reopen the government after a three-day shutdown, and US companies also began to respond to the new tax law
- Most global sovereign yields rose, as stocks rallied, amid strong economic data and expectations of monetary policy normalization by major central banks, particularly from the Bank of Japan and European Central Bank (ECB)
- The US dollar (USD) depreciated versus most major currencies driven by trade protectionism concerns, US Treasury Secretary Mnuchin’s remark that ‘the weaker dollar is good for US’ and reports that China would slow purchases of US Treasuries
- Hartford World Bond Fund performance was positive over the course of the month, driven by our opportunistic sources of return
- Macro-driven duration1 strategies contributed. For most of January, global sovereign yields rose in line with stocks. Our underweight duration positions in the front-end and intermediate portions of the US curve were the biggest contributors. Our underweight to France and Korea also contributed.
- Our overweight to the Swedish krona (SEK) and Norwegian krone (NOK) versus the euro (EUR) contributed. The SEK appreciated as Riksbank rhetoric throughout the month conveyed a hawkish tone, while the NOK was supported by strong manufacturing data and rising oil prices.
- Quantitative strategies were positive. Our long Canada 10-year vs US and UK 10-year positions added to performance. The US and UK led the way for higher rates across developed markets in the month of January which resulted in spread tightening relative to Canada.
- Our allocation to Investment Grade and High-Yield Corporates, as well as Emerging Market (EM) debt, positively impacted performance as spreads tightened in January
- Our global government core exposure was a slight detractor in January as our core rate exposure was negatively impacted by a general move higher in interest rates. Our core currency (FX) exposure was able to positively offset some of that negative contribution however as the USD broadly depreciated.
- Macro-driven currency strategies detracted. Our overweight USD bias versus a basket of currencies (British pound, New Zealand dollar, and Japanese yen) detracted. The USD weakened across the board falling against all other G102 currencies and many in EM.
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 0.86 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 has moved modestly lower, but 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, debt-financed fiscal loosening, and monetary policy normalization should lead to a gradual increase in global rates. We are underweight duration in the US and UK.
- A steeper US curve and higher real yields in the context of rising US wages and better US data should support the USD, particularly versus higher beta4 currencies. The risk case to our view is that market concerns around the US twin deficits (fiscal and current account) and the potential for FX reserve manager reallocation out of dollars might be factors offsetting the dollar positive drivers of the curve steepening.
- We believe the near-term risks are skewed towards a EUR decline given increasing ECB verbal intervention, rising political risks in both Germany (coalition talks) and Italy (elections), and tightening financial conditions, which may weigh on economic activity indicators over the coming months
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.
2 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 Beta is a measure of risk that indicates the price sensitivity of a security or a portfolio relative to a specified market index.
5 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.
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.