- Global spread sectors rallied in January, buoyed by more dovish US Federal Reserve (Fed) rhetoric, generally supportive corporate earnings, and the resumption of US-China trade negotiations. In Europe, manufacturing activity remained sluggish and Brexit uncertainty persisted, even as the UK parliament voted to renegotiate the deal with the European Union (EU).
- Most global sovereign yields fell over the period. The Fed’s dovish pivot pushed US yields lower after the Federal Open Market Committee removed the tightening bias in its statement and signaled more policy accommodation with regard to balance sheet reduction. German bunds rallied amid weak economic data and European Central Bank (ECB) President Draghi’s comments that the risks surrounding the eurozone’s economic outlook had “moved to the downside.”
- The US dollar (USD) weakened on the Fed’s more dovish stance. This change in the Fed’s narrative, along with optimism on US-China trade negotiations, and a bounce-back in oil prices provided support to commodity-linked currencies including the Canadian dollar (CAD), Australian dollar, Norwegian krone (NOK), and New Zealand dollar (NZD). The Swedish krona underperformed despite a four-month long political deadlock coming to an end, as higher-than-expected unemployment, and an unexpectedly negative retail sales print weighed on the currency.
- 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 high-quality global sovereigns contributed favorably to performance, as dovish rhetoric from major central banks, including the Fed and the ECB, contributed to a decline in yields
- In core currency, our non-USD exposure helped as the USD weakened
- Macro-driven duration1 strategies had a negative impact. Our underweight duration positions in the US and Germany detracted given the Fed’s dovish turn and a rally in European bonds following the fall in the European composite Purchasing Managers’ Index (PMI).2 The positive impact of our overweight duration position in the UK partly offset these detractors, as UK yields declined alongside other global sovereigns.
- Macro-driven currency strategies hurt results. Our underweight position in the NZD detracted as positive US-China trade talks and early evidence that Saudi Arabia was fulfilling a pledge to cut oil exports boosted commodity-linked currencies.
- Within opportunistic strategies, our overweight in high yield credit strategies had a positive contribution while our underweight to emerging market (EM) foreign currency (FX) market detracted, as credit spreads tightened over the month and most EM currencies rallied versus the USD.
Expenses as shown in the fund’s most recent prospectus. Gross and Net expenses are the same
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.
Share Class Inception: I, Y – 5/31/11; F – 2/28/17
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 (SI) 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 decreased to 3.19 years at month end primarily driven by the reduction in our US duration position. We have decreased our exposure in the US as US economic data prints remain strong and there are positive signs of a US-China trade agreement.
- In opportunistic macro duration strategies, we are tactically overweight duration given the global cycle is in its mature phase and we expect below trend growth in 2019, but no recession.
- In strategic market currency, we maintained our exposure to the Japanese yen (JPY) as a hedge against the global growth slowdown, trade war risks, and a US stock market sell-off. We added exposure to the NOK and CAD as we think higher oil prices and marginally improving domestic leading indicators will be favorable for those currencies.
- In opportunistic currency strategies, we are underweight the euro (EUR) and British pound versus the USD and JPY, as slowing eurozone growth and Brexit uncertainty are likely to pressure European assets
- Our exposure to credit sectors remains opportunistic in nature. We maintain a positive view on high- yield debt and securitized credit, but have moved more cautious on investment-grade credit and continue to focus the portfolio on those issuers in which we have the highest conviction.
Currency Exposure (%)
|As of 1/31/19||Fund||Benchmark3|
|South African Rand||-1.32||0.51|
|New Zealand Dollar||-2.18||0.00|
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
2The Purchasing Managers’ Index is an indicator of economic health for manufacturing and service sectors.
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.