- Spreads for most fixed income sectors widened amid concerns over political tension in the Middle East and an outbreak of the coronavirus in China. The United Kingdom (UK) departed from the European Union (EU), while US and China signed the ‘phase one’ trade deal.
- Most global sovereign yields fell due to elevated concerns over the coronavirus. The 10-year US Treasury yield reached a three-month low. Canadian yields declined following the Bank of Canada’s decision to keep rates on hold and the governor’s dovish statement. Australian yields declined as global events increased expectations of a rate cut by the Reserve Bank of Australia. UK gilts rallied as below expectation UK industrial and manufacturing production prints, along with a flat Consumer Price Index1 (CPI) release, added to the dovish narrative.
- The US dollar (USD) rallied versus most currencies, as did other perceived safe-haven currencies, amid growth concerns and rising geopolitical tensions. The Australian dollar (AUD) was the worst G10 currency performer, as concerns over the coronavirus’s economic impact on Asia outweighed higher-than-expected CPI and employment growth in Australia. The Norwegian krone (NOK) and most commodity-linked currencies, particularly in Latin America (Brazilian real, Colombian peso, Chilean peso), underperformed following a sharp decline in oil and commodity prices.
- On a total return basis, Hartford World Bond Fund performance was positive over the month with both 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 duration2 positioning.
- In global government core rates, performance was positive as the risk-off move driven by the coronavirus and geopolitical developments in Middle East benefited sovereign bonds. From a country perspective, exposures focused in the US and dollar bloc were beneficial as these markets were among the top performers.
- Core currency detracted due to our non-USD exposure. Specifically, our exposure to higher-beta3 and commodity linked currencies, such as the AUD and NOK, drove the negative performance.
- Our macro-driven currency strategies marginally contributed. Our short euro position contributed as global growth concerns pushed the currency lower versus perceived safe havens like the Japanese yen (JPY) and USD.
- Macro-driven duration strategies marginally contributed. With global sovereign yields declining across the board, the contribution from our longs in Australia and New Zealand outweighed the negative effect of our short US duration positioning.
- Within opportunistic credit sources, our allocation to the securitized sector drove positive performance. Additionally, despite spread widening, our allocation to high-yield credit generated marginally positive total returns.
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 2/29/20 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 (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 increased to 3.14 years driven by an increase in both strategic and opportunistic sources, primarily in the US. The coronavirus outbreak resulted in a safe haven bid to global sovereigns, which drove our shift from a short to long duration position in opportunistic strategies. We also hold opportunistic longs in Australia, New Zealand, and peripheral Europe, while we are also short Germany. In our core country allocations, we added exposure to Japan given attractive valuations, especially on a hedged to USD basis, and Japan’s economy is in its best shape in a generation, with corporate profits in Japan continuing to rise relative to GDP.
- In core market currency, we maintained our non-USD exposure as a high hurdle for US Federal Reserve rate hikes should result in USD weakness versus major foreign currencies. In core currency strategies, we took profit on our long JPY position during the month, but tactically we are positive toward the USD and JPY as they will likely be supported by a flight to quality.
- Our exposure to credit sectors remains opportunistic in nature. We remained positive toward high-yield and securitized credit.
Currency Exposure (%)
|As of 1/31/20||Fund||Benchmark4|
|South African Rand
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. ● 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 or if the Fund focuses in a particular geographic region or country. ● 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.
1The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
2Duration is a measure of the sensitivity of an investment’s price to nominal interest-rate movement.
3Beta is a measure of risk that indicates the price sensitivity of a security or a portfolio relative to a specified market index.
4Benchmark is the FTSE World Government Bond Index.
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.