- Global yield curves steepened, while most spread sectors tightened modestly as vaccine rollouts offered hope of economic reopening along with an increased probability of additional fiscal stimulus supported by the Democrats’ wins in US Senate elections.
- Most global sovereign yields rose, echoing the US-led move across rates markets. The US Treasury yield curve steepened on the likelihood of increased US fiscal stimulus. In Europe, gilt yields inched higher aided by comments from the Bank of England Governor Bailey who dampened expectations for a negative policy rate in 2021. Italian Prime Minister Conte resigned. Italian government bonds sold off following political turmoil and talks of potentially not using the full Pandemic Emergency Purchase Programme (PEPP).
- The US dollar (USD) ended mixed, moderately gaining on a flight to safety as market participants focused on vaccine rollout progress, additional stimulus, and tighter COVID-19 restrictions around the world. Rising US Treasury yields also supported the USD following the Democrats’ US Senate win and additional fiscal stimulus talk from President Joe Biden. The Chinese Renminbi (CNY), British Pound Sterling (GBP), Norwegian Krone (NOK), and New Zealand Dollar (NZD) were the primary gainers versus the greenback. GBP was supported by the fast pace of vaccine rollout in the UK. NOK, too, was supported by hawkish Norges Bank rhetoric, rising inflation, and a faster-than-expected vaccine rollout. CNY gained early in the month amid a broader USD downtrend. Later, tightening liquidity conditions supported the CNY. The Brazilian real underperformed, driven by concerns of rising fiscal deficits and virus trajectory.
- On a total return basis, the Hartford World Bond Fund performance was positive on the month as rates and credit contributed while currency detracted. On a relative basis the portfolio outperformed as the Fund’s lower duration1 positioning benefitted performance. Global sovereign yields steepened led by the US as the possibility of more US fiscal stimulus increased, stoked by ‘Blue Wave’ senate election victories (thin Democratic majority) in Georgia.
- In duration, performance was negative. Our positions in the Australian dollar and NZD detracted as most global sovereign yields rose, echoing the US-led move across rates markets.
- Currency detracted from total returns due to our non-USD exposure. The key detractors were our exposures to the Swedish krona and South Korean won, which underperformed the USD amid a flight to safety as market participants focused on the vaccine mutations and tighter COVID-19 restrictions around the world.
- Macro-driven currency strategies were marginally positive. Our short Euro versus USD position contributed as the dollar gained ground over the month amid a flight to safety in currency markets.
- Macro-driven duration strategies contributed. Our underweight positions in long-end US duration contributed to performance as the US Treasury curve steepened moderately, stoked by a higher possibility of more US fiscal stimulus and the continuing vaccine rollout. Our underweight position in UK duration also contributed as Gilt yields ended higher reflecting the positive data surrounding the UK’s vaccination campaign.
- In opportunistic credit strategies, our allocations to high yield and securitized credit sectors contributed.
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
- Over the month we increased the Fund’s duration to 2.02 years, driven by a tactical reduction in our underweight duration position in opportunistic strategies after recent yield increases. We are focusing on country-specific policy settings in duration and yield curve positioning as we anticipate markets will focus on the extent of restrictive public health policies and monetary-fiscal coordination (implicit yield curve control, average inflation targeting) across countries. We hold a short duration bias in major economies as our quantitative models indicate that bond yields are too low and have not responded to the fiscal stimulus or vaccine rollouts in line with commodities and equities.
- In market currency, the Fund decreased its non-USD exposure, given that idiosyncratic risk within foreign exchange markets (FX) can provide great opportunities, but also raises the prospect of a return to so-called US exceptionalism, the phenomenon whereby US growth outperformance leads to broad USD strength similar to the past 5 years – a risk scenario for our base case. In tactical currency strategies, we are long Asian FX and short Latin American FX as rising US yields, faltering risk appetite, and idiosyncratic political concerns could pressure select emerging-market countries.
- The Fund’s exposure to credit sectors remains opportunistic in nature. We remain long investment grade, high yield, and securitized.
Currency Exposure (%)
|As of 1/31/21||Fund||Benchmark2|
|South Korean Won||2.05||---|
|Offshore Chinese Renminbi
|South African Rand||-1.96||---|
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. ● Diversification does not ensure a profit or protect against a loss in a declining market
1Duration is a measure of the sensitivity of an investment’s price to nominal interest-rate movement.
2Benchmark 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.
The views expressed herein are those of Wellington Management, are for informational purposes only, and are subject to change based on prevailing market, economic, and other conditions. The views expressed may not reflect the opinions of Hartford Funds or any other sub-adviser to our funds. They should not be construed as research or investment advice nor should they be considered an offer or solicitation to buy or sell any security. This information is current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management or Hartford Funds.