- Global growth remained on a solid footing. Fears about a US/eurozone trade war eased after President of the European Commission Jean-Claude Juncker and US President Donald Trump agreed to work towards zero tariffs. However, trade tensions between the US and China remained elevated.
- Global sovereign yields increased against a backdrop of a potential change in the Bank of Japan’s (BoJ) accommodative monetary policy and easing trade tensions between the US and Europe
- The US dollar (USD) was mixed versus most major currencies. The Swedish krona (SEK) was buoyed by hawkish rhetoric from the Riksbank and stronger-than-expected gross domestic product (GDP) growth. The Chinese yuan (CNY) and Japanese yen (JPY) experienced the largest declines. Escalating trade tensions between the US and China and Federal Reserve (Fed) Chair Jerome Powell's upbeat assessment of the US economy supported the dollar versus these currencies.
- Hartford World Bond Fund performance was positive over the month, with opportunistic sources of return contributing to positive performance and global government core modestly negative
- In spite of a sell-off in developed market yields, core rates performance contribution was modestly positive. The portfolio benefitted from our conservative duration stance. Our core currency positions detracted. While the USD moved sideways on the month, our exposure to JPY detracted. Trade tensions combined with weaker than expected Japanese data caused the Yen to underperform the dollar.
- Macro-driven duration1 strategies were beneficial. The primary contributor was our underweight to the short end of the US curve. US front-end yields increased in July. The potential for a trade war between the US and China fueled expectations of a possible near-term increase in inflation. Yields continued to rise after Fed Chair Powell indicated that the Fed is likely to continue to hike interest rates steadily.
- Macro-driven currency strategies contributed positively to performance. A tactical underweight to the euro was beneficial as slowing growth momentum led the currency lower.
- Quantitative strategies were additive. Our long Australia 10-year versus Canada and US 10-year positions were additive. The Bank of Canada delivered a 0.25% interest-rate hike, its first since January. Economic data was stronger than expected, which sent Canadian yields higher. In comparison, Australian yields remained relatively well anchored on continued concerns about a US/China trade war.
- Credit strategies largely benefitted from our high yield allocation. Spreads tightened over the course of the month.
Expenses4 % (Class A) Net Op. Exp.: 1.04% Gross Op. Exp.: 1.04%
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 2.28 years at month end. Our short position in US duration in our opportunistic macro allocation increased. We continue to maintain a conservative duration posture at the lower end of our range. Our USD hedge ratio continues to be high. US data momentum is still high enough to suggest further dollar strength. If relative US data momentum can continue to hold up even as the Fed continues to hike rates, it will give the dollar more space to rally.
- There is growing monetary policy divergence between North America and the rest of the world. We are tactically trading duration and remain underweight duration in the US on a relative basis.
- We think trade protectionism and populist policies could moderate the global growth cycle. We are overweight duration in economies linked to China, including Australia and New Zealand.
- Quantitative models indicate that Australia is cheap on most metrics. We are overweight Australia relative to the UK and Canada.
- A tariff-linked slowdown in Chinese growth and/or a large fall in commodity prices could prompt volatility in the CNY, hence our cautious outlook on the currency. We think the JPY has appealing characteristics. It could perform well in several scenarios, including as a hedge against trade war risk or a US stock market sell-off.
Currency Exposure (%)
|As of 7/31/18||Fund||Benchmark3|
|Offshore Chinese Renminbi||-0.35||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.
2Expenses as shown in the fund’s most recent prospectus. Gross and Net expenses are the same
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.