- Signs of a trade truce between the US and China emerged at the G20 meeting, which occurred in June, but without concrete details. Spread sectors reacted negatively to US Federal Reserve (Fed) Chair Powell’s comments of a merely mid-cycle adjustment, and not the beginning of an extended rate-cut cycle. Outside of North America, economic data was generally downbeat.
- Global sovereign yields ended mixed. US and Canadian yields ended slightly higher while UK, German, and Australian yields declined. Market participants reassessed the Fed’s policy rate trajectory as the central bank’s rhetoric was not as dovish as anticipated. Strong US economic data against a comparatively bleak backdrop of global growth concerns also contributed to US Treasury underperformance relative to major sovereigns. Additionally, 10-year gilt yields fell below the Bank of England’s policy rate of 0.75% for the first time since the global financial crisis. Gilts rallied further after Boris Johnson became the next Prime Minister and fueled further fears of a no-deal Brexit.
- The US dollar (USD) gained versus all G10 currencies, driven by US economic outperformance and less dovish Fed guidance than anticipated. European currencies led declines versus the greenback. The euro (EUR) weakened amid disappointing economic data releases, while the European Central Bank’s (ECB) dovish rhetoric diverged from the Fed.
- On a total return basis, Hartford World Bond Fund performance was flat over the month with opportunistic sources contributing and global government core strategies flat. The Fund also experienced positive excess returns relative to its benchmark, the FTSE World Government Bond Index, given the Fund’s higher allocation to the USD during a period when it outperformed versus most major currencies.
- In global government core rates, our exposure to European and select dollar bloc (Australia, New Zealand) economies benefitted as rates moved lower in those areas over the month.
- In core currency, our non-USD exposure detracted as the USD appreciated versus most major currencies, as Fed rhetoric was not as dovish as the market anticipated.
- Macro-driven duration1 strategies were negative. Our underweight duration position in Germany detracted, as German bund yields extended their decline into negative territory following dovish ECB rhetoric. Our steepening bias in the US also detracted given the decline in long-end yields.
- Our macro-driven currency strategies contributed to performance. The primary contributor was our short to the EUR versus the USD and Japanese yen. The EUR declined over the month versus both currencies as the ECB set the stage for easing in September, including a rate cut and implementing a tiered deposit-rate scheme.
- Within opportunistic sources, our high-yield, investment-grade, and securitized-credit exposures benefitted while our emerging-markets exposure detracted from 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.
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 2.99 years at month end, due to the decrease in our strategic and opportunistic exposures.
- In core currency, we decreased our non-USD exposure over the month. Renewed trade and policy tensions highlight the uncertain nature of currency markets, leading us to take a more capital preservation approach in the near-term.
- In opportunistic macro duration strategies, we are long US duration on the front-end given the rising probability that the Fed will have to validate market expectations of a rate cut cycle. Additionally, we favor a steepening bias in UK gilts as the UK will have to use significant fiscal spending to stabilize the economy.
- In opportunistic sources, we are long the USD versus the EUR given rising trade tensions should favor perceived safe-haven currencies and a dovish ECB and worsening European data should weaken the EUR.
Currency Exposure (%)
|As of 7/31/19||Fund||Benchmark2|
|New Zealand Dollar||-1.45||0.00|
|South African Rand||-1.78||0.48|
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.
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.