- Against the backdrop of swelling global COVID-19 cases, most fixed-income sectors posted positive total returns, underpinned by encouraging economic data releases, ongoing reopening of global economies, and positive vaccine trial developments.
- Most global sovereign yields declined. US Treasury 10-year real yields dropped to a record low, driven by policy rate expectations and forward guidance. US breakevens widened, reflecting the market’s belief that the Federal Reserve’s (Fed) unprecedented stimulus measures will drive inflation higher. A brief drop in US Treasury demand driven by vaccine optimism and some better-than-expected US data was more than offset by the rally post Federal Open Market Committee (FOMC) meeting and the Fed’s presumed resolve to keep rates near zero. European bond prices initially moved lower as markets digested news of the recovery package and the European Central Bank’s (ECB) enhanced bond-buying program. However, fears of increased COVID-19 cases and new travel restrictions pushed investors to safe-haven assets and German bund yields closed the month lower.
- The US Dollar (USD) weakened versus most currencies. The Fed’s dovish rhetoric, worsening US public health outcomes, increasing US political risk, and bullish expectations regarding a potential agreement at the EU summit all likely contributed to the USD decline. The euro (EUR) reached its highest level since 2018, following the historic agreement for the Next Generation EU fund. The British pound (GBP) rallied despite a continued lack of progress in Brexit negotiations with the pound’s strong performance accelerating following British chancellor Sunak’s fiscal easing announcement and the EU Summit. The Swedish Krona (SEK) and Norwegian Krone (NOK) outperformed on the back of positive vaccine news and agreement among EU leaders.
- On a total return basis, Hartford World Bond Fund performance was positive on the month as duration1, currency, and credit each contributed. On a relative basis the portfolio underperformed as the fund’s lower duration positioning and higher exposure to the USD relative to the benchmark2 detracted. Interest rates broadly declined and global currencies generally appreciated versus the USD.
- In core duration, performance was positive. A uniform decline in yields globally lead to contributions from our US, South Korea, Australia, and New Zealand exposures.
- Core currency contributed to total returns due to our non-USD exposure. The key contributors were our European currency exposures (EUR, NOK, Swiss Franc) which benefitted from the agreement on the 750bn euro area recovery package. The higher beta3 NOK also benefitted from positive vaccine news.
- Macro-driven currency strategies were negative. Our short EUR and GBP positions detracted as the recovery fund, ECB bolstered bond-buying program and Sunkak’s opening of the fiscal taps to support the economy. Macro-driven duration strategies were positive due to our long US duration position. The Fed’s dovish policy guidance drove yields lower.
- In opportunistic credit strategies, our allocations to both high-yield and investment grade credit were the key contributors. Tapering issuance as well as better than expected corporate earnings and economic data releases supported spread tightening.
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 3.52 years, driven by an increase in both our core and opportunistic duration positions. In core duration we increased exposure to Australia and New Zealand as heightened macro risks warrant targeted exposures to bonds where yields have room to fall. In opportunistic duration we favor US duration versus Europe given the divergence in the regions related to public health and labor market outcomes.
- In core market currency, the Fund decreased its non-USD exposure. Higher beta currencies rallied strongly against the dollar in July and we expect a more mixed outlook going forward. In opportunistic currency we favor the USD and JPY versus EUR and GBP. There have been positive announcements about the EU Recovery Fund, however the details and delayed timing will likely lead to some disappointment relative to market expectations. We also have a cautious outlook on the GBP due to slower reopening, higher probability of a second wave, and no tangible progress in UK-EU trade negotiations.
- The Fund’s exposure to credit sectors remains opportunistic in nature. We remain long investment grade, high-yield and securitized.
Currency Exposure (%)
|As of 7/31/20||Fund||Benchmark2|
|South African Rand
|Offshore Chinese Renminbi
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.
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.
3Beta is a measure of risk that indicates the price sensitivity of a security or a portfolio relative to a specified market 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.