- Dovish comments by major central banks supported fixed-income markets during the month. Market concerns over the G20 meeting and US-China interactions were relieved when the US and China agreed to continue talks and not escalate tariffs.
- Weak global inflation data and the dovish shift among central banks pushed most sovereign yields lower. The Federal Open Market Committee’s dovish statement led markets to expect rate cuts by the end of the year, after which US Treasury yields fell below 2%. Bund yields hit record lows following expectations of further easing, including asset purchases, from the European Central Bank (ECB). Canadian front-end yields were an outlier and they increased following stronger-than-expected labor market and inflation data; the overall Canadian yield curve flattened as the longer-end of the curve fell.
- The US dollar (USD) declined versus most currencies, weighed down by increased expectations of a US Federal Reserve (Fed) rate cut and weaker-than-expected economic data. The euro (EUR) strengthened despite the ECB keeping its policy rate unchanged and extending forward guidance to indicate that this would be the case until mid-2020. The Canadian dollar (CAD) strengthened as broad USD weakness and a rally in oil prices provided support for the CAD. The Norwegian Krone (NOK) rallied, boosted by a Norges Bank rate hike.
- Hartford World Bond Fund’s performance was positive over the month with strategic market exposure contributing positively to performance while opportunistic sources of return flat.
- In global government core rates, our rates exposure to dollar bloc economies—US, Australia (AUD), Canada, and New Zealand (NZD)—particularly benefitted as rates declined across most sovereigns over the month.
- In core currency, our exposure to the Japanese yen (JPY) and the dollar bloc currencies (AUD, CAD, NZD) benefitted given that the USD depreciated versus all other G10 currencies over the period.
- Macro-driven duration1 strategies were positive. Our overweight duration positions in the US, UK, and Australia drove positive performance. Fed Chair Powell signaled that the Fed was open to cuts amidst "raising concerns about the strength of the global economy.” This change in expectations drove demand for US Treasury bonds, especially in the short end of the curve.
- Our macro-driven currency strategies detracted from performance. Our underweight to the EUR versus the USD and JPY detracted as the EUR strengthened despite the ECB keeping its policy rate unchanged, and extending forward guidance to indicate that this would be the case until mid-2020.
- Within opportunistic sources, our high-yield exposure contributed to returns while our emerging market and investment-grade credit exposures detracted.
- The Fund’s shorter duration and higher USD allocation versus the benchmark detracted from relative 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 increased to 3.96 years at month end, due to the increase in our strategic and opportunistic exposures.
- In core currency, we increased our non-USD exposure to select currencies in Asia (JPY), Europe (NOK) and the dollar bloc (AUD, CAD, NZD). We expect that US growth and Fed policy will converge towards the rest of the world which should lead to a broad decline in the USD.
- In opportunistic macro duration strategies, we are overweight duration given global growth remains sluggish with risks skewed to the downside. Specifically, we are overweight the front-end in US duration due to the rising probability of a Fed rate cut and the end of balance sheet tightening.
- In opportunistic currency strategies, we are overweight the JPY as we believe trade tensions and a “national security” framing will fuel a long-term structural decline in US-China relations with periodic bouts of cooperation. We are underweight the EUR as we believe the ECB will be forced to downgrade growth/inflation forecast in September, cut rates and resume quantitative easing.
- Our opportunistic credit exposures remain limited and selective. We are favorably biased to high yield and securitized and are moderately cautious on investment grade corporates.
Currency Exposure (%)
|As of 6/30/19||Fund||Benchmark2|
|New Zealand Dollar||3.89||0.00|
|South African Rand||-1.42||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.