- Market volatility surged as economic activity ground to a halt amid the rampant spread of COVID-19 (coronavirus). Global central banks and governments enacted extraordinary monetary and fiscal stimulus measures to contain the fallout.
- Most global sovereign yields fell to record lows, as global recession fears intensified and the reach for safe assets increased. The 10-year US Treasury yield reached a record low intra-month. The 10-year German bund yield dipped beneath -0.90% earlier in the month, but unprecedented fiscal stimulus to combat COVID-19’s threat to the economy contributed to a bear steepening in German yields, retracing the earlier decline. Spanish and Italian sovereign debt experienced negative returns.
- Perceived safe-haven currencies including the United States dollar (USD), Japanese yen (JPY), and Swiss franc outperformed most currencies. Oil-linked currencies were the major decliners as a supply-side price war between Saudi Arabia and Russia, coupled with the COVID-19 demand side shock, led to a historic collapse in crude oil prices. The South African rand (ZAR) declined precipitously following the country’s sovereign credit rating downgrade to sub-investment grade.
- On a total return basis, Hartford World Bond Fund performance was negative over the month with global government core contributing and opportunistic sources detracting. The Fund underperformed on an excess return basis relative to the FTSE World Government Bond Index due to the Fund’s opportunistic credit allocations, which detracted from total returns as credit spreads widened significantly. Duration1 and currency strategies each outperformed on a relative basis.
- In core market rates, performance was positive due primarily to our allocations to the United States and Canada. The US Federal Reserve (Fed) and Bank of Canada each cut policy rates by 1.50% leading to significant declines in US and Canadian yields.
- Core market currency marginally detracted due to our non-USD exposure. The dollar rallied strongly during the month due to its reserve-currency status and a scramble for dollar liquidity.
- Macro-driven duration strategies detracted from performance. Our underweight duration positions in the United Kingdom detracted. Additionally, a tactical short in the US long-end detracted. Our portfolios pivoted to a short duration bias in the long-end of the US when governments started announcing huge fiscal changes, and we questioned the central banks’ ability to take down this volume of issuance. Once the Fed announced infinite quantitative easing, we repositioned; however, the underweight to the long-end of the US curve did detract in aggregate from performance.
- Quantitative strategies contributed. Our trend strategies had a long duration bias, which was the key contributor.
- In opportunistic credit strategies, our allocations to investment grade, high yield, and securitized credit each detracted. Spreads widened significantly over the month as global recession fears grew after many countries were forced to put large parts of their economies on lockdown. Partially offsetting this was positive performance from our emerging market (EM) strategies. Specifically, we held an underweight in select EM currencies (ZAR, Mexican peso, Turkish lira) versus the USD. South Africa’s sovereign credit rating was downgraded by Moody’s, causing the currency to decline precipitously.
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 decreased the Fund’s duration to 3.59 years by decreasing both strategic and opportunistic duration positions. In opportunistic duration we remained positioned with a long duration bias given the negative growth shock from the coronavirus fallout. In strategic duration we reduced our exposures to the US and Canada given the significant decline in US and Canadian yields.
- In strategic market currency, the Fund increased its USD hedge ratio and holds strategic exposure to the JPY. We view the JPY as an attractive hedge against increased market volatility. In opportunistic currency we have a short euro position as there is a lack of solidarity amongst euro-area members that could prevent certain member states from implementing the required fiscal stimulus.
- The Fund’s exposure to credit sectors remains opportunistic in nature. We remain overweight high-yield and securitized credit. In high yield, we believe that attractive valuations more than compensate investors for forward-looking credit losses.
Currency Exposure (%)
|As of 3/31/20||Fund||Benchmark2|
|New Zealand Dollar||1.18||---|
|Offshore Chinese Renminbi
|South African Rand
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.
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.