- Financial markets rebounded and cautious optimism returned as many countries began to gradually emerge from economic lockdowns, vaccine developments progressed, and an EU Recovery Fund was proposed. Political tensions escalated as the US-China disputes flared up, the US was swept up in a wave of protests, and Brexit uncertainty increased in the UK.
- Most global sovereign-yield movements were limited, with steepening curves in select countries, despite the initial wave of lockdown easing. In the US, negative rates took the spotlight even as long yields increased following massive issuance in both Treasuries and corporates. In Europe, the German Constitutional Court ruled that the European Central Bank’s (ECB) quantitative easing violated the constitution. Bund yields steepened, led by the long end.
- The US dollar (USD) and Japanese yen (JPY) depreciated versus most G10 currencies. A sharp rally in high-beta1 emerging-market currencies reflected a broader relaxation of growth worries as economies started reopening. The British pound (GBP) underperformed the most, as reports of contentious Brexit talks with the EU and rising expectations of negative policy rates weighed on the currency. The Norwegian krone (NOK) was the top performer, supported by the recovery in oil prices, despite further monetary easing by the Norges Bank. The euro (EUR) ended the month higher, bolstered by the proposed “Next Generation EU” fund and by further easing of lockdowns in some EU member states, offsetting continued bad economic data and the German Court’s negative ruling of the ECB’s public-sector purchase program scheme.
- On a total return basis, Hartford World Bond Fund performance was positive on the month, due primarily to continued tightening in global credit spreads. On a relative basis, the portfolio outperformed primarily due to its opportunistic credit sources with investment grade, high-yield, and securitized allocations each contributing.
- In core market rates, performance was marginally positive. Yields remained range-bound during the month, leading to moderate positive returns for most global sovereigns.
- Strategic-market currency marginally detracted from total returns due to our moderate JPY exposure. The JPY weakened as risk sentiment improved, reflecting a broader relaxation of growth worries as economies began reopening.
- Macro-driven duration2 was negative. Our overweight US long-end duration position detracted early in the month as a gradually reopening economy sent yields higher. Partially offsetting this was our underweight duration position in Germany, as yields rose led by the long end.
- Macro-driven currency strategies detracted due to our underweight EUR position. The euro rose during the month as the euro-area break-up risk premium fell, driven by a change in the German political mindset where they are now open to fiscal transfers.
- In opportunistic credit strategies, our allocations to investment grade, high yield and securitized each contributed as global credit spreads generally tightened. The combination of the Federal Reserve’s corporate-buying program and signs of gradual openings of global economies following a crippling lockdown continued the tightening trend in spreads.
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 2.64, decreasing both opportunistic and strategic duration, given the flattening of the contagion curve and gradual reopening of economies.
- In core-market currency, the Fund maintained strategic exposure to the JPY and added marginal exposure to the NOK due to the rebound in crude oil prices. In opportunistic currency, we have a negative view on the EUR and GBP versus the USD and JPY, as disparities in the fiscal responses across countries will determine cyclical and structural relative winners and losers coming out of the lockdowns.
- The Fund’s exposure to credit sectors remains opportunistic in nature. We remain overweight investment grade, high yield, and securitized. In high yield, we believe spreads compensate investors for forward-looking credit losses, and we are looking for opportunities to add risk where we observe extreme dislocations. In investment-grade credit, we continue to focus on relatively defensive sectors.
Currency Exposure (%)
|As of 5/31/20||Fund||Benchmark3|
|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.
1Beta is a measure of risk that indicates the price sensitivity of a security or a portfolio relative to a specified market index.
2Duration is a measure of the sensitivity of an investment’s price to nominal interest-rate movement.
3Benchmark 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.