- Political concerns dominated headlines globally, including the US tax reform bill, negotiations in Germany to form a coalition government and Saudi Arabia’s crackdown on corruption. Economic data across most major economies remained positive.
- Most global sovereign yield curves continued to flatten, driven partly by fading inflation, global uncertainty and declining non-oil commodity prices. In the US, short-term yields rose as Jerome Powell’s nomination as the next chair of the US Federal Reserve (Fed) alleviated some uncertainty over near-term US monetary policy.
- The recent strong performance of the credit sectors paused in November. Global corporate credit markets performed in line with duration1-equivalent government bonds.
- The US dollar (USD) recorded mixed performances versus most major currencies as progress on tax reform was offset by news of subpoenas of select officials from President Trump’s election campaign. The euro was the top performer, supported by better-than-expected German gross domestic product (GDP) growth in the third quarter.
- Hartford World Bond Fund returns were positive over the course of the month as both global government core exposure and opportunistic sources of return contributed to performance
- In core exposure, our rates position was beneficial to performance as developed market yields curves were generally lower particularly in the long end. Our core currency (FX) was neutral to performance.
- Macro-driven duration strategies contributed. Our underweight to the front end of the US curve was beneficial as most Treasury yields rose after the official nomination on November 2nd of Jerome Powell as the next Fed chair, while tax reform news further fueled the upwards trend at the start of the month. Our overweight to the front end of the Australian curve was also beneficial as yields declined following the release of disappointing wage data.
- Allocations to investment grade, high yield, emerging market and securitized credit sectors benefitted performance from a total return perspective
- Macro-driven currency strategies detracted. Our overweight to the USD versus the British pound hurt performance; the British pound rallied when reports emerged towards the end of the month that the UK had reached an agreement with the European Union on the Brexit bill. Our overweight to the Norwegian krone and Swedish krona versus the euro detracted. Weaker-than-expected domestic data and fears of a downturn in the housing market were drags on the Nordic currencies, while better-than-expected GDP data, particularly in Germany, supported the euro.
Expenses2 % (Class A) Net Op. Exp.: 1.05% Gross Op. Exp.: 1.11%
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. For more current performance information to the most recent month-ended, click here.
Portfolio Positioning & Market Outlook
- Portfolio duration increased to 1.97 years at month end due to a decrease in active short positions. We continued to maintain a conservative duration posture, as valuations on government bonds continue to look rich. Our USD hedge ratio continues to be high as a reversal in recent inflation softness and a pickup in wage pressures could trigger support for the USD.
- Global growth momentum remains strong and the outlook is constructive, with a lift in global trade and emerging signs of a stronger global capital expenditure cycle. We are underweight duration, primarily in the US.
- US fiscal reform and gradual Fed tightening will support the USD. We are overweight the USD versus a basket of currencies.
- A vulnerable housing market, high levels of consumer debt, underwhelming inflation and trade protectionism will slow the cycle in select countries. We are overweight duration in Australia and Canada.
- Central banks of small open economies around Europe will engage with the cyclical upturn and reduce their assessment of downside risk. We are overweight the Swedish krona and Norwegian krone versus the euro.
- We remain overweight investment-grade corporate credit with an emphasis on select opportunities in the European banking sector. Abatement of political risk in Europe and the strength of the European economy should support the performance of euro-denominated corporate credit.
A Word About Risk
All investments are subject to risk, including the possible loss of principal. There is no guarantee the Fund will achieve its stated objective. The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the Fund’s strategy for allocating assets among different asset classes and/or portfolio management teams does not work as intended, the Fund may not achieve its objective or may underperform other funds with similar investment strategies. Fixed Income risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall; these risks are currently heightened because interest rates are at, or near, historical lows. 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- and asset-backed securities’ risks include credit, interest-rate, prepayment, and extension risk. Derivatives may be riskier or more volatile than other types of investments because they are generally more sensitive to changes in market or economic conditions; risks include currency, leverage, liquidity, index, pricing, and counterparty risk. Foreign investments can be riskier and more volatile than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as political and economic developments in foreign countries and regions (e.g., “Brexit”). These risks are generally greater for investments in emerging markets. The Fund is non-diversified, so it may be more exposed to the risks associated with individual issuers than a diversified fund. Privately placed, restricted (Rule 144A) securities may be more difficult to sell and value than publicly traded securities, thus they may be potentially illiquid. The Fund may have high portfolio turnover, which could increase the Fund’s transaction costs and an investor’s tax liability.
1 Duration is a measure of the sensitivity of an asset or portfolio’s price to nominal interest rate movement.
2 Expenses stated as of the fund’s most recent prospectus. Net expenses reflect contractual expense reimbursements in instances when these reductions reduce the fund's gross expenses. Contractual reimbursements remain in effect until 2/28/18 and automatically renew for one-year terms unless terminated. Certain contractual reimbursements for Class R6 and Class F shares remain in effect until 2/28/18.
3 Benchmark is the Citigroup World Government Bond Index.
Index data for Citigroup World Government Bond Index © 2017 Citigroup Index LLC (“Citi Index”). All rights reserved. CITI is a trademark and service mark of Citigroup Inc. or its affiliates, is used and registered throughout the world, and is used with permission for certain purposes by Hartford Funds Management Group, Inc. Hartford World Bond Fund is not sponsored, endorsed, sold or promoted by Citi Index, and Citi Index makes no representation regarding the advisability of investing in such fund. Reproduction of the Citi Index data and information (collectively, “Citi Data”) in any form is prohibited except with the prior written permission of Citi Index. CITI INDEX GIVES NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF ACCURACY, ADEQUACY. MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. Citi Index is not responsible for any errors or omissions in, or for the results obtained from use of, Citi Data, and in no event shall Citi Index be liable for any direct, indirect, special or consequential damages in connection therewith.
Citigroup 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.
Indices are unmanaged and not available for direct investment.