- Encouraging vaccine developments propelled market confidence despite growing global COVID-19 infections. Most fixed-income spread sectors outperformed as global credit spreads tightened, US presidential elections concluded, and major central-banks aimed policies toward mitigating risk.
- Most global sovereign yields movements were limited, seemingly shrugging off favorable vaccine news. The US Treasury yield curve flattened moderately following the likelihood of a split Congress and diminished prospects of substantial US fiscal stimulus. In Europe, Italian government bonds versus German bund spreads continued to compress. Peripheral European sovereigns continued to be largely supported by European Central Bank’s quantitative easing, regardless of COVID-19 developments. New Zealand rates increased as markets repriced the likely near-term path of policy rates.
- The US dollar (USD) weakened versus most currencies. Foreign currencies and equity markets rallied, broadly supported by significant progress in vaccine development. The NOK was the best-performing G-10 currency, buoyed by a rally in oil prices. The NZD edged higher, helped by positive market sentiment, rising commodity prices, and comments from the Reserve Bank of New Zealand. The Finance Minister’s comments on central-bank policy would imply tighter-than-expected policy given the housing market boom in New Zealand in recent years.
- On a total return basis, Hartford World Bond Fund performance was positive on the month as currency and credit contributed while duration1 detracted. On a relative basis the portfolio underperformed its benchmark2 as the Fund’s higher USD exposure and lower US duration detracted. The USD declined and rates fell over the month, driven by significant progress in vaccine development and diminished prospects of substantial US fiscal stimulus respectively.
- In strategic duration, performance was negative. Our positions in the Australian and New Zealand dollars detracted as rates rose as markets repriced the likely near-term path of rates.
- Strategic currency contributed to total returns due to our non-USD exposure. The key contributor was our exposure to the NOK, which was the best performing G-10 currency, buoyed by a big rally in oil prices.
- Macro-driven currency strategies were negative. Our long USD bias versus select currencies (Euro, Mexican peso, South African rand) detracted as the USD declined over the month, driven by significant progress in vaccine development.
- Macro-driven duration strategies detracted. Our short positions in long-end US duration detracted as the Treasury yield curve flattened moderately following the likelihood of a split Congress and diminished prospects of substantial US fiscal stimulus.
- In opportunistic credit strategies, our allocations to high-yield and securitized credit sectors contributed.
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 2.01 years, driven by a decrease in opportunistic duration. We are underweight US 30-year as the rising likelihood of an effective vaccine, prospects of further US fiscal stimulus, and better growth prospects should steepen the US curve. We are overweight duration in the front-ends of Europe and UK as select central banks are gearing up for additional policy stimulus. Strategic duration remained in-line with previous months and we continue to favor relatively higher-yielding markets.
- In strategic market currency, the Fund maintained its non-USD exposure, though shifted exposure from the Japanese yen toward the NOK, Swedish krona, and Canadian dollar as commodity prices begin to rise. In opportunistic currency we are tactically long USD as factors that would have driven broad US dollar weakness (a decline in institutional trust/integrity and a Democratic sweep with accompanying fiscal stimulus) have somewhat receded post-election.
- The Fund’s exposure to credit sectors remains opportunistic in nature. We remain long investment-grade, high-yield and securitized bonds.
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.