- Market volatility remained elevated, most sovereign yields rose, and credit spreads tightened against the backdrop of severe COVID-19 resurgence in Europe and the United States (US) and political uncertainty stemming from the US elections and Brexit deal
- Most global sovereign yields moved higher despite the worsening pandemic, US election uncertainty, and a sell-off in global equity markets. US Treasury yields rose on prospects of a Democratic party election sweep and additional fiscal stimulus. In Europe, German bund yields declined as economic data continued to disappoint and new lockdown measures were imposed. The European Union (EU) conducted its first issuance under the Support to mitigate Unemployment Risks in an Emergency (SURE) program, aimed at funding unemployment protection plans for member states.
- The US dollar (USD) ended the period mixed, initially pressured down by rhetoric on a potential fiscal stimulus deal, but then supported by a flight to safety driven by additional lockdown measures in Europe. The Japanese yen (JPY) was the best-performing G-10 currency, owing to uncertainty of US elections and rising global COVID-19 cases. Higher-beta1 commodity-linked currencies including the Norwegian krone (NOK) and the Australian dollar (AUD) were the primary decliners. Despite intra-month volatility, the Great Britain pound (GBP) appreciated amid reports of progress on key areas of the Brexit deal. The Chinese yuan (CNY) continued to strengthen against the USD. The People’s Bank of China (PBoC) suspended the counter-cyclical factor while also removing the reserve charge, suggesting that Chinese foreign exchange policy is now neutral.
- On a total return basis, Hartford World Bond Fund performance was positive on the month as currency and credit contributed, while duration2 marginally detracted. On a relative basis the portfolio outperformed as the Fund’s higher USD exposure and allocation in securitized sectors benefitted. The USD rose toward the end of the month as additional lockdown measures imposed in Europe at the end of the month weighed on risk sentiment, while security selection in securitized sectors continued to benefit performance.
- In core duration performance was negative. Our positions in the US, Canada, and Japan detracted as most global sovereign yields moved higher in spite of worsening coronavirus case counts.
- Core currency marginally contributed to total returns due our non-USD exposure. The key contributor was our exposure to the JPY which was the best performing G10 currency, supported by uncertainty from the US election and rising COVID-19 cases worldwide.
- Macro-driven currency strategies were positive. Our short GBP and EUR versus JPY position contributed. European currencies underperformed as geopolitical and public health headlines at certain points throughout the month favored perceived safe havens such as the JPY.
- Macro-driven duration strategies were positive. Our short position in the US long-end contributed as yields rose over the month, driven by growing expectations for a Democratic Party sweep and subsequent expectations for fiscal stimulus.
- In opportunistic credit strategies, our allocations to investment grade 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 2.50 years, driven by a decrease in opportunistic duration. We re-initiated a steepening bias in US duration given the positive lean on vaccine results following recent developments as we are on the cusp of several companies reporting trial results in the next few weeks. We are tactically managing duration as we believe the prospect of a big US fiscal stimulus package has likely dimmed, given the absence of a Democratic sweep and a possible contentious election outcome. Core duration remained in-line with previous months and we continue to favor relatively higher-yielding markets.
- In core market currency, the Fund marginally increased its foreign currency exposure, specifically in the Asian bloc (CNY) as Asia continues to outperform Europe and the US in its pandemic response. We believe a Biden victory (even should the Senate remain Republican) favors USD weakness in the short-term, thought the magnitude will be lower compared to a “Blue wave” scenario. In opportunistic currency we reduced our short GBP position given the EU and the UK made progress on key areas of the Brexit deal.
- The Fund’s exposure to credit sectors remains opportunistic. We remain long investment grade, high yield, and securitized.
Currency Exposure (%)
|As of 10/31/20||Fund||Benchmark3|
|Taiwan Dollar (New)
|South African Rand
|Offshore Chinese Renminbi||-2.98||---|
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.