- Global markets stabilized against the backdrop of subsiding emerging markets volatility and positive economic data. However, higher US Treasury rates weighed on returns.
- Global sovereign yields rose steadily, driven by supportive global growth data and rising inflation expectations, despite lingering trade war concerns.
- The US dollar (USD) was mixed versus most major currencies. Perceived safe-haven currencies, including the Japanese Yen (JPY) and Swiss Franc (CHF), declined, while peripheral European (Swedish Krona [SEK], Norwegian Krone [NOK]) and higher-beta trade-linked currencies (Australian dollar [AUD], Canadian dollar [CAD]) strengthened versus the USD.
- Hartford World Bond Fund performance was negative over the month with opportunistic sources of return modestly contributing to performance and global government core strategies detracting.
- In core currency rates, our duration1 exposure in select developed markets detracted as most sovereign yields rose. Our core currency positions detracted. Our high USD exposure (greater than 90%) helped preserve capital. However, the remaining non-USD exposure, specifically the JPY, detracted. Perceived safe haven currencies declined after fears about emerging market stress abated.
- Macro-driven duration strategies were negative. Our overweight in New Zealand and Australia detracted because developed-market yields steadily increased during the month.
- Macro-driven currency strategies were positive. Our overweight positions in select emerging-market currencies contributed. Concerns about emerging market distress somewhat abated during the month. This led to outperformance verse developed market counterparts.
- Quantitative strategies detracted. Our directional long position held in the beginning of September detracted amidst a general move higher in yields. Offsetting this was our long Australia 10-year vs Canada 10-year position, which benefitted performance. Spreads modestly tightened in the pair. Canadian rates were supported by rising oil prices, a better-than-expected Canadian GDP print, and reports that the US and Canada are looking for ways to bridge differences on trade with the US. Australian yields held in slightly better on concerns over China linkages.
- Within opportunistic credit strategies, our allocation to emerging markets debt, high yield, and securitized credit all contributed to performance as a result of credit spread tightening over the month.
Expenses2 (Class A) Net 1.04% Gross 1.04%
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.
Portfolio Positioning & Market Outlook
- Portfolio duration decreased to 2.34 years at month end, driven by our underweight duration bias in the US. We continue to believe that government bond valuations look rich and favor exposure to countries, such as Australia and New Zealand, where central banks have little incentive to raise rates in the near term. Our USD exposure remains high at 93%.We believe US economic data is still strong enough to suggest further USD strength.
- In opportunistic macro duration strategies, we have an underweight duration bias in the US. The US economy remains resilient. Pro-cyclical fiscal stimulus and deregulation more than offset the tariff-related headwinds.
- In currency, we maintain an overweight to the USD and the JPY primarily versus the euro and the British pound. Italy budget discussions and Brexit uncertainty are likely to pressure European currencies.
- Our exposure to credit sectors remains opportunistic in nature. We retained our positive outlook to credit, but have moved slightly more defensive over the month.
Currency Exposure (%)
|As of 9/30/18||Fund||Benchmark3|
|South African Rand||-0.78||0.46|
Important Risks: Investing involves risk, including the possible loss of principal. The fund seeks to achieve its investment objective by allocating assets among specialist portfolio managers. There is no guarantee a fund will achieve its stated objective. Security prices fluctuate in value depending on general market and economic conditions and the prospects of individual companies. ● Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. ● 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 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. ● 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. ● The fund may invest in a smaller number of issuers and focus on investments in particular geographic regions or countries, so it may be more exposed to risks and volatility than a more broadly diversified fund. ● Privately placed, restricted (Rule 144A) securities may be more difficult to sell and price than other securities.
1Duration is a measure of the sensitivity of an asset or portfolio’s price to nominal interest rate movement
2Expenses as shown in the fund’s most recent prospectus. Gross and Net expenses are the same
3Benchmark is the FTSE World Government Bond Index
The Hartford World Bond Fund (the “Fund”) has been developed solely by Hartford Funds. The Fund is not in any way connected to or sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). FTSE Russell is a trading name of certain of the LSE Group companies. All rights in the FTSE World Government Bond Index (“WGBI” or the “Index”) vest in the relevant LSE Group company which owns the Index. FTSE Russell® is a trade mark of the relevant LSE Group company and is used by any other LSE Group company under license. The Index is calculated by or on behalf of FTSE Fixed Income, LLC or its affiliate, agent or partner. The LSE Group does not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the Fund. The LSE Group makes no claim, prediction, warranty or representation either as to the results to be obtained from the Fund or the suitability of the Index for the purpose to which it is being put by Hartford Funds.
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.
Indices are unmanaged and not available for direct investment.