- Market volatility spiked and credit spreads widened, fueled by a surge in global COVID-19 cases, increasing political uncertainty ahead of the US presidential elections, and delays in passing an additional US fiscal stimulus package.
- Most global sovereign yields inched lower. US Treasury yields ended roughly flat across the curve. US breakevens fell throughout the month, erasing some of the previous climb. In Europe, German bund yields declined, and Italian 30-year yields plummeted to an all-time low. Italian government bonds (BTPs) benefited from the European Central Bank’s accommodative policy and reduced political uncertainty. Australian yields declined, following the Reserve Bank of Australia’s highly accommodative rhetoric.
- The US dollar (USD) gained versus most currencies, likely supported by virus resurgence fears, lack of fiscal stimulus in the US, and a wobbly US equity market. The euro (EUR) rallied initially, then fell precipitously following the European Central Bank’s (ECB) comment that the EUR “does matter.” The British pound sterling (GBP) experienced its worst monthly decline in more than one year following heightened tensions with the EU and the publication of the UK’s Internal Market Bill. The Norwegian Krone (NOK) was the worst G10 currency performer, battered by oil price declines. The Swedish Krona (SEK) fell as the virus situation in Sweden worsened, and the Prime Minster stated new restrictions would be introduced should the number of cases continue to rise.
- On a total return basis, World Bond performance was marginally positive on the month as duration1 currency, and credit all contributed. On a relative basis, the portfolio outperformed as the Fund’s higher USD exposure and allocation in securitized sectors benefitted. The US dollar gained versus most currencies, while security selection in securitized sectors continued to benefit performance.
- In strategic duration, performance was positive. The primary contributors were our positions in commodity-sensitive economies such as Australia, New Zealand, and Norway as most global sovereign yields inched lower driven by concerns regarding a “second-wave” of the COVID-19 pandemic.
- Strategic currency detracted from total returns due our non-USD exposure. The key detractor was our exposure to the NOK which was the worst-performing G10 currency, battered by substantial declines in oil prices.
- Macro-driven currency strategies were positive. Our underweight position to GBP and EUR versus Japanese yen (JPY) contributed. European currencies underperformed as rising COVID counts in Europe (past previous peaks) could force their central banks to introduce more easing measures this year.
- Macro-driven duration strategies were negative. Our underweight positions in the US and Germany long-end detracted as yields fell early in the month, driven by global growth concerns and global political risks ahead of the US presidential election.
- In opportunistic credit strategies, our allocations to 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
- During the month we increased the Fund’s duration to 3.03 years, driven by an increase in opportunistic duration. We are overweight duration in Europe, UK, and select Asian economies. Risk assets could struggle as we head into a potentially litigated US election, the rising probability of no US fiscal package before elections, and if the second wave in COVID-19 cases in Europe potentially forces governments to resume some elements of the lockdown. We maintain a short duration bias in the US as markets are gradually pricing in more fiscal stimulus post-elections. 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. We shifted our exposure to the JPY as it offers a pure play hedge against market volatility given that the USD could be affected by political uncertainty. In opportunistic currency we are short the GBP as the conversation is starting to shift from “deal or no deal” to a UK trade relationship, which is going to materially deteriorate.
- The Fund’s exposure to credit sectors remains opportunistic in nature. We remain long investment-grade, high-yield and securitized credit.
Currency Exposure (%)
|As of 9/30/20||Fund||Benchmark2|
|South African Rand||-1.02||---|
|Offshore Chinese Renminbi
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.