Can This Fund Outsmart Global Bond Markets?
Newly rated Hartford World Bond stands a good chance.
This week, we published a new Morningstar Analyst Rating of Bronze for Hartford World Bond (HWDIX). The five-year-old world-bond fund's strategy was conceived in the climate of escalating European sovereign credit risk in 2010 and 2011. That tumultuous period highlighted the flaws of global-bond benchmarks, which are dominated by developed-markets countries with the heaviest debt burdens. At the same time, these countries' central banks have sought to combat difficult economic conditions with policy measures designed to drive bond yields lower and lower, putting investors in the position of accepting less payment for more risk. My colleague Karin Anderson recently addressed this topic in a column describing how world-bond funds are responding to the problem of negative-yielding Japanese government bonds, which typically constitute 20% to 35% of any global-bond index.
The team at Wellington Management Company, this fund's subadvisor, isn't the first to note the pitfalls of tethering a strategy to global-bond benchmarks, but it has crafted its own unique brand of benchmark-free global-bond investing. Rather than simply substituting developed-markets exposure with emerging-markets debt or other sectors that can heighten volatility, the team is focused on meeting investors' expectations for a core bond allocation, namely to damp volatility and provide safety when equities struggle. To that end, the team invests the bulk of the fund's assets in the debt of a core group of countries that it thinks will hold up well during periods of heightened volatility (referred to as the fund's core or home-base portfolio). Countries included in the home base should have stable-to-improving fundamentals, attractive valuations, and highly liquid debt markets.
Miriam Sjoblom does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.