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Helping investors make smarter investment decisions

The Informed Investor

4Q24: Your guide to understanding investments



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Index Definitions

Bloomberg U.S. Treasury Bill (1-3 Months) Index tracks the performance of all outstanding 0-3 month outstanding Treasury Bills issued by the US government.

Bloomberg US Aggregate Bond Index is comprised of government securities, mortgage-backed securities, asset backed securities, and corporate securities to simulate the universe of bonds in the market. 

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted capitalization index that is designed to measure developed market equity performance and excludes the US and Canada. 

Russell 2000 Growth Index measures the performance of the small-cap growth segment of the US equity universe. It includes those Russell 2000 Index companies with higher price-to-book ratios and higher forecasted growth values. 

Russell 2000 Value Index measures the performance of small-cap value segment of the US equity universe. It includes those Russell 2000 Index companies with lower price-to-book ratios and lower forecasted growth values. 

Russell Midcap Growth Index measures the performance of the mid-cap growth segment of the US equity universe. It includes those Russell Midcap Index companies with higher price-to-book ratios and higher forecasted growth values. 

Russell Midcap Value Index measures the performance of the mid-cap value segment of the US equity universe. It includes those Russell Midcap Index companies with lower price-to-book ratios and lower forecasted growth values. 

Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe. It includes those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values. 

Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe. It includes those Russell 1000 Index companies with lower price-to-book ratios and lower expected growth values. 

S&P 500 Index is an unmanaged list of 500 widely held US common stocks frequently used as a measure of U.S. stock market performance.       

Important Risks: Investing involves risk, including the possible loss of principal. ● Different investment styles may go in and out of favor ● Small- and mid-cap securities can have greater risks and volatility than large-cap securities. ● Diversification does not ensure a profit or protect against a loss in a declining market. ● 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, economic and regulatory developments. These risks may be greater, and include additional risks, for investments in emerging markets. ● Fixed-income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. ● Investments in high-yield ("junk") bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities. ● Municipal securities may be adversely impacted by state/local, political, economic, or market conditions. Investors may be subject to the federal Alternative Minimum Tax as well as state and local income taxes. Capital gains, if any, are taxable. ● Mortgage-related and asset-backed securities’ risks include credit, interest-rate, prepayment, and extension risk. ● Loans can be difficult to value and less liquid than other types of debt instruments; they are also subject to nonpayment, collateral, bankruptcy, default, extension, prepayment and insolvency risks.

This information has been prepared from sources believed to be reliable but the accuracy and completeness of the information cannot be guaranteed. This material and/or its contents are current at the time of writing and are subject to change without notice. 

All information provided is for informational and educational purposes only and is not intended to provide investment, tax, accounting or legal advice. As with all matters of an investment, tax, or legal nature, you should consult with a qualified tax or legal professional regarding your specific legal or tax situation, as applicable.

Hartford Funds Distributors, LLC, Member FINRA.    

 

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Stocks: Their Role in a Portfolio

Growth Potential: Stocks have provided an average annual return of 10.28% since 19261 but annual returns can vary greatly

Recurring Income Stream: Dividend-paying stocks can provide ongoing income

Diversification: Mutual funds and ETFs typically invest in dozens or even hundreds of stocks, which can be less risky than owning individual stocks

1 Data Sources: Morningstar and Hartford Funds.

Stocks: Annual Returns Can Vary Greatly

High Long-Term Returns Require Patience

Stocks: The Power of Dividends and Compounding

Dividends and Compounding Contributed 85% of the Cumulative Total Return in the S&P 500 Index

As of 12/31/23. Past performance does not guarantee future results. Indices are unmanaged and not available for direct investment. Dividend-paying stocks are not guaranteed to outperform non-dividend-paying stocks in a declining, flat, or rising market. For illustrative purposes only. Data Sources: Morningstar and Hartford Funds, 1/24.

Stocks: Understanding Diversification

A Diversified Portfolio May Help You Benefit as the Market Shifts

The historical performance of each index cited in this material is provided to illustrate market trends; it does not represent the performance of any particular investment product. Indices do not include payment of any expenses, fees, or sales charges which would lower performance results.

Stocks: Understanding Market Caps

Market capitalization refers to a company’s size and value

Larger companies tend to be better established and less risky than smaller companies

 

Large caps Mid caps Small caps
> $10 billion ≥ $2 billion to ≤ $10 billion < $2 billion

Large-Cap Stocks: When to Consider Investing

Large caps tend to perform well when: Large caps tend to perform poorly when:
Economic growth is strong
Economic growth is weak
Interest rates are low or declining
Interest rates are high or rising
Companies have strong pricing power
Stock valuations become too elevated

Large-Cap Stocks: Why Now?

S&P 500 Index Earnings Are at Record Highs

As of 9/30/24. Past performance does not guarantee future results. Indices are unmanaged and not available for direct investment. Earnings per share is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability. P/E ratio is the ratio of the S&P 500 Index’s price divided by earnings per share. Data Source: FactSet, 10/24.

Mid-Cap Stocks: When to Consider Investing

Mid caps tend to perform well when: Mid caps tend to perform poorly when:
The economy is expanding
The economy is weakening
Interest rates and borrowing costs are low
Interest rates are high or rising
Markets are recovering
Market volatility is high

Mid-Cap Stocks: Why Now?

Mid Caps: Higher Growth Potential Than Large Caps, Better Risk-Adjusted Returns Than Small Caps

Chart data: 10/1/94-9/30/24. Sharpe ratio is a measure of the excess fund returns per unit of risk, as measured by standard deviation; higher Sharpe ratios indicate better risk-adjusted returns. Mid caps are represented by the Russell Midcap Index, which measures the performance of the mid-cap segment of the US equity universe. Small caps are represented by the Russell 2000 Index, which measures the performance of the small-cap segment of the US equity universe. Large caps are represented by the Russell 1000 Index, which measures the performance of the large-cap segment of the US equity universe. Data Source: FactSet.

Small-Cap Stocks: When to Consider Investing

Small caps tend to perform well when: Small caps tend to perform poorly when:
The economy is rebounding from a downturn
The economy may be headed toward recession
We’re in the early stages of economic expansion
Sectors such as technology and healthcare outperform
Market sentiment shifts toward riskier assets
Interest rates are high or rising 

Small-Cap Stocks: Why Now?

Small Caps: Most Undervalued Relative to Large Caps Since the Dot-Com Era

Chart data: 1/31/94-9/30/24. Past performance does not guarantee future results. S&P SmallCap 600 Index consists of 600 small-cap stocks. The forward price-to-earnings ratio measures a company’s share price relative to its estimated future earnings-per-share and helps assess the relative value of a company’s stock. When the chart value is above 0, small-cap stocks traded at a premium relative to large-cap stocks. When the chart value is below zero, small-cap stocks traded at a discount relative to large-cap stocks. Data Source: Wolfe Research.

International Stocks: The Benefits of Diversification

US Investors Are Significantly Underweight International Stocks

As of 12/31/23. Ending values may differ from totals provided due to rounding. MSCI ACWI is a free float-adjusted market capitalization index that measures equity market performance in the global developed and emerging markets, consisting of developed and emerging market country indices. MSCI index performance is shown net of dividend withholding tax. Data Sources: FactSet and Morningstar, 4/24.

International Stocks: When to Consider Investing

International stocks tend to perform well when: International stocks tend to perform poorly when:
Value investing is in favor
Growth investing is in favor
The US dollar is weak 
The US dollar is strong
The global economy is strong
Geopolitical risks are high 

International Stocks: Why Now?

Without the Magnificent Seven, International Is Outperforming the US

Chart data: 9/30/22-9/30/24. Past performance does not guarantee future results. Indices are unmanaged and not available for direct investment. For illustrative purposes only. MSCI EAFE Index is a free float-adjusted capitalization index that is designed to measure developed-market equity performance and excludes the US and Canada. The Magnificent Seven stocks are a group of high-performing and influential companies in the US stock market: Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla. Data Sources: Refinitiv and USD.

Strategies for Equity Investors

Growth Investors seek companies with strong earnings growth and the potential for rapid price appreciation

Value Investors seek companies that are potentially undervalued based on measures such as price-to-earnings ratio, price-to-book ratio, and/or free-cash flow

Blend Investors incorporate a combination of growth stocks and value stocks into a portfolio

Price/Book is the ratio of a stock's price to its book value per share. Free cash flow represents the cash a company can generate after accounting for capital expenditures needed to maintain or maximize its asset base.

Fixed Income: Its Role in a Portfolio

Income: Bonds can provide a regular income stream

Volatility Dampener: Bonds can help reduce the effects of equity volatility within a portfolio

Capital Appreciation: Bonds can appreciate in value when they’re trading at a discount or when interest rates fall

The Fixed-Income Spectrum

Risk/Reward Characteristics for Different Types of Fixed Income

Source: Hartford Funds

Bonds and Interest Rates

When Interest Rates Go Down, Bond Prices Go Up and Vice Versa

In this example, the price of a $1,000 bond would rise to about $1,020 if interest rates fell from 3.25% to 3%. The actual amount of the price increase will vary. This diagram is for illustrative purposes only.

Data Sources: Morningstar and Hartford Funds

Fixed Income: Understanding Credit Quality

Credit quality measures a company’s ability to repay its debt and is determined by ratings agencies such as S&P, Fitch, or Moody’s

Credit Quality Explanation
AAA
Highest credit quality
AA

A
BBB
BBB-rating and above is considered “investment grade”―lower likelihood of default 
BB
Highest rating for high-yield (junk) bonds
B
 
CCC and Below
Lowest credit quality/highest risk of default

Corporate Bonds: When to Consider Investing

Corporate bonds tend to perform well when: Corporate bonds tend to perform poorly when:
Interest rates are falling 
Interest rates are rising
The economy and corporate profits are strong
The economy is in recession  
Stable or improving credit conditions
Credit agencies downgrade companies

Corporate Bonds: Why Now?

Discounted Bond Prices Now Could Mean Attractive Returns Later

Chart data: 1/76-9/24. Past performance does not guarantee future results. Bloomberg US Aggregate Bond Index is composed of securities that cover the US investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. Data Source: Bloomberg, 10/24.

Municipal Bonds: When to Consider Investing

Municipal bonds tend to perform well when: Municipal bonds tend to perform poorly when:
Interest rates are steady or falling 
Interest rates are rising
State and local economies are strong
Municipal tax revenues decline  
The tax-equivalent yield makes them attractive 
Changes in tax laws have a negative impact

Municipal Bonds: Why Now?

Municipal Bond Returns Before and After the Fed Funds Rate Peaks (1994-2024)

All charts are for informational purposes only and do not reflect the performance of any Hartford Funds affiliated Fund. Past performance does not guarantee future results. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and not available for direct investment.

Chart data: 1994-2024. Represents the average 6- and 12-month returns before and after Fed Funds rate peaks on 2/1/95, 5/16/00. 6/29/06, 12/20/18, and 7/27/23 for the Bloomberg Municipal 1-10 Year Blend (1-12) Index (Intermediate Municipal Bonds), which measures the performance of short and intermediate 1-12 Year Index components of the Municipal Bond Index—an unmanaged, market value-weighted index that covers the US investment grade, tax-exempt bond market, and the Bloomberg Municipal Bond Index (Municipal Bonds), which is designed to cover the USD-denominated long-term tax-exempt bond market. The dates 1995, 2000, 2006, 2018 and 2023 encompass the peaks of the five Fed rate hike cycles that have occurred since 1990. A ‘peak’ as the last hike where there were no higher rates up to 3 years beforehand. The federal funds rate is the target interest rate set by the Federal Open Market Committee. This target is the rate at which commercial banks borrow and lend their excess reserves to each other overnight. Data Sources: Macrobond, Bloomberg.

Government Bonds: When to Consider Investing

Government bonds tend to perform well when: Government bonds tend to perform poorly when:
The economy is facing a downturn or uncertainty
Interest rates are rising  
The economic environment is deflationary
Inflation is high and rising  
Interest rates are declining  
Higher-risk, higher-return investments are more attractive

Government Bonds: Why Now?

Falling Interest Rates Could Boost Treasuries

A basis point (bps) is a unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indices and the yield of a fixed-income security. For example, +100 bps is the equivalent of a 1% increase in interest rates. Changes to hypothetical return based on a security’s duration and convexity affect return. Duration is a measure of the sensitivity of an investment’s price to changes in interest rates. Convexity is a measure of how a bond’s duration can change based on the magnitude of an interest-rate change. Hypothetical examples are for illustrative purposes. They are not intended to represent the performance of any particular investment product. Data Sources: Bloomberg and Hartford Funds, 10/24.

What Should You Look for in an Investment?

Strong risk-adjusted performance relative to its peer group

Performance track record that doesn't depend on short bursts of exceptional performance

Smaller historical losses in down markets if capital preservation is a goal

Reasonable expenses

Investor Behavior Is Key

Missing the Market’s Best Days Could Be Costly

As of 12/31/23. Past performance does not guarantee future results. For illustrative purposes only. Data Sources: Ned Davis Research, Morningstar, and Hartford Funds, 1/24.

Investor Behavior Is Key

Buying and Selling at the Wrong Times Could Be Costly

As of 12/31/23. Performance data for indices represents a lump-sum investment in 1/1/93–12/31/23 with no withdrawals. US Equities are represented by the S&P 500 Index. US Bonds are represented by the Bloomberg US Aggregate Bond Index. Index performance is not indicative of any Hartford Funds’ products.

Average Equity Fund Investor and Average Fixed Income Fund Investor performance results are calculated using data supplied by the Investment Company Institute. Investor returns are represented by the change in total mutual fund assets after excluding sales, redemptions, and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses, and any other costs. After calculating investor returns in dollar terms, two percentages are calculated for the period examined: Total investor-return rate and annualized investor-return rate. Total investor-return rate is determined by calculating the investor-return dollars as a percentage of the net of the sales, redemptions, and exchanges for each period.

Dalbar’s Quantitative Analysis of Investor Behavior Methodology – Dalbar’s Quantitative Analysis of Investor Behavior uses data from the Investment Company Institute (ICI), Standard & Poor’s, and Bloomberg Index Products to compare mutual-fund investor returns to an appropriate set of benchmarks. Covering the period from 1/1/93–12/31/23, the study utilizes mutual-fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.” Based on this behavior, the analysis calculates the “average investor return” for various periods. These results are then compared to the returns of respective indices.

A Financial Professional Can Help You:

Stay focused on your goals and objectives

Choose the right mix of stocks, bonds, and cash

Prevent costly mistakes when markets are turbulent