The Hartford Disciplined Equity Fund

Transcription

1 The Hartford Mutual Funds FUNDCOMMENTARY First Quarter 2011 Fund Symbols: A: HAIAX Portfolio Management: Mammen Chally, CFA Objective: The Fund seeks growth of capital. Sub-Advised by: Wellington Management Company LLP Performance Review (Class A Share) As of 3/31/11 Inception date 4/30/98 QTR YTD 1 yr 3yr 5yr 10yr SI Excluding Sales Charge 6.65% 6.65% 16.26% 2.72% 2.06% 2.35% 3.14% Including Maximum Sales Charge of 5.5% 9.86% 0.80% 0.91% 1.77% 2.69% S&P 500 TR % 5.92% 15.65% 2.35% 2.62% 3.29% 3.18% Expenses (Class A) Net Op. Exp. 2 : 1.35% Gross Op. Exp. 3 : 1.47% US equities moved higher in the first quarter despite a high degree of volatility caused by unrest in North Africa and the Middle East, as well as the devastating earthquake and tsunami in Japan. Fears of a global economic slowdown, due to the Japanese earthquake and concerns about heightened geopolitical risks, were not enough to offset strong corporate earnings, generally solid economic data, and a continued accommodative Fed policy. Within the S&P 500 Index 1 (+6%), all of the ten sectors recorded positive absolute returns during the first quarter. Energy (+17%), Industrials (+9%), and Health Care (+6%) sectors led the Index 1 higher while Consumer Staples (+3%) and Utilities (+3%) lagged on a relative basis during the quarter. The Fund outperformed its benchmark and Lipper peer group on a gross of fees basis for the quarter. Upbeat equity markets were accompanied by solid performance from most of our quantitative models. The US core Contextual, bottom-up stock model produced positive performance that benefited the Fund. In US large caps, our valuation methodologies performed very well and were supported by positive performance from most of the other themes. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's 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. For more current performance information to the most recent month ended, please see Page 1 Not Valid Without the Others

2 Attribution Results and Commentary Sector Attribution* Value Added (%) Allocation Security Selection Relative Contributors and Commentary* Stock Relative End Active Company Sector Return* Impact Weight Marathon Oil Energy 44.82% 0.31% 0.98% Vertex Pharmaceuticals Health Care 36.36% 0.22% 0.60% Big Lots Consumer Discretionary 42.62% 0.21% 0.81% UnitedHealth Group Health Care 25.52% 0.18% 1.55% Microsoft Information Technology % 0.17% 0.00% * Represents return for period held in the Portfolio or return for the entire period if not held. Stocks that were not held in the Portfolio are noted with two asterisks (**) Info Hlth Cons Cons Ind Fncls Energy Telecom Utils Mats Tech Care Stpls Disc The Fund outperformed its benchmark due to strong security selection, particularly in the Information Technology and Health Care sectors. Unfavoarble security selection in Materials and sector allocation, a fallout of our bottom-up stock selection, detracted modestly from relative returns. Within Information Technology, underweight exposure to weak-performing benchmark names Microsoft, Cisco, and Intel contributed to relative performance, as did overweight positions in Accenture and ebay Exposure to biotechnology companies Vertex and Regeneron, health insurer UnitedHealth, and medical device maker St. Jude Medical aided performance within Health Care Marathon Oil Large US refiner and oil exploration company Company announced a separation of refining and oil production, which contributed to a large rally in the stock Performance was enhanced by our overweight holding Big Lots One of the largest US non-apparel close-out retailers Shares rose sharply on speculation that the firm was exploring strategic options, including a possible sale The company delivered solid sales increases driven by strong new store performance Maintains an active share repurchase program In Materials, holding greater-than-benchmark weights in Freeport McMoRan Copper and Gold, gold company Newmont Mining, and agriculture firm CF Industries detracted Page 2 Not Valid Without the Others

3 Relative Detractors and Commentary* Stock Relative End Active Company Sector Return* Impact Weight Salix Pharmaceutical Health Care % -0.23% 0.54% General Motors Consumer Discretionary % -0.18% 0.66% Goldman Sachs Financials % -0.13% 1.74% PG&E Utilities % -0.13% 1.04% Exxon Mobil Energy 15.64% -0.12% 2.54% * Represents return for period held in the Portfolio or return for the entire period if not held. Salix Pharmaceutical Specialty pharmaceutical company focusing on gastrointestinal drugs Shares came under pressure as the US FDA requested additional data on a key pipeline drug currently in Phase III We continue to hold the shares given our assessment of current and future pipeline drugs relative to the company's attractive valuation General Motors Global automotive company Shares of General Motors fell during the quarter, pressured downwards as the market considered the potential impact to future earnings from higher gasoline prices and raw material costs We continued to own the stock at the end of the period, as we believe the company's exposure to emerging markets, specifically China, and a recovering US auto market will be supportive of future earnings Portfolio Positioning and Outlook The Fund focuses on stock selection as the key driver of returns. Our portfolio construction process is based on a combination of recommendations from our Quantitative Equity (QE) Models and fundamental analyst ratings from our Global Industry Analysts. We combine these two signals while controlling for uncompensated risks and apply our proprietary transactions cost model, all with a focus on stock selection. Sector exposures are residuals from this bottom-up stock selection process and are not explicit management decisions We initiated a position in online retailer Amazon.com and added to our holdings of Kohl s and Target, increasing Consumer Discretionary exposure from an underweight to an overweight. Industrials exposure also moved to an overweight after we initiated positions in Grainger and Ametek. As a result of this bottom-up stock selection process, the Fund ended the period most overweight Information Technology and Health Care stocks and most underweight Energy and Telecommunication Services. Sector Weights* % of Equities Active Weights versus Index Portfolio 12/31/10 Portfolio 3/31/ Info Hlth Utils Cons Ind Mats Fncls Cons Telecom Energy Tech Care Disc Stpls Port** Index** * Calculated by Sub-adviser Wellington Management Company ** End weights as of March 31, Page 3 Not Valid Without the Others

4 Select Transactions Purchases Amazon.com (Consumer Discretionary) Leading global ecommerce retailer We believe there is still significant secular growth potential for online retail in the next several years; Amazon is well positioned to benefit from this as they are gaining market share in an overall growing market We used recent weakness in the stock price as an opportunity to establish a position Western Union (Information Technology) Provides money transfer and payment services worldwide Western Union's growing presence in key markets and use of new technology should lead to an improved long term growth outlook. We believe the long term growth rate of this franchise continues to be under-appreciated We initiated a position Sales Microsoft (Information Technology) Software products and services company We are concerned about the ability of Microsoft to grow revenues as customers shift their focus to smartphones and tablets, areas where Microsoft is not competitive We eliminated the position during the quarter NetApp (Information Technology) Network data storage equipment and services company We anticipate a deceleration in product growth rates and increasing competitive pressures may limit earnings estimate increases going forward Eliminated the position Top Ten Holdings (As of 3/31/11) Company Portfolio Apple, Inc. (AAPL) % Wells Fargo & Co. (WFC) % Exxon Mobil Corp. (XOM) % Oracle Corp. (ORCL) % IBM Corp. (IBM) % Philip Morris International, Inc. (PM) % Bank of America Corp. (BAC) % Occidental Petroleum Corp. (OXY) % Goldman Sachs Group, Inc. (GS) % J.P. Morgan Chase & Co. (JPM) % Total % Portfolio Statistics (As of 3/31/11) Fund Statistics* Net Assets Beta 4 R-Squared 5 Turnover 6 % in Foreign Equities Portfolio Statistics** Asset-weighted Market Cap Median-weighted Market Cap Price/Book 7 Projected EPS Growth (5-Yr) 8 Projected P/E 9 The Hartford S&P 500 Disciplined Equity Fund Index 1 *** $150 m % N/A 0% 0% $75.2 b $93.1 b $22.9 b $11.9 b 2.4x 2.3x 11.2% 10.4x 11.6x 12.1x Note: Totals may not add due to rounding. All data is based on a mutual fund. Portfolio statistics are subject to change. * Statistics may have been computed by the Funds sub-adviser, which may vary from Fund statistics to Fund reporting for the same period. ** Statistics generally are based upon a weighted average of certain holdings and exclude certain holdings (such as shortterm instruments, or holdings of issuers with zero or negative earnings). When computed by the Fund s sub-adviser, statistics may vary from Fund statistics or Fund reporting for the same period. ***Index presented for comparison purposes only and may not represent benchmark(s) identified in the Fund s prospectus or Statement of Additional Information. Page 4 Not Valid Without the Others

5 1 The S&P 500 Index is a composite of the 500 largest companies in the United States. The above index is unmanaged and unavailable for direct investment 2 Net operating expenses are the expenses you are currently paying to own the Fund. If the net operating expenses shown are lower than the gross operating expenses, then the net operating expenses reflect contractual fee waivers and expense reimbursements that may not be renewed. Contractual waivers or reimbursements remain in effect until February 29, 2012, and automatically renew for one-year terms unless terminated by the Fund s Adviser (HIFSCO) or Transfer Agent (HASCO). For more information about the fee arrangements and expiration dates, please see the expense table in the prospectus. 3 Gross operating expenses shown are before management fee waivers or expense caps. Performance information may reflect historical or current expense waivers or reimbursements, without which, performance would have been lower. For more information on fee waivers and/or expense reimbursements, please see the expense table in the prospectus. 4 Beta represents the systematic risk of a portfolio and measures its sensitivity to a benchmark. A portfolio with a beta of one is considered risky as the benchmark would therefore provide expected returns equal to those of the market during both up and down periods. A portfolio with a beta of two would move approximately twice as much as the benchmark. 5 A measure of how well two portfolios track each other. R-squared ranges between zero and 100%. An R-squared of 100% indicates perfect tracking, while an R-squared of zero indicates no tracking at all. R-squared is used in style analysis to determine how much information about a return series the style benchmark has been able to capture. The higher the R- squared, the better the benchmark. 6 The number of shares traded for a period as a percentage of the total shares in a portfolio or of an exchange. 7 Ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. 8 The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability. 9 A measure of the price-to-earnings ratio (P/E) using forecasted earnings for the P/E calculation. The earnings used are just an estimate and are not as reliable as current earnings data. The Fund may invest in foreign securities, which can be riskier than investments in U.S. securities (risks may include currency risk, illiquidity risks, and risks from substantially lower trading volume on foreign markets). The sub-adviser's investment strategy will influence performance significantly and the Fund could underperform its peers or lose money if that strategy does not perform as expected. Wellington Management Company, LLP is an independent and unaffiliated sub-adviser to The Hartford. You should carefully consider investment objectives, risks, charges, and expenses of The Hartford Mutual Funds before investing. This and other information can be found in the fund s prospectus or summary prospectus, which can be obtained from your investment representative or by calling Please read it carefully before you invest or send money. This information is written in connection with the promotion or marketing of the matter(s) addressed in this material. The information cannot be used or relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, you should consult your own tax or legal counsel for advice. The Hartford Mutual Funds are underwritten and distributed by Hartford Investment Financial Services, LLC. All information and representations herein are as of 3/11, unless otherwise noted. MF7026 5/ Page 5 Not Valid Without the Others