Hartford Municipal Opportunities’ experienced comanagers and disciplined approach are a draw, but continued turnover on this modestly sized team limits our conviction. It earns a Neutral Morningstar Medalist Rating on Hartford Municipal Opportunities ETF and most shares of its mutual fund sibling, Hartford Municipal Opportunities, except for its most expensive C share class, which is rated Negative.

The strategy benefits from veteran managers, but there’s been significant turnover on the supporting team. Comanagers Timothy Haney and Brad Libby have led this strategy since Wellington Management Company took over as the subadvisor in 2012. The actively managed exchange-traded fund was launched in late December 2017 and is run in tandem with its mutual fund sibling. Haney joined the firm nearly two decades ago and now leads Wellington's municipal-bond strategy group. Libby joined the team shortly thereafter and splits his time between portfolio management and credit analysis. The pair is supported by an additional manager focused on institutional accounts and several credit analysts and traders to manage roughly $40 billion in muni assets. While the team is experienced, the group is compact compared with other muni shops, and high analyst turnover in the past five years can cause disruptions. 

The approach remains sound despite team changes. Both vehicles invest primarily in investment-grade fare but target approximately 10%-20% in high-yield bonds, which stands out in the muni national intermediate Morningstar Category. But the team doesn't scoop up yield for the sake of it: It works with refined proprietary tools that help uncover undervalued issuers that can withstand economic stress with increasing precision. The team also utilizes Wellington’s significant analytic resources to inform portfolio decisions and integrate macroeconomic trends as well as environmental, social, and governance risk into valuation assessments. Still, there can be modest portfolio and performance discrepancies driven between the vehicles partially due to the ETF’s more volatile pattern of asset flows and its smaller asset base. While size can be a challenge, the ETF has replicated the portfolio of its mutual fund sibling as assets have grown and since late 2019 when the SEC approved Rule 6c-11 (ETF Rule), which allows the team to create custom creation/redemption baskets. 

The sometimes-larger stake in high-yield bonds relative to peers means the strategy may lag in challenging muni markets such as early 2020 and in 2022. Yet its longer-term results have been solid, buoyed in part by strong selections in healthcare bonds over this team's tenure. The lower fees and modestly higher stakes in higher-rated bonds have been an advantage for the ETF since its inception.

Analyst Rating

A compact team executes a disciplined approach to the muni market.

Associate Director

Elizabeth Foos

A value-conscious approach supported by strong credit research and analytic tools earns the strategy an Above Average Process rating.

This strategy’s ETF and mutual fund vehicles share themes and holdings, but asset base sizes and asset flow patterns can drive differences in positioning. For example, the mutual fund holds more issues (roughly 800 versus the ETF's 450 as of April 2023) and can diversify across more names. Still, as the ETF vehicle has grown and the SEC approved Rule 6c-11 (ETF Rule), the portfolio has become more diversified. That said, the managers aim to hold about 80% investment-grade bonds and 20% below-investment-grade fare in both vehicles and keep the strategy's duration within 1.0 year of its Bloomberg Municipal 1-15 Year Blend Index. Sector weights and stakes in midquality credits can deviate from those of its benchmark, however.

The team works with sophisticated proprietary analytic tools that help uncover value in the market and test potential trades to assess the impact each has on the portfolio with precision. While the firm's macro team contributes to duration positioning here, the sector allocations and security selection are driven by the managers and analyst team. The team's dedicated traders monitor liquidity trends and will pitch shorter-term trades designed to take advantage of anomalies in how various bonds and sectors are trading.

Above Average

Process

Experienced managers remain, but supporting team turnover has continued. The strategy earns an Average People Pillar rating. 

Comanagers Timothy Haney and Brad Libby have helmed this strategy since Wellington took over as the subadvisor in 2012. Together, they oversee approximately $40 billion in muni assets across various accounts at the firm. Haney joined the firm in 2005, oversees the muni bond strategy group, and focuses on portfolio construction for this strategy. Libby joined the firm in 2010 and splits his duties between portfolio construction and credit research, specializing in municipal housing and transportation bonds.

The managers are supported by another manager who is focused on institutional accounts, five research analysts, and two dedicated muni traders. That support team has experienced turnover since 2018: There have been six additions and five departures, including several internal transfers and a retirement, on an already compact team. The team’s most recent hire, credit analyst Kate Chanoux, joined this cohort in May 2023, bringing almost two decades of industry experience to the job. This mitigates some concerns, and the team has access to Wellington's broader resources, including its substantial macro research effort and a dedicated quant group. Still, given the breadth of assets under management, the team's willingness to invest in potentially notable amounts of lower-quality and unrated bonds, and the idiosyncratic nature of the muni market, this remains a relatively small team compared with higher-rated competitors.

Average

People

Hartford Funds’ investors benefit from access to strong subadvisors at a reasonable cost. The firm earns an Above Average Parent Pillar rating.

Hartford’s industry relationships are key to its success. It maintains a long-standing partnership with standout investment manager Wellington Management Company, which has run the firm's equity and fixed-income funds since 1996 and 2012, respectively. Wellington now subadvises more than half of Hartford’s $124.1 billion in fund assets. In 2016, Hartford launched strategic-beta exchange-traded funds with its acquisition of Lattice Strategies and partnered with Schroders to expand its investment platform’s offerings, especially in non-U.S. strategies.

Hartford leaves most investment decisions to its subadvisors but collaborates with them on product development, risk oversight, and distribution. The firm reorganized its sales efforts and grew its product-management capabilities in 2013. Firm leadership has since added further resources to its distribution and oversight teams, while merging and liquidating subpar offerings, and has introduced new strategies. 

Hartford has sought to provide more-competitive fees. The firm has launched share classes without embedded distribution charges and reduced fees on other share classes. Still, as most shares remain in average or costlier fee groups, there is room for improvement.

Parent

Hartford Municipal Opportunities ETF

HMOP is actively-managed to provide current income and long-term total return from a broad portfolio of municipal bonds.

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News for Hartford Municipal Opportunities ETF ETF (HMOP)