Strength in Hartford AAA CLO ETF's People Pillar is partially offset by an Average Process Pillar rating, leading to a Morningstar Medalist Rating of Neutral. The portfolio maintains a sizable cost advantage over competitors, priced within the second-lowest fee quintile among peers. The strategy changed its peer group in February, moving from the Short-Term Bond category to the Ultrashort Bond Morningstar Category. 

 The strategy merits an Average Process Pillar rating. The strategy’s management team earns an Above Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People, Process and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

This team's collaboration and analytical tools are solid but concerns around portfolio construction keep the Process rating at Average.

This short duration-plus strategy stands out from most category peers and its benchmark for its high levels of credit and liquidity risk. It combines roughly 50% investment-grade corporate fare with a hefty allocation to bank loans and a dose of high-yield corporates (together often 15% to 30% of assets), while its Bloomberg 1-3 Year U.S. Government/Credit Index focuses on high-quality corporate bonds and Treasuries. Lead manager Tim Smith leans on bank-loan manager Jeff Heuer to choose the individual loans for the portfolio, which can be up to 35% of assets but often account for 15% to 20% of assets.

The strategy's unique penchant for less liquid, out-of-benchmark bank loans adds an additional layer of liquidity and credit risk that many peers balk at; bank loans are notoriously less liquid than their high-yield corporate bond counterparts because it takes days, sometimes weeks, for the seller to receive cash. This liquidity mismatch in a mutual fund, which requires daily liquidity, can cause problems in market selloffs when the manager must raise cash to meet redemptions.

Still, the team has managed liquidity risks well enough in the past through its liquidity bucket of agency mortgage-backed securities, high-quality asset-backed securities, and Treasuries. Although this helped the strategy meet outflows in early 2020, this higher-quality bucket wasn't enough to offset steep losses over the period as higher-quality bank loans, which this strategy focuses on, have sold off much more quickly than less-liquid lower-rated bank loans in recent years.

Note: The Process Pillar rating and analysis are indirectly assigned by an analyst. When an analyst covers a vehicle that follows a given strategy (as codified by Morningstar’s StrategyID data point) Morningstar maps the covered vehicle’s Process Pillar to any other uncovered vehicles that follow the same strategy (that is, share the same StrategyID). This ensures that the analyst’s view is leveraged whenever available and promotes consistency when assigning Process Pillar ratings to vehicles that follow the same strategy.

Average

Process

This strategy benefits from a deep and experienced team of managers and analysts who work well together. It earns an Above Average People rating.

Thanks to sensible succession planning, veteran leadership remains a hallmark here. As anticipated, lead manager Tim Smith will retire and withdraw from Wellington Management’s partnership effective June 30, 2024. At that time, he will hand over the management duties of Hartford Short Duration and Wellington's short-duration strategy team chair to Marc Piccuirro. The firm prepared for this transition years in advance by naming Piccuirro as a comanager alongside Smith in September 2022. Piccuirro, a 15-year Wellington veteran, has run broad fixed-income mandates for the firm's financial reserve management clients since 2015. While Piccuirro has adjusted to comanaging a fund that offers investors daily liquidity, a sufficient transition period under Smith's purview should set him up for success in managing this short-duration strategy.

Smith’s pending departure is a loss, but this strategy still benefits from strong supporting resources. To build the portfolio, Smith and Piccuirro collaborate with short-duration fixed-income managers Ryan DeGrass on investment-grade corporates and Alyssa Irving on securitized debt, who have supported this team for years but more formally took over when longtime supporting manager Nate Levy retired in June 2023, as well as 45 fixed-income credit analysts averaging 19 years of experience, as well as 14 macro analysts.

Smith is still ultimately responsible for constructing the portfolio, yet manager Jeff Heuer handles the individual security selection for the bank-loan sleeve, which has hovered between 15% and 20% of assets since 2012. This will not change under Piccuirro. Heuer began his career at Wellington in 2001 in fixed-income research and currently leads the firm's bank-loan strategy group.

Note: The People Pillar rating and analysis are indirectly assigned by an analyst. When an analyst covers a vehicle that follows a given strategy (as codified by Morningstar’s StrategyID data point), Morningstar maps the covered vehicle’s People Pillar ratings to any other uncovered vehicles that follow the same strategy (that is, share the same StrategyID). This ensures that the analyst’s view is leveraged whenever available and promotes consistency when assigning People Pillar ratings to vehicles that follow the same strategy.

Above 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 Short Duration ETF

HSRT is an actively managed fund that provides current income and long-term growth by holding a wide range of fixed income securities with a dollar-weighted average duration target of less than 3 years.

HRST is an actively managed fund that seeks to provide capital preservation and income by holding USD-denominated floating-rate CLOs rated AAA and of any maturity.

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