Strategic flexibility and a knowledgeable team have allowed Hartford Schroders Tax-Aware Bond ETF HTAB to effectively invest in both the taxable and tax-free bond markets through a variety of market conditions. While the team remains light on muni specialists, its thoughtful approach to sector rotation earns a Process upgrade to Above Average from Average. 

This exchange-traded fund was launched in April 2018 to mirror its older sibling, Hartford Schroders Tax-Aware Bond STWTX. Both are managed by the same team and through the same process. The strategy's emphasis on higher aftertax total returns through buying both taxable and tax-free securities means the portfolio doesn't compare neatly to its muni peers that stick almost exclusively to tax-free bonds or to its intermediate core bond Morningstar Category peers who focus on taxable debt. This strategy often holds 70% to 80% of assets in munis but will make big shifts to this allocation when its managers see more value there. In early 2020 and mid-2021, for example, the portfolio's government and corporate stakes grew to between 15% and 35%, as the team cited rich valuations in munis, while its muni allocation floated from 50% to 60%. Munis grew to between 70% and 80% of assets again throughout 2022 and 2023. Its interest-rate sensitivity has also varied significantly in the past several years. The team uses sophisticated tools and detailed quant models to support these moves, which has resulted in solid relative returns albeit with some higher volatility (measured by standard deviation). 

Schroders’ U.S. multi-asset fixed-income team has subadvised this vehicle since its inception in 2018, but several in the group have worked together for much longer. They transitioned to Schroders in 2013 when it acquired their prior firm, STW Fixed Income Management. That broadened the strategy's support staff and analytical tools, but past changes in the ranks gave us pause. The management team’s primary decision-makers for this strategy remain an experienced and knowledgeable crew, yet moderate changes to the supporting team continued into 2023, which included the loss of a longtime muni credit analyst late in the year.

The strategy's wider toolkit has allowed it to deliver solid absolute returns compared to its category peers: The fund's 1.8% annualized return from May 2018 through November 2023, beat more than three fourths of a distinct group of category rivals. That said, that came with more volatility over that period.

Analyst Rating

A thoughtful approach

Associate Director

Elizabeth Foos

A thoughtful approach that incorporates solid quantitative analytics, and allows the team to pivot between high-quality tax-free and taxable bonds in a variety of market conditions capably earns the strategy an Above Average Process rating. 

Unlike most muni strategies, which park at least 90% of assets in tax-free muni bonds, this strategy invests across the fixed-income markets, aiming to deliver solid aftertax total returns while keeping capital gains low. Although primarily focused on tax-free, investment-grade bonds, this portfolio can invest in taxable securities when its managers find valuations compelling but will use trading techniques to minimize capital gains and keep taxes lower for investors when possible. That significant stake in tax-free bonds also makes this strategy a standout in its current intermediate core bond category as most rivals in that cohort focus almost exclusively on taxable bonds.

The team collaborates with credit and quantitative analysts, traders, and economists to combine a top-down macro perspective with bottom-up research to determine sector and industry allocations and individual securities. It also uses sophisticated proprietary tools to evaluate various sustainability factors in each analysis and evaluates the portfolio's expected behavior through various interest-rate scenarios. The team will use Treasury futures to adjust duration. The portfolio's interest-rate sensitivity has varied considerably for example, duration stood at around 4.0 years for most of 2019 through the end of 2021, but it extended again throughout 2022 and 2023 to over 9.0 years in October as munis became more prominent in the portfolio. The category median duration ranged from 5.7 to 6.5 years over the same period, providing a relatively more consistent profile.

Above Average

Process

Several experienced managers lead the team here, but it remains light on muni specialists. The strategy earns an Average People rating.

The strategy’s four named managers are part of the U.S. multisector fixed-income team at Schroders, this strategy's subadvisor since mid-2016. Macroeconomics specialist Lisa Hornby joined this effort in 2019 and became head of this team in late 2020 when the firm announced that manager Andrew B.J. Chorlton would exit the strategy in early 2021 to focus on his new role as Schroders’ head of fixed income. Chorlton and comanagers Neil Sutherland and Julio Bonilla joined Schroders in 2013 from STW Fixed Income Management, where all three ran tax-aware separate-account strategies. Sutherland and Bonilla remain with this strategy. Sutherland focuses on corporate bonds, and Bonilla brings some experience with municipal bonds; he was at Wells Capital Management for a decade and focused on munis before joining this team in 2010.

The strategy's most recent recruit, manager David May, also focuses on munis. May joined Schroders in 2019 and was named here in October 2020. Before joining Schroders, May ran separately managed muni accounts at Strategic Partners Investment Advisors and Wasmer Schroeder.

These comanagers draw on at least eight other managers on the multisector team, and a significant crew of research analysts covering taxable debt across the globe. Still, that includes just two credit analysts dedicated to municipal bonds in the U.S. which is modest compared to more focused muni teams.

Bonilla and May each have between $1 and $10,000 invested in the ETF version of the strategy, while Sutherland and Hornby invest nothing.

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 Schroders Tax-Aware Bond ETF

HTAB is an actively managed fund of US investment-grade debt selected for tax-efficient cash flow. Investments include both taxable and tax-free debt, and the fund uses derivatives to supplement its tax-efficient strategy.

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News for Hartford Schroders Tax-Aware Bond ETF ETF (HTAB)