The Hartford MidCap Fund

Transcription

1 The Hartford Mutual Funds FUNDCOMMENTARY Second Quarter 2011 Portfolio Management: Philip W. Ruedi, CFA Mark A. Whitaker, CFA Objective: The Fund seeks long-term growth of capital. Sub-Advised by: Wellington Management Company LLP Fund Symbol: A: HFMCX Performance Review (Class A Share) As of 6/30/11 Since Inception date 12/31/97 QTR YTD 1yr 3yr 5yr 10yr Inception Excluding Sales Charge -0.80% 6.63% 32.52% 4.12% 6.20% 7.85% 12.26% Including Maximum Sales Charge of 5.5% 25.24% 2.18% 5.00% 7.24% 11.79% S&P MidCap 400 TR % 8.56% 39.38% 7.82% 6.60% 7.94% 9.68% Expenses (Class A) Net Op. Exp. 2 : 1.25% Gross Op. Exp. 3 : 1.25% US equities were relatively flat for the quarter as reactions to better-than-expected corporate earnings were tempered by fears about continuing inflationary pressures, the end of the Federal Reserve's quantitative easing program, and the possibility of contagion from European sovereign debt issues. Growth stocks outperformed value, and large cap stocks outpaced their small and mid cap peers. Six out of ten sectors in the S&P MidCap 400 Index 1 (-1%) registered declines during the quarter. The Energy (-7%) and Information Technology (-3%) sectors fell the most while Consumer Staples (+14%) and Health Care (+2%) rose the most. The Fund performed in-line with its benchmark and underperformed its Lipper peer group on a gross of fees basis for the quarter 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 Watson Pharmaceuticals Health Care 22.61% 0.42% 1.96% Tempur-Pedic International Consumer Discretionary 33.69% 0.35% 1.16% Polycom Information Technology 23.83% 0.23% 1.17% Genpact Information Technology 19.07% 0.22% 1.44% Teradata Information Technology 18.64% 0.18% 0.94% * Represents return for period held in the Portfolio or return for the entire period if not held. Table excludes securities not held in the Portfolio during the period Hlth Info Cons Mats Utils Telecom Cons Energy Fncls Ind Care Tech Disc Stpls The Fund performed in-line with its benchmark during the quarter as unfavorable selection within Industrials, Financials, and Energy offset strong security selection in the Health Care, Information Technology, and Consumer Discretionary sectors. Sector positioning, which is a fall out of the stock-by-stock selection process, detracted due mostly to an underweight to the strong-performing Consumer Staples sector Within Industrials, Lennox International s weaker-than-anticipated results raised concerns about the pace of recovery in US residential HVAC demand Insurer Genworth Financial faced lingering concerns about its US mortgage insurance business, detracting from relative performance in Financials Security selection in Health Care contributed positively to overall performance. Watson Pharmaceuticals results topped expectations on strong performance in its global generics operations. Watson Pharmaceuticals Specialty pharmaceutical company with a portfolio of branded and generic products Results topped expectations as the firm's global generics business benefited from solid organic growth and margin expansion Recently completed acquisition of a leading Pan-European generic drug development company enhances the firm's presence in Europe and expands its global supply chain Tempur-Pedic International Leading global manufacturer of premium mattresses and pillows Sales and profits exceeded expectations and the firm made progress in enhancing its product range and consumer marketing efforts Manufacturing and productivity initiatives continued to deliver significant benefits, which helped improve gross margins on a sequential basis Information Technology holdings outperformed. Polycom s results exceeded expectations, driven by broad-based demand for the firms voice and videoconferencing products and systems Page 2 Not Valid Without the Others

3 Relative Detractors and Commentary* Stock Relative End Active Company Sector Return* Impact Weight Lennox International Industrials % -0.27% 1.57% Alpha Natural Resources Energy % -0.23% 1.03% Skyworks Solutions Information Technology % -0.22% 1.23% Genworth Financial Financials % -0.19% 0.64% Jacobs Engineering Industrials % -0.18% 1.02% * Represents return for period held in the Portfolio or return for the entire period if not held. Table excludes securities not held in the Portfolio during the period. Portfolio Positioning and Outlook In Health Care, we added new positions in a number of biopharmaceutical firms, including Seattle Genetics and Incyte. We eliminated Vertex Pharmaceuticals. We retain an overweight to Information Technology. We established a position in QLIK Technologies. We eliminated Check Point Software Technologies, Micros Systems, and LAM Research. Industrials exposure decreased. We eliminated Southwest Airlines and Joy Global. Utilities exposure increased as we established a position in NRG Energy. Alpha Natural Resources US-based coal producer Results fell short of expectations primarily due to lower-than-expected volumes and higher-than-expected mining costs The acquisition of Massey Energy was completed on June 1st. The combined entity is now the largest supplier of metallurgical coal for the world's steel industry and a highly diversified supplier of thermal coal to electric utilities in the US and overseas. We maintain a positive outlook for seaborne coal markets due to growing coal demand in India and China and an expected shift of some power generation from nuclear into coal Skyworks Solutions Producer of standard and custom linear semiconductor products for end-users including smart phones and other mobile devices Shares fell due to concerns about potential competitive pressures as well as the firm's exposure to Nokia We believe market share loss concerns are overblown and expect the company's diversified business platform will enable solid revenue growth and margin expansion Sector Weights* % of Equities Active Weights versus Index Portfolio 3/31/11 Portfolio 6/30/ Hlth Info Ind Telecom Cons Energy Utils Mats Cons Fncls Care Tech Disc Stpls Port** Index** * Calculated by Sub-adviser Wellington Management Company ** End weights as of June 30, Page 3 Not Valid Without the Others

4 Select Transactions Purchases Carpenter Technology (Materials) Manufacturer, fabricator, and distributor of stainless steel and specialty metal alloys We expect that the firm will benefit from positive mix trends as it shifts production from stainless products into more profitable specialty alloys Recent capacity expansions should set the stage for the firm to capture larger volumes as demand continues to grow strongly in aerospace/energy end markets and begins to recover in industrial end markets We initiated a position NRG Energy (Utilities) Wholesale power company with generation capacity in nuclear, wind, solar, natural gas, and coal The company has earnings leverage to potential long-term tightening in natural gas/lng markets as the Japan nuclear crisis weighs on the growth in global nuclear capacity Attractive portfolio of merchant generating capacity in California, Texas, and the Northeast, along with Texas-based retail operations Sales Vertex Pharmaceuticals (Health Care) Development stage pharmaceutical company New developments in the treatment of hepatitis C virus (HCV) infection could pose a significant threat to Vertex's recently approved HCV drug telaprevir We eliminated the stock Joy Global (Industrials) Mining equipment manufacturer The stock benefited as strong order trends raised investors' confidence that mining company capital expenditures are responding to improving commodity demand and limited excess mine capacity We sold as the stock reached our valuation target Top Ten Holdings (As of 6/30/11) Company Portfolio Watson Pharmaceuticals, Inc % VeriSign, Inc % Amerisource Bergen Corp % Harley-Davidson, Inc % M&T Bank Corp % Lincare Holdings, Inc % PACCAR, Inc % Lennox International, Inc % SEI Investments Co % Genpact Ltd % % Of Portfolio % Portfolio Statistics (As of 6/30/11) 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 MidCap 400 MidCap Fund Index 1 $4.1 b % % 67% N/A 3% 0% $7.1 b $4.0 b $5.1 b $2.9 b 2.8x 2.2x 14.4% 12.5% 14.8x 14.3x Portfolio statistics are subject to change. Portfolio statistics are based upon a weighted holdings of the Fund, and generally exclude certain holdings such as short-term instruments, or holdings of issuers with zero or negative earnings). Totals may not equal 100% due to rounding. Portfolio statistics may have been computed by the Funds sub-adviser, which may vary from Fund statistics to Fund reporting for the same period. When computed by the Fund s sub-adviser, statistics may vary from Fund statistics or Fund reporting for the same period. Page 4 Not Valid Without the Others

5 1 The S&P 400 MidCap Index is an unmanaged index of common stocks of companies chosen by S&P designed to represent price movements in the midcap U.S. equity market ratios and higher forecasted growth values. 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 product lines and niche markets 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 risk 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 the 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 6/11, unless otherwise noted. MF7007 7/ 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 invests in securities of small-cap and/or mid-cap companies, which can be riskier than stocks of larger companies, because smaller companies can be young, may have limited business histories, and frequently rely on narrow Page 5 Not Valid Without the Others