UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-23222
HARTFORD FUNDS EXCHANGE-TRADED TRUST
(Exact name of registrant as specified in charter)
690 Lee Road, Wayne, Pennsylvania 19087
(Address of Principal Executive Offices) (Zip Code)
Thomas R. Phillips, Esquire
Hartford Funds Management Company, LLC
690 Lee Road
Wayne, Pennsylvania 19087
(Name and Address of Agent for Service)
Registrants telephone number, including area code: (610) 386-4068
Date of fiscal year end: July 31
Date of reporting period: January 31, 2020
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (OMB) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
for the S&P 500 of 31.49% for calendar year 2019 that initially carried into early January 2020.
For the period, geopolitical issues provided a mixed picture. The new United States-Mexico-Canada Agreement signed in January was seen as a potential positive for North American trade. Tensions around the U.S.-China trade dispute subsided with the signing in January of a Phase One agreement on tariffs and trade reforms, while military tensions between the U.S. and Iran briefly rattled markets. In the U.S., investors appeared to take the impeachment trial of President Trump in stride.
Equities got off to a strong start in early- and mid-January before running into late-period headwinds arising from the initial effects of the emergence of the new coronavirus strain, COVID-19, originating in China. As the period ended, volatility had returned to global markets as investors began to digest the outbreaks anticipated negative impact on economic growth and global supply chains.
Prior to the coronavirus outbreak, the overall U.S. economy had begun the year in a good place, with unemployment at a 50-year low, inflation only a touch below the 2% target rate set by the U.S. Federal Reserve (Fed), and most growth forecasts optimistic for continued expansion. But the impact of the coronavirus outbreak on the global economy continued to cast a cloud over what had initially appeared to be an otherwise healthy investment environment. As a result, global markets have become volatile.
The Fed had been expected to leave rates unchanged for 2020, but was forced to dramatically change course as the dimensions of the COVID-19 pandemic began to take shape. On March 3, 2020 the Fed reduced its key interest rate by a full half-percent in an effort to preserve liquidity. Another reduction later in March took interest rates to near zero.
Needless to say, a global pandemic of unknown duration suggests a need to make careful decisions regarding your investment portfolio. As always, you should maintain a strong relationship with your financial advisor, who can guide you through shifting markets while helping you find a good fit within our family of funds.
Thank you again for investing in Hartford Exchange-Traded Funds. For the most up-to-date information on our complete selection of ETFs, please take advantage of all the resources available at hartfordfunds.com.
James Davey
President
Hartford Funds
1 | S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks. The index is unmanaged and not available for direct investment. Past performance does not guarantee future results. |
Hartford Active Fixed Income ETFs
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Financial Statements: |
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Schedules of Investments: |
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How to Obtain a Copy of each Funds Proxy Voting Policies and Voting Records |
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Approval of Investment Management and Investment Sub-Advisory Agreements |
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Hartford Municipal Opportunities ETF |
January 31, 2020 (Unaudited)
Inception 12/13/2017 (Sub-advised by Wellington Management Company LLP) |
Investment objective The Fund seeks to provide current income that is generally exempt from federal income taxes and long-term total return. |
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2 |
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Hartford Schroders Tax-Aware Bond ETF |
Fund Overview
January 31, 2020 (Unaudited)
Inception 04/18/2018 (Sub-advised by Schroder Investment Management North America Inc. |
Investment objective The Fund seeks total return on an after-tax basis. |
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3 |
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Hartford Short Duration ETF |
Fund Overview
January 31, 2020 (Unaudited)
Inception 05/30/2018 (Sub-advised by Wellington Management Company LLP) |
Investment objective The Fund seeks to provide current income and long-term total return. |
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4 |
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Hartford Total Return Bond ETF |
Fund Overview
January 31, 2020 (Unaudited)
Inception 09/27/2017 (Sub-advised by Wellington Management Company LLP) |
Investment objective The Fund seeks a competitive total return, with income as a secondary objective. |
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5 |
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Hartford Active Fixed Income ETFs |
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Hartford Active Fixed Income ETFs |
Your Funds Expenses
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including brokerage commissions paid on purchases and sales of Fund shares and (2) ongoing costs, including investment management fees and certain other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other exchange-traded funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of August 1, 2019 through January 31, 2020. To the extent a Fund was subject to acquired fund fees and expenses during the period, acquired fund fees and expenses are not included in the annualized expense ratio below.
Actual Expenses
The first set of columns of the table below provides information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled Expenses Paid During the Period to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table below provides information about hypothetical account values and hypothetical expenses based on a Funds actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in a Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of shares of the Funds. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different exchange-traded funds. In addition, if these transactional costs were included, your costs would be higher. Expense ratios may vary period to period because of various factors, such as an increase in expenses not covered by the management fee (including expenses of the independent trustees and their counsel, extraordinary expenses and interest expense). Expenses are equal to a Funds annualized expense ratio multiplied by average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
Actual Return | Hypothetical (5% return before expenses) | |||||||||||||||||||||||||||
Beginning Account Value August 1, 2019 |
Ending Account Value January 31, 2020 |
Expenses paid during the period August 1, 2019 through January 31, 2020 |
Beginning Account Value August 1, 2019 |
Ending Account Value January 31, 2020 |
Expenses paid during the period August 1, 2019 through January 31, 2020 |
Annualized expense ratio |
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Hartford Municipal Opportunities ETF |
$ | 1,000.00 | $ | 1,032.30 | $ | 1.48 | $ | 1,000.00 | $ | 1,023.68 | $ | 1.48 | 0.29 | % | ||||||||||||||
Hartford Schroders Tax-Aware Bond ETF |
$ | 1,000.00 | $ | 1,026.00 | $ | 1.99 | $ | 1,000.00 | $ | 1,023.18 | $ | 1.98 | 0.39 | % | ||||||||||||||
Hartford Short Duration ETF |
$ | 1,000.00 | $ | 1,025.10 | $ | 1.48 | $ | 1,000.00 | $ | 1,023.68 | $ | 1.48 | 0.29 | % | ||||||||||||||
Hartford Total Return Bond ETF |
$ | 1,000.00 | $ | 1,045.90 | $ | 1.49 | $ | 1,000.00 | $ | 1,023.68 | $ | 1.48 | 0.29 | % |
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7 |
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Hartford Municipal Opportunities ETF |
Schedule of Investments
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
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8 |
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Hartford Municipal Opportunities ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
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9 |
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Hartford Municipal Opportunities ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
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10 |
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Hartford Municipal Opportunities ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
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11 |
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Hartford Municipal Opportunities ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
Fair Valuation Summary
The following is a summary of the fair valuations according to the inputs used as of January 31, 2020 in valuing the Funds investments.
Description | Total | Level 1 | Level 2 | Level 3(1) | ||||||||||||
Assets |
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Municipal Bonds |
$ | 152,842,905 | $ | | $ | 152,842,905 | $ | | ||||||||
Short-Term Investments |
190,767 | 190,767 | | | ||||||||||||
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Total |
$ | 153,033,672 | $ | 190,767 | $ | 152,842,905 | $ | | ||||||||
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(1) | For the six-month period ended January 31, 2020, there were no transfers in and out of Level 3. |
The accompanying notes are an integral part of these financial statements.
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12 |
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Hartford Schroders Tax-Aware Bond ETF |
Schedule of Investments
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
13 |
|
Hartford Schroders Tax-Aware Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
14 |
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Hartford Schroders Tax-Aware Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
Futures Contracts Outstanding at January 31, 2020 | ||||||||||||||||
Description |
Number of Contracts |
Expiration Date |
Current Notional Amount |
Value and Unrealized Appreciation/ (Depreciation) |
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Short position contracts: | ||||||||||||||||
U.S. Treasury 5-Year Note Future |
22 | 03/31/2020 | $ | 2,647,047 | $ | (19,402 | ) | |||||||||
U.S. Treasury Long Bond Future |
4 | 03/20/2020 | 654,125 | (6,008 | ) | |||||||||||
U.S. Treasury Ultra Long Bond Future |
2 | 03/20/2020 | 387,375 | (3,004 | ) | |||||||||||
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Total futures contracts |
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$ | (28,414 | ) | ||||||||||||
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| See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of investments. |
The accompanying notes are an integral part of these financial statements.
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15 |
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Hartford Schroders Tax-Aware Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
Fair Valuation Summary
The following is a summary of the fair valuations according to the inputs used as of January 31, 2020 in valuing the Funds investments.
Description | Total | Level 1 | Level 2 | Level 3(1) | ||||||||||||
Assets |
||||||||||||||||
Corporate Bonds |
$ | 12,293,595 | $ | | $ | 12,293,595 | $ | | ||||||||
Municipal Bonds |
39,559,760 | | 39,559,760 | | ||||||||||||
U.S. Government Agencies |
6,671,398 | | 6,671,398 | | ||||||||||||
U.S. Government Securities |
913,300 | | 913,300 | | ||||||||||||
Short-Term Investments |
10,949,637 | 157,259 | 10,792,378 | | ||||||||||||
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Total |
$ | 70,387,690 | $ | 157,259 | $ | 70,230,431 | $ | | ||||||||
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Liabilities |
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Futures Contracts(2) |
$ | (28,414 | ) | $ | (28,414 | ) | $ | | $ | | ||||||
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Total |
$ | (28,414 | ) | $ | (28,414 | ) | $ | | $ | | ||||||
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(1) | For the six-month period ended January 31, 2020, there were no transfers in and out of Level 3. |
(2) | Derivative instruments (excluding purchased and written options, if applicable) are valued at the unrealized appreciation/(depreciation) on the investments. |
The accompanying notes are an integral part of these financial statements.
|
16 |
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Hartford Short Duration ETF |
Schedule of Investments
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
17 |
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Hartford Short Duration ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
18 |
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Hartford Short Duration ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
19 |
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Hartford Short Duration ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
20 |
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Hartford Short Duration ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
21 |
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Hartford Short Duration ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
22 |
|
Hartford Short Duration ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
23 |
|
Hartford Short Duration ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
Futures Contracts Outstanding at January 31, 2020 | ||||||||||||||||||||||
Description |
Number of Contracts |
Expiration Date |
Current Notional Amount |
Value and Unrealized Appreciation/ (Depreciation) |
||||||||||||||||||
Long position contracts: | ||||||||||||||||||||||
U.S. Treasury 2-Year Note Future |
90 | 03/31/2020 | $ | 19,472,344 | $ | 70,116 | ||||||||||||||||
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Short position contracts: | ||||||||||||||||||||||
U.S. Treasury 5-Year Note Future |
90 | 03/31/2020 | $ | 10,828,828 | $ | (94,178 | ) | |||||||||||||||
U.S. Treasury 10-Year Note Future |
23 | 03/20/2020 | 3,028,094 | (49,437 | ) | |||||||||||||||||
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Total |
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$ | (143,615 | ) | ||||||||||||||||||
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Total futures contracts |
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$ | (73,499 | ) | ||||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
|
24 |
|
Hartford Short Duration ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
Foreign Currency Contracts Outstanding at January 31, 2020 | ||||||||||||||||||||||||
Amount and Description of Currency to be Purchased |
Amount and Description of Currency to be Sold |
Counterparty | Settlement Date |
Appreciation | Depreciation | |||||||||||||||||||
222,000 | EUR | 244,511 | USD | BCLY | 02/05/20 | $ | 1,584 | $ | | |||||||||||||||
248,670 | USD | 222,000 | EUR | BCLY | 02/05/20 | 2,575 | | |||||||||||||||||
132,810 | USD | 120,000 | EUR | MSC | 02/28/20 | | (395 | ) | ||||||||||||||||
1,502,273 | USD | 1,361,000 | EUR | CBK | 02/28/20 | | (8,491 | ) | ||||||||||||||||
244,946 | USD | 222,000 | EUR | BCLY | 03/05/20 | | (1,596 | ) | ||||||||||||||||
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Total |
$ | 4,159 | $ | (10,482 | ) | |||||||||||||||||||
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| See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of investments. |
Fair Valuation Summary
The following is a summary of the fair valuations according to the inputs used as of January 31, 2020 in valuing the Funds investments.
Description |
Total | Level 1 | Level 2 | Level 3(1) | ||||||||||||
Assets |
| |||||||||||||||
Asset & Commercial Mortgage Backed Securities |
$ | 12,318,436 | $ | | $ | 12,318,436 | $ | | ||||||||
Corporate Bonds |
68,096,460 | | 68,096,460 | | ||||||||||||
Foreign Government Obligations |
632,250 | | 632,250 | | ||||||||||||
Municipal Bonds |
228,390 | | 228,390 | | ||||||||||||
Senior Floating Rate Interests |
23,050,009 | | 23,050,009 | | ||||||||||||
U.S. Government Agencies |
11,396,934 | | 11,396,934 | | ||||||||||||
Short-Term Investments |
550,072 | 550,072 | | | ||||||||||||
Foreign Currency Contracts(2) |
4,159 | | 4,159 | | ||||||||||||
Futures Contracts(2) |
70,116 | 70,116 | | | ||||||||||||
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|
|
|
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|
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Total |
$ | 116,346,826 | $ | 620,188 | $ | 115,726,638 | $ | | ||||||||
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Liabilities |
| |||||||||||||||
Foreign Currency Contracts(2) |
$ | (10,482 | ) | $ | | $ | (10,482 | ) | $ | | ||||||
Futures Contracts(2) |
(143,615 | ) | (143,615 | ) | | | ||||||||||
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Total |
$ | (154,097 | ) | $ | (143,615 | ) | $ | (10,482 | ) | $ | | |||||
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(1) | For the six-month period ended January 31, 2020, there were no transfers in and out of Level 3. |
(2) | Derivative instruments (excluding purchased and written options, if applicable) are valued at the unrealized appreciation/(depreciation) on the investments. |
The accompanying notes are an integral part of these financial statements.
|
25 |
|
Hartford Total Return Bond ETF |
Schedule of Investments
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
26 |
|
Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
27 |
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Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
28 |
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Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
29 |
|
Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
30 |
|
Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
31 |
|
Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
32 |
|
Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
33 |
|
Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
34 |
|
Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
35 |
|
Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
36 |
|
Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
37 |
|
Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
38 |
|
Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
The accompanying notes are an integral part of these financial statements.
|
39 |
|
Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
OTC Swaption Contracts Outstanding at January 31, 2020 | ||||||||||||||||||||||||||||||||||
Description |
Counter- |
Exercise Price/ FX Rate/ Rate |
Pay/ Receive Floating Rate |
Expiration Date |
Notional |
Number of Contracts |
Market Value |
Premiums Paid (Received) by Fund |
Unrealized Appreciation/ (Depreciation) |
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Purchased swaption contracts: | ||||||||||||||||||||||||||||||||||
Calls | ||||||||||||||||||||||||||||||||||
3 Month USD-LIBOR-BBA-Interest Rate Swap Expiring 08/04/57* |
HSBC | 2.45% | Pay | 08/02/27 | USD | 1,250,000 | 1,250,000 | $ | 309,125 | $ | 139,875 | $ | 169,250 | |||||||||||||||||||||
3 Month USD-LIBOR-BBA-Interest Rate Swap Expiring 09/24/59* |
DEUT | 1.85% | Pay | 09/20/29 | USD | 310,000 | 310,000 | 55,831 | 50,685 | 5,146 | ||||||||||||||||||||||||
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Total Calls |
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$ | 364,956 | $ | 190,560 | $ | 174,396 | |||||||||||||||||||||||||||
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Puts | ||||||||||||||||||||||||||||||||||
3 Month USD-LIBOR-BBA-Interest Rate Swap Expiring 08/04/57* |
BOA | 1.70% | Pay | 11/23/20 | USD | 3,630,000 | 3,630,000 | $ | 48,243 | $ | 90,932 | $ | (42,689 | ) | ||||||||||||||||||||
3 Month USD-LIBOR-BBA-Interest Rate Swap Expiring 08/04/57* |
HSBC | 2.45% | Receive | 08/02/27 | USD | 1,250,000 | 1,250,000 | 96,925 | 238,125 | (141,200 | ) | |||||||||||||||||||||||
3 Month USD-LIBOR-BBA-Interest Rate Swap Expiring 09/24/59* |
DEUT | 1.85% | Receive | 09/20/29 | USD | 310,000 | 310,000 | $ | 45,322 | 50,685 | $ | (5,363 | ) | |||||||||||||||||||||
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Total Puts |
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$ | 190,490 | $ | 379,742 | $ | (189,252 | ) | ||||||||||||||||||||||||||
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Total purchased swaption contracts |
|
$ | 555,446 | $ | 570,302 | $ | (14,856 | ) | ||||||||||||||||||||||||||
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* | Swaptions with forward premiums. |
Futures Contracts Outstanding at January 31, 2020 | ||||||||||||||||
Description |
Number of Contracts |
Expiration Date |
Current Notional Amount |
Value and Unrealized Appreciation/ (Depreciation) |
||||||||||||
Long position contracts: | ||||||||||||||||
U.S. Treasury 2-Year Note Future |
90 | 03/31/2020 | $ | 19,472,344 | $ | 70,116 | ||||||||||
U.S. Treasury Ultra Bond Future |
14 | 03/20/2020 | 2,711,625 | (3,963 | ) | |||||||||||
|
|
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Total |
|
$ | 66,153 | |||||||||||||
|
|
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Short position contracts: | ||||||||||||||||
Euro-BUXL 30-Year Bond Future |
3 | 03/06/2020 | $ | 701,158 | $ | (25,270 | ) | |||||||||
U.S. Treasury 5-Year Note Future |
169 | 03/31/2020 | 20,334,133 | (100,763 | ) | |||||||||||
U.S. Treasury 10-Year Note Future |
2 | 03/20/2020 | 263,313 | (347 | ) | |||||||||||
U.S. Treasury 10-Year Ultra Future |
123 | 03/20/2020 | 17,915,719 | (401,143 | ) | |||||||||||
U.S. Treasury Long Bond Future |
80 | 03/20/2020 | 13,082,500 | (334,160 | ) | |||||||||||
|
|
|||||||||||||||
Total |
|
$ | (861,683 | ) | ||||||||||||
|
|
|||||||||||||||
Total futures contracts |
|
$ | (795,530 | ) | ||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
|
40 |
|
Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
OTC Credit Default Swap Contracts Outstanding at January 31, 2020 | ||||||||||||||||||||||||||||||||
Reference Entity |
Counter- party |
Notional Amount(a) |
(Pay)/ Receive Fixed Rate |
Expiration Date |
Periodic Payment Frequency |
Upfront Premiums Paid |
Upfront Premiums Received |
Market Value |
Unrealized Appreciation/ (Depreciation) |
|||||||||||||||||||||||
Credit default swaps on indices: | ||||||||||||||||||||||||||||||||
Sell protection: | ||||||||||||||||||||||||||||||||
CMBX.NA.AAA.12 |
MSC | USD | 1,690,000 | 0.50% | 08/17/61 | Monthly | $ | 316 | $ | | $ | (3,800 | ) | $ | (4,116 | ) | ||||||||||||||||
CMBX.NA.AAA.12 |
MSC | USD | 8,770,000 | 0.50% | 08/17/61 | Monthly | | (70,361 | ) | (19,720 | ) | 50,641 | ||||||||||||||||||||
CMBX.NA.AAA.12 |
GSC | USD | 2,170,000 | 0.50% | 08/17/61 | Monthly | 2,122 | | (4,940 | ) | (7,062 | ) | ||||||||||||||||||||
CMBX.NA.BB.6 |
GSC | USD | 1,475,000 | 5.00% | 05/11/63 | Monthly | | (361,720 | ) | (204,908 | ) | 156,812 | ||||||||||||||||||||
CMBX.NA.BB.8 |
GSC | USD | 1,360,000 | 5.00% | 10/17/57 | Monthly | | (247,909 | ) | (160,048 | ) | 87,861 | ||||||||||||||||||||
CMBX.NA.BBB-.6 |
MSC | USD | 1,035,000 | 3.00% | 05/11/63 | Monthly | | (64,578 | ) | (63,974 | ) | 604 | ||||||||||||||||||||
CMBX.NA.BBB-.6 |
MSC | USD | 2,775,000 | 3.00% | 05/11/63 | Monthly | | (373,758 | ) | (171,866 | ) | 201,892 | ||||||||||||||||||||
CMBX.NA.BBB-.6 |
DEUT | USD | 175,000 | 3.00% | 05/11/63 | Monthly | | (24,451 | ) | (10,824 | ) | 13,627 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Total traded indices |
$ | 2,438 | $ | (1,142,777 | ) | $ | (640,080 | ) | $ | 500,259 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Total OTC contracts |
$ | 2,438 | $ | (1,142,777 | ) | $ | (640,080 | ) | $ | 500,259 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
(a) | The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement. |
Centrally Cleared Credit Default Swap Contracts Outstanding at January 31, 2020 | ||||||||||||||||||||||||||||||
Reference Entity |
Notional Amount(a) |
(Pay)/Receive Fixed Rate |
Expiration Date |
Periodic Payment Frequency |
Cost Basis |
Value | Unrealized Appreciation/ (Depreciation) |
|||||||||||||||||||||||
Credit default swaps on indices: | ||||||||||||||||||||||||||||||
Sell protection: | ||||||||||||||||||||||||||||||
CDX.EM.32.V1 |
USD | 2,385,000 | 1.00 | % | 12/20/24 | Quarterly | $ | (119,630 | ) | $ | (101,012 | ) | $ | 18,618 | ||||||||||||||||
CDX.NA.HY.33.V2 |
USD | 504,900 | 5.00 | % | 12/20/24 | Quarterly | 41,503 | 44,768 | 3,265 | |||||||||||||||||||||
CDX.NA.IG.33.V1 |
USD | 1,975,000 | 1.00 | % | 12/20/24 | Quarterly | 50,508 | 48,107 | (2,401 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||
Total traded indices |
|
$ | (27,619 | ) | $ | (8,137 | ) | $ | 19,482 | |||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||
Total Centrally Cleared Contracts |
|
$ | (27,619 | ) | $ | (8,137 | ) | $ | 19,482 | |||||||||||||||||||||
|
|
|
|
|
|
(a) | The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement. |
Centrally Cleared Interest Rate Swap Contracts Outstanding at January 31, 2020 | ||||||||||||||||||||||||||||||
Payments made |
Payments received |
Notional |
Expiration Date |
Periodic |
Upfront Premiums Paid |
Upfront Premiums Received |
Value | Unrealized Appreciation/ (Depreciation) |
||||||||||||||||||||||
1.72% Fixed |
3 Mo. USD LIBOR |
USD | 2,035,000 | 10/29/29 | Semi-Annual | $ | | $ | | $ | (57,567 | ) | $ | (57,567 | ) | |||||||||||||||
1.73% Fixed |
3 Mo. USD LIBOR |
USD | 3,385,000 | 10/29/29 | Semi-Annual | | | (97,672 | ) | (97,672 | ) | |||||||||||||||||||
1.77% Fixed |
3 Mo. USD LIBOR |
USD | 1,530,000 | 10/30/29 | Semi-Annual | | | (49,804 | ) | (49,804 | ) | |||||||||||||||||||
1.77% Fixed |
3 Mo. USD LIBOR |
USD | 1,555,000 | 10/30/29 | Semi-Annual | | | (51,278 | ) | (51,278 | ) | |||||||||||||||||||
1.77% Fixed |
3 Mo. USD LIBOR |
USD | 1,695,000 | 10/30/29 | Semi-Annual | | | (55,735 | ) | (55,735 | ) | |||||||||||||||||||
3 Mo. USD LIBOR |
2.00% Fixed |
USD | 4,135,000 | 03/21/23 | Semi-Annual | 72,597 | | (105,251 | ) | (177,848 | ) | |||||||||||||||||||
3 Mo. USD LIBOR |
2.64% Fixed |
USD | 1,280,000 | 02/01/26 | Semi-Annual | | | (89,192 | ) | (89,192 | ) | |||||||||||||||||||
3 Mo. USD LIBOR |
2.25% Fixed |
USD | 18,621,000 | 06/20/28 | Semi-Annual | 1,196,722 | | (1,239,415 | ) | (2,436,137 | ) | |||||||||||||||||||
3 Mo. USD LIBOR |
1.72% Fixed |
USD | 1,050,000 | 10/29/29 | Semi-Annual | | | (29,207 | ) | (29,207 | ) | |||||||||||||||||||
3 Mo. USD LIBOR |
1.76% Fixed |
USD | 1,690,000 | 10/30/29 | Semi-Annual | | | (54,852 | ) | (54,852 | ) | |||||||||||||||||||
3 Mo. USD LIBOR |
2.75% Fixed |
USD | 120,000 | 12/20/47 | Semi-Annual | | (2,505 | ) | (29,610 | ) | (27,105 | ) | ||||||||||||||||||
3 Mo. USD LIBOR |
2.86% Fixed |
USD | 525,000 | 02/01/49 | Semi-Annual | | | (144,042 | ) | (144,042 | ) | |||||||||||||||||||
3 Mo. USD LIBOR |
2.39% Fixed |
USD | 400,000 | 05/31/49 | Semi-Annual | | | (67,839 | ) | (67,839 | ) | |||||||||||||||||||
3 Mo. USD LIBOR |
1.79% Fixed |
USD | 100,000 | 09/24/49 | Semi-Annual | | | (2,984 | ) | (2,984 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total |
|
$ | 1,269,319 | $ | (2,505 | ) | $ | (2,074,448 | ) | $ | (3,341,262 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
41 |
|
Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
Foreign Currency Contracts Outstanding at January 31, 2020 | ||||||||||||||||||||||||
Amount and Description of Currency to be Purchased |
Amount and Description of Currency to be Sold |
Counterparty | Settlement Date |
Appreciation | Depreciation | |||||||||||||||||||
17,130,000 | EGP | 1,053,506 | USD | GSC | 03/18/20 | $ | 14,376 | $ | | |||||||||||||||
102,000 | EUR | 113,301 | USD | CBK | 03/18/20 | 76 | | |||||||||||||||||
1,000 | EUR | 1,104 | USD | GSC | 03/18/20 | 8 | | |||||||||||||||||
1,000 | EUR | 1,106 | USD | MSC | 03/18/20 | 6 | | |||||||||||||||||
1,000 | EUR | 1,109 | USD | UBS | 03/18/20 | 3 | | |||||||||||||||||
340,750,000 | JPY | 3,145,763 | USD | UBS | 02/10/20 | | (95 | ) | ||||||||||||||||
4,279,749 | USD | 6,335,000 | AUD | RBC | 02/28/20 | 36,658 | | |||||||||||||||||
364,263 | USD | 480,000 | CAD | HSBC | 02/04/20 | 1,332 | | |||||||||||||||||
385,206 | USD | 500,000 | CAD | SSG | 02/05/20 | 7,155 | | |||||||||||||||||
182,930 | USD | 240,000 | CAD | HSBC | 02/07/20 | 1,467 | | |||||||||||||||||
151,148 | USD | 200,000 | CAD | BNP | 02/12/20 | | (71 | ) | ||||||||||||||||
191,224 | USD | 250,000 | CAD | JPM | 02/13/20 | 2,201 | | |||||||||||||||||
306,422 | USD | 400,000 | CAD | MSC | 02/19/20 | 3,986 | | |||||||||||||||||
4,543,522 | USD | 5,985,000 | CAD | BMO | 02/28/20 | 18,370 | | |||||||||||||||||
103,737 | USD | 135,000 | CAD | MSC | 03/02/20 | 1,666 | | |||||||||||||||||
198,015 | USD | 260,000 | CAD | MSC | 03/09/20 | 1,433 | | |||||||||||||||||
77,009 | USD | 100,000 | CAD | MSC | 03/25/20 | 1,400 | | |||||||||||||||||
257,785 | USD | 335,000 | CAD | BNP | 03/26/20 | 4,493 | | |||||||||||||||||
152,931 | USD | 200,000 | CAD | HSBC | 03/30/20 | 1,711 | | |||||||||||||||||
298,030 | USD | 389,000 | CAD | MSC | 04/09/20 | 3,907 | | |||||||||||||||||
378,279 | USD | 500,000 | CAD | HSBC | 04/09/20 | 229 | | |||||||||||||||||
38,312 | USD | 50,000 | CAD | MSC | 04/15/20 | 507 | | |||||||||||||||||
76,495 | USD | 100,000 | CAD | MSC | 04/16/20 | 885 | | |||||||||||||||||
177,823 | USD | 235,000 | CAD | DEUT | 05/22/20 | 138 | | |||||||||||||||||
37,596 | USD | 50,000 | CAD | DEUT | 06/01/20 | | (209 | ) | ||||||||||||||||
195,151 | USD | 260,000 | CAD | UBS | 06/01/20 | | (1,438 | ) | ||||||||||||||||
86,973 | USD | 115,000 | CAD | RBS | 07/02/20 | 20 | | |||||||||||||||||
37,700 | USD | 50,000 | CAD | MSC | 07/07/20 | | (106 | ) | ||||||||||||||||
398,041 | USD | 520,000 | CAD | NAB | 08/06/20 | 4,862 | | |||||||||||||||||
91,310 | USD | 120,000 | CAD | CBK | 08/14/20 | 578 | | |||||||||||||||||
79,170 | USD | 105,000 | CAD | MSC | 08/14/20 | | (221 | ) | ||||||||||||||||
307,359 | USD | 405,000 | CAD | SCB | 09/08/20 | 1,151 | | |||||||||||||||||
470,027 | USD | 618,000 | CAD | MSC | 09/18/20 | 2,785 | | |||||||||||||||||
366,882 | USD | 485,000 | CAD | HSBC | 11/25/20 | 225 | | |||||||||||||||||
76,070 | USD | 100,000 | CAD | MSC | 11/27/20 | 471 | | |||||||||||||||||
245,711 | USD | 220,000 | EUR | CIBC | 02/28/20 | 1,502 | | |||||||||||||||||
132,810 | USD | 120,000 | EUR | MSC | 02/28/20 | | (395 | ) | ||||||||||||||||
568,458 | USD | 515,000 | EUR | CBK | 02/28/20 | | (3,212 | ) | ||||||||||||||||
4,490,712 | USD | 4,024,000 | EUR | CBK | 03/18/20 | 18,222 | (336 | ) | ||||||||||||||||
3,311 | USD | 3,000 | EUR | SSG | 03/18/20 | | (24 | ) | ||||||||||||||||
706,117 | USD | 630,000 | EUR | JPM | 05/14/20 | 3,491 | | |||||||||||||||||
78,343 | USD | 70,000 | EUR | MSC | 11/27/20 | | (607 | ) | ||||||||||||||||
663,227 | USD | 507,000 | GBP | MSC | 03/18/20 | | (5,979 | ) | ||||||||||||||||
1,822,662 | USD | 196,750,000 | JPY | JPM | 02/03/20 | 7,045 | | |||||||||||||||||
6,987,046 | USD | 750,000,000 | JPY | JPM | 02/10/20 | 63,346 | | |||||||||||||||||
1,728,393 | USD | 187,150,000 | JPY | SSG | 02/10/20 | 699 | | |||||||||||||||||
2,449,616 | USD | 265,950,000 | JPY | MSC | 02/18/20 | | (6,472 | ) | ||||||||||||||||
1,888,093 | USD | 203,700,000 | JPY | MSC | 02/25/20 | 6,260 | | |||||||||||||||||
627,363 | USD | 67,850,000 | JPY | BCLY | 03/02/20 | 845 | (526 | ) | ||||||||||||||||
183,842 | USD | 20,000,000 | JPY | MSC | 03/09/20 | | (1,071 | ) | ||||||||||||||||
189,514 | USD | 20,000,000 | JPY | MSC | 03/10/20 | 4,590 | | |||||||||||||||||
554,464 | USD | 59,900,000 | JPY | HSBC | 03/16/20 | 411 | | |||||||||||||||||
462,305 | USD | 50,350,000 | JPY | BCLY | 03/23/20 | | (3,617 | ) | ||||||||||||||||
122,785 | USD | 13,250,000 | JPY | CIBC | 03/30/20 | 121 | | |||||||||||||||||
151,893 | USD | 16,400,000 | JPY | JPM | 04/06/20 | 17 | | |||||||||||||||||
200,476 | USD | 21,850,000 | JPY | JPM | 04/13/20 | | (1,948 | ) | ||||||||||||||||
244,176 | USD | 26,600,000 | JPY | JPM | 04/27/20 | | (2,442 | ) | ||||||||||||||||
1,812,494 | USD | 196,700,000 | JPY | JPM | 05/07/20 | | (12,136 | ) | ||||||||||||||||
662,938 | USD | 13,455,000 | MXN | GSC | 06/10/21 | | (417 | ) | ||||||||||||||||
3,058,320 | USD | 4,675,000 | NZD | MSC | 04/30/20 | 29,435 | | |||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total |
$ | 248,083 | $ | (41,322 | ) | |||||||||||||||||||
|
|
|
|
| See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of investments. |
The accompanying notes are an integral part of these financial statements.
|
42 |
|
Hartford Total Return Bond ETF |
Schedule of Investments (continued)
January 31, 2020 (Unaudited)
Fair Valuation Summary
The following is a summary of the fair valuations according to the inputs used as of January 31, 2020 in valuing the Funds investments.
Description |
Total | Level 1 | Level 2 | Level 3(1) | ||||||||||||
Assets |
| |||||||||||||||
Asset & Commercial Mortgage Backed Securities |
$ | 110,951,743 | $ | | $ | 110,951,743 | $ | | ||||||||
Corporate Bonds |
192,463,265 | | 192,463,265 | | ||||||||||||
Foreign Government Obligations |
40,627,283 | | 40,627,283 | | ||||||||||||
Municipal Bonds |
6,251,355 | | 6,251,355 | | ||||||||||||
Senior Floating Rate Interests |
27,810,552 | | 27,810,552 | | ||||||||||||
U.S. Government Agencies |
321,441,549 | | 321,441,549 | | ||||||||||||
U.S. Government Securities |
156,914,865 | | 156,914,865 | | ||||||||||||
Short-Term Investments |
14,649,948 | 9,779,367 | 4,870,581 | | ||||||||||||
Purchased Options |
555,446 | | 555,446 | | ||||||||||||
Foreign Currency Contracts(2) |
248,083 | | 248,083 | | ||||||||||||
Futures Contracts(2) |
70,116 | 70,116 | | | ||||||||||||
Swaps - Credit Default(2) |
533,320 | | 533,320 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 872,517,525 | $ | 9,849,483 | $ | 862,668,042 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Foreign Currency Contracts(2) |
$ | (41,322 | ) | $ | | $ | (41,322 | ) | $ | | ||||||
Futures Contracts(2) |
(865,646 | ) | (865,646 | ) | | | ||||||||||
Swaps - Credit Default(2) |
(13,579 | ) | | (13,579 | ) | | ||||||||||
Swaps - Interest Rate(2) |
(3,341,262 | ) | | (3,341,262 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | (4,261,809 | ) | $ | (865,646 | ) | $ | (3,396,163 | ) | $ | | |||||
|
|
|
|
|
|
|
|
(1) | For the six-month period ended January 31, 2020, there were no transfers in and out of Level 3. |
(2) | Derivative instruments (excluding purchased and written options, if applicable) are valued at the unrealized appreciation/(depreciation) on the investments. |
The accompanying notes are an integral part of these financial statements.
|
43 |
|
Hartford Active Fixed Income ETFs |
Glossary (abbreviations used in the preceding Schedules of Investments)
|
44 |
|
Hartford Active Fixed Income ETFs |
Statements of Assets and Liabilities
January 31, 2020 (Unaudited)
Hartford Municipal Opportunities ETF |
Hartford Schroders Tax-Aware Bond ETF |
Hartford Short Duration ETF |
Hartford Total Return Bond ETF |
|||||||||||||
Assets: |
|
|||||||||||||||
Investments in securities, at market value(1) |
$ | 153,033,672 | $ | 70,387,690 | $ | 116,272,551 | $ | 871,666,006 | ||||||||
Cash |
| | | 264 | ||||||||||||
Foreign currency |
| | 284,311 | 244,909 | ||||||||||||
Unrealized appreciation on OTC swap contracts |
| | | 511,437 | ||||||||||||
Unrealized appreciation on foreign currency contracts |
| | 4,159 | 248,083 | ||||||||||||
Receivables: |
|
|||||||||||||||
Investment securities sold |
| | 1,180,284 | 102,142,510 | ||||||||||||
Fund shares sold |
2,119,736 | | | | ||||||||||||
Dividends and interest |
1,492,856 | 288,493 | 727,368 | 4,149,341 | ||||||||||||
Securities lending income |
| | | 1,390 | ||||||||||||
Variation margin on futures contracts |
| 41,725 | 72,454 | | ||||||||||||
Variation margin on centrally cleared swap contracts |
| | | 31,654 | ||||||||||||
Tax reclaims |
| | 3,167 | 2,105 | ||||||||||||
OTC swap contracts premiums paid |
| | | 2,438 | ||||||||||||
Other assets |
531 | | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
156,646,795 | 70,717,908 | 118,544,294 | 979,000,137 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
|
|||||||||||||||
Unrealized depreciation on foreign currency contracts |
| | 10,482 | 41,322 | ||||||||||||
Due to custodian |
| | 1,018,000 | | ||||||||||||
Obligation to return securities lending collateral |
| | | 1,217,588 | ||||||||||||
Unrealized depreciation on OTC swap contracts |
| | | 11,178 | ||||||||||||
Unfunded loan commitments |
| | | 18,013 | ||||||||||||
Payables: |
||||||||||||||||
Investment securities purchased |
3,693,804 | 1,749,409 | 2,383,075 | 310,987,940 | ||||||||||||
Investment management fees |
38,996 | 22,625 | 29,750 | 157,601 | ||||||||||||
Variation margin on futures contracts |
| | | 148,450 | ||||||||||||
Distributions payable |
290,493 | 32,578 | 240,296 | 1,200,014 | ||||||||||||
OTC swap contracts premiums received |
| | | 1,142,777 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
4,023,293 | 1,804,612 | 3,681,603 | 314,924,883 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net assets |
$ | 152,623,502 | $ | 68,913,296 | $ | 114,862,691 | $ | 664,075,254 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Summary of Net Assets: |
|
|||||||||||||||
Paid-in-capital |
$ | 143,212,381 | $ | 67,193,429 | $ | 112,308,398 | $ | 632,403,629 | ||||||||
Distributable earnings |
9,411,121 | 1,719,867 | 2,554,293 | 31,671,625 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net assets |
$ | 152,623,502 | $ | 68,913,296 | $ | 114,862,691 | $ | 664,075,254 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net asset value per share |
$ | 42.40 | $ | 21.20 | $ | 41.02 | $ | 40.87 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Shares issued and outstanding |
3,600,000 | 3,250,000 | 2,800,000 | 16,250,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cost of investments |
$ | 144,379,333 | $ | 68,718,490 | $ | 113,449,602 | $ | 835,397,547 | ||||||||
Cost of foreign currency |
$ | | $ | | $ | 284,311 | $ | 244,917 | ||||||||
(1) Includes Investment in securities on loan, at market value |
$ | | $ | | $ | | $ | 1,177,677 |
The accompanying notes are an integral part of these financial statements.
|
45 |
|
Hartford Active Fixed Income ETFs |
For the Six-Month Period Ended January 31, 2020 (Unaudited)
Hartford Municipal Opportunities ETF |
Hartford Schroders Tax-Aware Bond ETF |
Hartford Short Duration ETF |
Hartford Total Return Bond ETF |
|||||||||||||
Investment Income: |
||||||||||||||||
Interest |
$ | 2,137,757 | $ | 519,794 | $ | 2,091,110 | $ | 9,934,813 | ||||||||
Securities lending |
| | 281 | 4,790 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total investment income, net |
2,137,757 | 519,794 | 2,091,391 | 9,939,603 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Expenses: |
||||||||||||||||
Investment management fees |
222,043 | 94,383 | 170,755 | 895,783 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total expenses, net |
222,043 | 94,383 | 170,755 | 895,783 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Investment Income (Loss) |
1,915,714 | 425,411 | 1,920,636 | 9,043,820 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Realized Gain (Loss) on Investments, Other Financial Instruments and Foreign Currency Transactions: |
||||||||||||||||
Net realized gain (loss) on investments |
935,691 | 102,363 | 269,224 | 8,763,163 | ||||||||||||
Net realized gain (loss) on purchased options contracts |
| | | 131,239 | ||||||||||||
Net realized gain (loss) on futures contracts |
| 1,587 | (142,253 | ) | (1,142,601 | ) | ||||||||||
Net realized gain (loss) on written options contracts |
| | | 134,940 | ||||||||||||
Net realized gain (loss) on swap contracts |
| | | (196,486 | ) | |||||||||||
Net realized gain (loss) on foreign currency contracts |
| | (86,380 | ) | 465,662 | |||||||||||
Net realized gain (loss) on other foreign currency transactions |
| | (1,275 | ) | (6,565 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Realized Gain (Loss) on Investments, Other Financial Instruments and Foreign Currency Transactions |
935,691 | 103,950 | 39,316 | 8,149,352 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Changes in Unrealized Appreciation (Depreciation) of Investments, Other Financial Instruments and Foreign Currency Transactions: |
||||||||||||||||
Net unrealized appreciation (depreciation) of investments |
2,020,396 | 989,740 | 918,869 | 10,697,507 | ||||||||||||
Net unrealized appreciation (depreciation) of purchased options contracts |
| | | 170,607 | ||||||||||||
Net unrealized appreciation (depreciation) of futures contracts |
| (21,678 | ) | 23,712 | 453,853 | |||||||||||
Net unrealized appreciation (depreciation) of swap contracts |
| | | (901,615 | ) | |||||||||||
Net unrealized appreciation (depreciation) of foreign currency contracts |
| | (13,008 | ) | 137,759 | |||||||||||
Net unrealized appreciation (depreciation) of translation of other assets and liabilities in foreign currencies |
| | (912 | ) | 10,509 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Changes in Unrealized Appreciation (Depreciation) of Investments, Other Financial Instruments and Foreign Currency Transactions |
2,020,396 | 968,062 | 928,661 | 10,568,620 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Gain (Loss) on Investments, Other Financial Instruments and Foreign Currency Transactions |
2,956,087 | 1,072,012 | 967,977 | 18,717,972 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Increase (Decrease) in Net Assets Resulting from Operations |
$ | 4,871,801 | $ | 1,497,423 | $ | 2,888,613 | $ | 27,761,792 | ||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
46 |
|
Hartford Active Fixed Income ETFs |
Statements of Changes in Net Assets
Hartford Municipal Opportunities ETF |
Hartford Schroders Tax-Aware Bond ETF |
|||||||||||||||
For the Six-Month Period Ended January 31, 2020 (Unaudited) |
For the Year Ended July 31, 2019 |
For the Six-Month Period Ended January 31, 2020 (Unaudited) |
For the Year Ended July 31, 2019 |
|||||||||||||
Operations: |
||||||||||||||||
Net investment income (loss) |
$ | 1,915,714 | $ | 2,499,613 | $ | 425,411 | $ | 550,170 | ||||||||
Net realized gain (loss) on investments, other financial instruments and foreign currency transactions |
935,691 | 395,339 | 103,950 | 325,075 | ||||||||||||
Net changes in unrealized appreciation (depreciation) of investments, other financial instruments and foreign currency transactions |
2,020,396 | 6,692,181 | 968,062 | 695,168 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Increase (Decrease) in Net Assets Resulting from Operations |
4,871,801 | 9,587,133 | 1,497,423 | 1,570,413 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Distributions to Shareholders |
(2,457,075 | ) | (2,487,558 | ) | (755,826 | ) | (563,102 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Fund Share Transactions: |
||||||||||||||||
Sold |
27,286,758 | 120,705,261 | 47,225,213 | 5,235,438 | ||||||||||||
Redeemed |
(16,861,884 | ) | | (6,323,537 | ) | | ||||||||||
Other Capital |
11,037 | 51,773 | 40,162 | 3,927 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase from capital share transactions |
10,435,911 | 120,757,034 | 40,941,838 | 5,239,365 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Increase (Decrease) in Net Assets |
12,850,637 | 127,856,609 | 41,683,435 | 6,246,676 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Assets: |
||||||||||||||||
Beginning of period |
139,772,865 | 11,916,256 | 27,229,861 | 20,983,185 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
End of period |
$ | 152,623,502 | $ | 139,772,865 | $ | 68,913,296 | $ | 27,229,861 | ||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
47 |
|
Hartford Active Fixed Income ETFs |
Statements of Changes in Net Assets (continued)
Hartford Short Duration ETF |
Hartford Total Return Bond ETF |
|||||||||||||||
For the Six-Month Period Ended January 31, 2020 (Unaudited) |
For the Year Ended July 31, 2019 |
For the Six-Month Period Ended January 31, 2020 (Unaudited) |
For the Year Ended July 31, 2019 |
|||||||||||||
Operations: |
||||||||||||||||
Net investment income (loss) |
$ | 1,920,636 | $ | 3,147,035 | $ | 9,043,820 | $ | 14,344,126 | ||||||||
Net realized gain (loss) on investments, other financial instruments and foreign currency transactions |
39,316 | (191,334 | ) | 8,149,352 | 9,430,606 | |||||||||||
Net changes in unrealized appreciation (depreciation) of investments, other financial instruments and foreign currency transactions |
928,661 | 1,859,440 | 10,568,620 | 22,711,636 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Increase (Decrease) in Net Assets Resulting from Operations |
2,888,613 | 4,815,141 | 27,761,792 | 46,486,368 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Distributions to Shareholders |
(2,009,672 | ) | (3,112,779 | ) | (27,631,737 | ) | (14,404,534 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Fund Share Transactions: |
||||||||||||||||
Sold |
18,403,112 | 96,183,975 | 73,365,593 | 559,765,672 | ||||||||||||
Redeemed |
(14,324,483 | ) | (8,032,678 | ) | | (46,687,112 | ) | |||||||||
Other Capital |
16,364 | 52,108 | 58,692 | 525,462 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase from capital share transactions |
4,094,993 | 88,203,405 | 73,424,285 | 513,604,022 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Increase (Decrease) in Net Assets |
4,973,934 | 89,905,767 | 73,554,340 | 545,685,856 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Assets: |
||||||||||||||||
Beginning of period |
109,888,757 | 19,982,990 | 590,520,914 | 44,835,058 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
End of period |
$ | 114,862,691 | $ | 109,888,757 | $ | 664,075,254 | $ | 590,520,914 | ||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
48 |
|
Hartford Active Fixed Income ETFs |
Selected Per-Share Data(1) | Ratios and Supplemental Data | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Asset Value at Beginning of Period |
Net Investment Income (Loss) |
Net Realized and Unrealized Gain (Loss) on Investments |
Total from Investment Operations |
Other Capital |
Dividends from Net Investment Income |
Distributions from Capital Gains |
Total Dividends and Distributions |
Net Asset Value at End of Period |
Total Return(2) |
Net Assets at End of Period (000s) |
Ratio of Expenses to Average Net Assets Before Adjust- ments(3) |
Ratio of Expenses to Average Net Assets After Adjust- ments |
Ratio of Net Investment Income (Loss) to Average Net Assets |
Portfolio Turnover(4) |
||||||||||||||||||||||||||||||||||||||||||||||
Hartford Municipal Opportunities ETF | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the Six-Month Period Ended January 31, 2020 (Unaudited) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 41.72 | $ | 0.53 | (11) | $ | 0.82 | (11) | $ | 1.35 | $ | | $ | (0.52 | ) | $ | (0.15 | ) | $ | (0.67 | ) | $ | 42.40 | 3.23 | %(5) | $ | 152,624 | 0.29 | %(6) | 0.29 | %(6) | 2.50 | %(6)(11) | 22 | % | ||||||||||||||||||||||||||
For the Year Ended July 31, 2019 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 39.72 | $ | 1.07 | $ | 1.92 | $ | 2.99 | $ | 0.02 | $ | (1.01 | ) | $ | | $ | (1.01 | ) | $ | 41.72 | 7.68 | % | $ | 139,773 | 0.29 | % | 0.29 | % | 2.65 | % | 32 | % | |||||||||||||||||||||||||||||
For the Period Ended July 31, 2018(7) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 40.00 | $ | 0.54 | $ | (0.37 | ) | $ | 0.17 | $ | 0.07 | $ | (0.52 | ) | $ | | $ | (0.52 | ) | $ | 39.72 | 0.60 | %(5) | $ | 11,916 | 0.34 | %(6) | 0.34 | %(6) | 2.18 | %(6) | 37 | % | ||||||||||||||||||||||||||||
Hartford Schroders Tax-Aware Bond ETF | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the Six-Month Period Ended January 31, 2020 (Unaudited) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 20.95 | $ | 0.19 | $ | 0.33 | $ | 0.52 | $ | 0.02 | $ | (0.19 | ) | $ | (0.10 | ) | $ | (0.29 | ) | $ | 21.20 | 2.60 | %(5) | $ | 68,913 | 0.39 | %(6) | 0.39 | %(6) | 1.76 | %(6) | 112 | % | ||||||||||||||||||||||||||||
For the Year Ended July 31, 2019 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 19.98 | $ | 0.51 | $ | 0.99 | $ | 1.50 | $ | | $ | (0.53 | ) | $ | | $ | (0.53 | ) | $ | 20.95 | 7.62 | % | $ | 27,230 | 0.39 | % | 0.39 | % | 2.55 | % | 165 | % | |||||||||||||||||||||||||||||
For the Period Ended July 31, 2018(8) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 20.00 | $ | 0.11 | $ | (0.06 | ) | $ | 0.05 | $ | 0.02 | $ | (0.09 | ) | $ | | $ | (0.09 | ) | $ | 19.98 | 0.37 | %(5) | $ | 20,983 | 0.39 | %(6) | 0.39 | %(6) | 1.93 | %(6) | 60 | % | ||||||||||||||||||||||||||||
Hartford Short Duration ETF | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the Six-Month Period Ended January 31, 2020 (Unaudited) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 40.70 | $ | 0.67 | (12) | $ | 0.33 | (12) | $ | 1.00 | $ | 0.01 | $ | (0.69 | ) | $ | | $ | (0.69 | ) | $ | 41.02 | 2.51 | %(5) | $ | 114,863 | 0.29 | %(6) | 0.29 | %(6) | 3.26 | %(6)(12) | 15 | % | |||||||||||||||||||||||||||
For the Year Ended July 31, 2019 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 39.97 | $ | 1.38 | $ | 0.64 | $ | 2.02 | $ | 0.02 | $ | (1.31 | ) | $ | | $ | (1.31 | ) | $ | 40.70 | 5.20 | % | $ | 109,889 | 0.29 | % | 0.29 | % | 3.45 | % | 28 | % | |||||||||||||||||||||||||||||
For the Period Ended July 31, 2018(9) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 40.00 | $ | 0.19 | $ | (0.09 | ) | $ | 0.10 | $ | 0.02 | $ | (0.15 | ) | $ | | $ | (0.15 | ) | $ | 39.97 | 0.31 | %(5) | $ | 19,983 | 0.29 | %(6) | 0.29 | %(6) | 2.75 | %(6) | 1 | % | ||||||||||||||||||||||||||||
Hartford Total Return Bond ETF | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the Six-Month Period Ended January 31, 2020 (Unaudited) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 40.87 | $ | 0.61 | (13) | $ | 1.22 | (13) | $ | 1.83 | $ | | $ | (0.78 | ) | $ | (1.05 | ) | $ | (1.83 | ) | $ | 40.87 | 4.59 | %(5) | $ | 664,075 | 0.29 | %(6) | 0.29 | %(6) | 2.93 | %(6)(13) | 27 | % | ||||||||||||||||||||||||||
For the Year Ended July 31, 2019 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 38.99 | $ | 1.30 | $ | 1.77 | $ | 3.07 | $ | 0.05 | $ | (1.24 | ) | $ | | $ | (1.24 | ) | $ | 40.87 | 8.14 | % | $ | 590,521 | 0.29 | % | 0.29 | % | 3.30 | % | 54 | % | |||||||||||||||||||||||||||||
For the Period Ended July 31, 2018(10) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 40.00 | $ | 0.77 | $ | (1.14 | ) | $ | (0.37 | ) | $ | 0.08 | $ | (0.72 | ) | $ | | $ | (0.72 | ) | $ | 38.99 | (0.71 | )%(5) | $ | 44,835 | 0.38 | %(6) | 0.38 | %(6) | 2.35 | %(6) | 46 | % |
(1) | Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted. |
(2) | Total return is calculated assuming a hypothetical purchase of beneficial shares on the opening of the first day at the net asset value and a sale on the closing of the last day at the net asset value of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at market price at the end of the distribution day. |
(3) | There were no waivers or reimbursements for the periods shown. |
(4) | Portfolio turnover rate excludes securities received or delivered from in-kind processing of creations or redemptions. |
(5) | Not annualized. |
(6) | Annualized. |
(7) | Commenced operations on December 13, 2017. |
(8) | Commenced operations on April 18, 2018. |
(9) | Commenced operations on May 30, 2018. |
(10) | Commenced operations on September 27, 2017. |
(11) | FASB issued ASU 2017-08 to amend the amortization period to the earliest call date for purchased callable debt securities held at a premium. Effective January 1, 2019, the Fund amended its amortization policy and the effect of this change for the six months ended January 31, 2020 was an increase to net investment income per share for $0.01, decrease to net realized and unrealized gain (loss) on investments for $(0.01) and an increase to ratio of net investment income to average net assets for 0.04%. Per share data and ratios for periods prior to January 31, 2020 have not been restated to reflect this change in presentation. |
(12) | FASB issued ASU 2017-08 to amend the amortization period to the earliest call date for purchased callable debt securities held at a premium. Effective January 1, 2019, the Fund amended its amortization policy and the effect of this change for six months ended January 31, 2020 was an increase to net investment income per share for less than $(0.005), decrease to net realized and unrealized gain (loss) to investments for less than $(0.005), and an increase to ratio of net investment income to average net assets for less than $(0.005). Per share data and ratios for periods prior to January 31, 2020 have not been restated to reflect this change in presentation. |
(13) | FASB issued ASU 2017-08 to amend the amortization period to the earliest call date for purchased callable debt securities held at a premium. Effective January 1, 2019, the Fund amended its amortization policy and the effect of this change for the six months ended January 31, 2020 was a decrease to net investment income per share for less than $(0.005), increase to net realized and unrealized gain (loss) on investments for less than $0.005 and a decrease to ratio of net investment income to average net assets of (0.02)%. Per share data and ratios for periods prior to January 31, 2020 have not been restated to reflect this change in presentation. |
The accompanying notes are an integral part of these financial statements.
|
49 |
|
Hartford Active Fixed Income ETFs |
January 31, 2020 (Unaudited)
1. | Organization: |
Hartford Funds Exchange-Traded Trust (the Trust) is an open-end registered management investment company comprised of four operational series as of January 31, 2020. Financial statements for the series of the Trust listed below (each, a Fund and collectively, the Funds) are included in this report.
Hartford Funds Exchange-Traded Trust:
Hartford Municipal Opportunities ETF (the Municipal Opportunities ETF)
Hartford Schroders Tax-Aware Bond ETF (the Tax-Aware Bond ETF)
Hartford Short Duration ETF (the Short Duration ETF)
Hartford Total Return Bond ETF (the Total Return Bond ETF)
Municipal Opportunities ETF commenced operations on December 13, 2017. Total Return Bond ETF commenced operations on September 27, 2017. Tax-Aware Bond ETF commenced on operations on April 18, 2018. Short Duration ETF commenced operation on May 30, 2018. Each Fund is an actively managed, exchange-traded fund (ETF) that trades on an exchange like other publicly traded securities. Shares of Municipal Opportunities ETF, Tax-Aware Bond ETF and Total Return Bond ETF are listed and traded on NYSE Arca, Inc. (NYSE Arca). Shares of Short Duration ETF are listed and traded on Cboe BZX Exchange, Inc. (Cboe BZX). Each share of a Fund represents a partial ownership in securities held by the Fund. Shares of a Fund may be purchased or redeemed directly from the Fund in Creation Units at net asset value (NAV) only by certain large institutional investors (Authorized Participants) who have entered into agreements with ALPS Distributors, Inc. (ALPS or the Distributor), the Funds Distributor.
The assets of each Fund are separate, and a shareholders interest is limited to the Fund in which shares are held. The Trust was organized as a Delaware statutory trust on September 20, 2010 and is registered with the Securities and Exchange Commission (the SEC) under the Investment Company Act of 1940, as amended (the 1940 Act). The shares of the Funds are registered under the Securities Act of 1933, as amended (the Securities Act). Each Fund is a diversified open-end management investment company. Each Fund applies specialized accounting and reporting standards under Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services Investment Companies.
2. | Significant Accounting Policies: |
The following is a summary of significant accounting policies of each Fund used in the preparation of its financial statements, which are in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP). The preparation of financial statements in accordance with U.S. GAAP may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
a) | Determination of Net Asset Value The NAV of each Funds shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the NYSE Close) on each day that the New York Stock Exchange (the Exchange) is open (Valuation Date). If the Exchange is closed due to weather or other extraordinary circumstances on a day it would typically be open for business, each Fund may treat such day as a typical business day and accept creation and redemption orders and calculate each Funds NAV in accordance with applicable law. The net asset value for the shares is determined by dividing the value of the Funds net assets attributable to the shares by the number of shares outstanding. Information that becomes known to the Funds after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined earlier that day. |
b) | Investment Valuation and Fair Value Measurements For purposes of calculating the NAV of the shares of each Fund, portfolio securities and other assets held in a Funds portfolio for which market prices are readily available are valued at market value. Market value is generally determined on the basis of official close price or last reported trade price. If no trades were reported, market value is based on prices obtained from a quotation reporting system, established market makers (including evaluated prices), or independent pricing services. Pricing vendors may use matrix pricing or valuation models that utilize certain inputs and assumptions to derive values, including transaction data, credit quality information, general market conditions, news, and other factors and assumptions. |
If market prices are not readily available or are deemed unreliable, a Fund will use the fair value of the security or other instrument as determined in good faith under policies and procedures established by and under the supervision of the Board of Trustees of the Trust (Valuation Procedures). Market prices are considered not readily available where there is an absence of current or reliable market-based data (e.g., trade information or broker quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of a Funds portfolio holdings or assets. In addition, market prices are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the securities or other instruments trade do not open for trading for the entire day and no other market prices are available. Fair value pricing is subjective in nature and the use of fair value pricing by a Fund may cause the NAV of its shares to differ significantly from the NAV that would have been calculated using market prices at the close of the exchange on which a portfolio holding is primarily traded. There can be no assurance that a Fund could obtain the fair value assigned to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
|
50 |
|
Hartford Active Fixed Income ETFs |
Notes to Financial Statements (continued)
January 31, 2020 (Unaudited)
Securities and other instruments that are primarily traded on foreign markets may trade on days that are not business days of the Funds. The value of the foreign securities or other instruments in which a Fund invests may change on days when a shareholder will not be able to purchase, sell or redeem shares of the Fund.
Fixed income investments (other than short-term obligations) held by a Fund are normally valued at prices supplied by independent pricing services in accordance with the Valuation Procedures. Short-term investments maturing in 60 days or less are generally valued at amortized cost if their original term to maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if the original term exceeded 60 days.
Exchange-traded derivatives, such as options, futures and options on futures, are valued at the last sale price determined by the exchange where such instruments principally trade as of the close of such exchange (Exchange Close). If a last sale price is not available, the value will be the mean of the most recently quoted bid and ask prices as of the Exchange Close. If a mean of the bid and ask prices cannot be calculated for the day, the value will be the most recently quoted bid price as of the Exchange Close. Over-the-counter derivatives are normally valued based on prices supplied by independent pricing services in accordance with the Valuation Procedures.
Investments valued in currencies other than U.S. dollars are converted to U.S. dollars using the prevailing spot currency exchange rates obtained from independent pricing services for calculation of the NAV. As a result, the NAV of a Funds shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of securities or other instruments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the Exchange is closed and the market value may change on days when an investor is not able to purchase, redeem or sell shares of a Fund.
Foreign currency contracts represent agreements to exchange currencies on specific future dates at predetermined rates. Foreign currency contracts are valued using foreign currency exchange rates and forward rates as provided by an independent pricing service on the Valuation Date.
Investments in open-end mutual funds, if any, are valued at the respective NAV of each open-end mutual fund on the Valuation Date. Shares of investment companies listed and traded on an exchange are valued in the same manner as any exchange-listed equity security. Such open-end mutual funds and listed investment companies may use fair value pricing as disclosed in their prospectuses.
Financial instruments for which prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers that make markets in the respective financial instrument in accordance with the Valuation Procedures.
U.S. GAAP defines fair value as the price that a Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category of assets and liabilities. Various inputs are used in determining the fair value of each Funds investments. These inputs are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
| Level 1 Quoted prices in active markets for identical investments. Level 1 may include exchange-traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange-traded funds, rights and warrants. |
| Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are valued using independent pricing services; senior floating rate interests, which are valued using an aggregate of dealer bids; short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract. |
| Level 3 Significant unobservable inputs that are supported by limited or no market activity. Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation of exit price. |
The Board of Trustees (the Board) has delegated the day-to-day responsibility for implementing the Valuation Procedures to the Valuation Committee. The Valuation Committee will consider all relevant factors in determining an investments fair value, and may seek the advice of such Funds sub-adviser as applicable, knowledgeable brokers, and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Board. Valuation levels are not necessarily indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
c) | Investment Transactions and Investment Income Investment transactions are recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses are determined on the basis of identified cost. |
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Notes to Financial Statements (continued)
January 31, 2020 (Unaudited)
The trade date for senior floating rate interests purchased in the primary loan market is considered the date on which the loan allocations are determined. The trade date for senior floating rate interests purchased in the secondary loan market is the date on which the transaction is entered into.
Dividend income from domestic securities is accrued on the ex-dividend date. In general, dividend income from foreign securities is recorded on the ex-date; however, dividend notifications in certain foreign jurisdictions may not be available in a timely manner and as a result, a Fund will record the dividend as soon as the relevant details (i.e., rate per share, payment date, shareholders of record, etc.) are publicly available. Interest income, including amortization of premium, accretion of discounts, inflation adjustments and additional principal received in-kind in lieu of cash, is accrued on a daily basis. Paydown gains and losses on mortgage-related and other asset-backed securities are included in interest income in the Statements of Operations, as applicable.
Please refer to Note 8 for Securities Lending information.
d) | Taxes A Fund may be subject to taxes imposed on realized gains on securities of certain foreign countries in which such Fund invests. A Fund may also be subject to taxes withheld on foreign dividends and interest from securities in which a Fund invests. The amount of any foreign taxes withheld and foreign tax expense is included on the accompanying Statements of Operations as a reduction to net investment income or net realized gain on investments in these securities, if applicable. |
e) | Foreign Currency Transactions Assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the Valuation Date. Purchases and sales of investments, income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions. |
A Fund does not isolate that portion of portfolio investment valuation resulting from fluctuations in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of investments held. Exchange rate fluctuations are included with the net realized and unrealized gain or loss on investments in the accompanying financial statements.
Net realized foreign exchange gains or losses arise from sales of foreign currencies and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates.
f) | Dividend Distributions to Shareholders Dividends are declared pursuant to a policy adopted by the Board. Dividends and/or distributions to shareholders are recorded on ex-date. The policy of each Fund is to pay dividends from net investment income, if any, monthly. Dividends from realized gains, if any, are paid at least once a year. Dividends may be declared and paid more frequently or at any other times to comply with the distribution requirements of the Internal Revenue Code. |
Income dividends and capital gains distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP with respect to character and timing (see Federal Income Taxes: Distributions and Components of Distributable Earnings and Reclassification of Capital Accounts notes).
3. | Securities and Other Investments: |
a) | Restricted Securities Each Fund may invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. Information regarding restricted securities, if applicable, is included at the end of each Funds Schedule of Investments. |
b) | Investments Purchased on a When-Issued or Delayed-Delivery Basis Delivery and payment for investments that have been purchased by a Fund on a forward commitment, or when-issued or delayed-delivery basis, take place beyond the customary settlement period. A Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell delayed-delivery investments before they are delivered, which may result in a realized gain or loss. During this period, such investments are subject to market fluctuations, and a Fund identifies investments segregated in its records with a value at least equal to the amount of the commitment. See each Funds Schedule of Investments, if applicable, for when-issued or delayed-delivery investments as of January 31, 2020. |
In connection with a Funds ability to purchase investments on a when-issued or forward commitment basis, the Fund may enter into to-be announced (TBA) commitments. TBA commitments are forward agreements for the purchase or sale of mortgage-backed securities for a fixed price, with payment and delivery on an agreed-upon future settlement date. The specific securities to be delivered are not identified at the trade date; however, delivered securities must meet specified terms, including issuer, rate and mortgage terms. Although a Fund may enter into TBA commitments with the intention of acquiring or delivering securities for its portfolio, the Fund can extend the settlement date, roll the transaction, or dispose of a commitment prior to settlement if deemed appropriate to do so. If the TBA commitment is closed through the acquisition of an offsetting TBA commitment, a Fund realizes a gain or loss. In a TBA roll transaction, a Fund generally purchases or sells the initial TBA commitment prior to the agreed upon settlement date and enters into a new TBA commitment for future delivery or
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Notes to Financial Statements (continued)
January 31, 2020 (Unaudited)
receipt of the mortgage backed securities. TBA commitments involve a risk of loss if the value of the security to be purchased or sold declines or increases, respectively, prior to settlement date. These transactions are excluded from a Funds portfolio turnover rate. See each Funds Schedule of Investments, if applicable, for TBA commitments as of January 31, 2020.
c) | Senior Floating Rate Interests Certain Funds may invest in senior floating rate interests. Senior floating rate interests generally hold the most senior position in the capital structure of a business entity (the Borrower), are typically secured by specific collateral and have a claim on the assets and/or stock of the Borrower that is senior to that held by subordinated debtholders and stockholders of the Borrower. Senior floating rate interests are typically structured and administered by a financial institution that acts as the agent of the lenders participating in the senior floating rate interest. A Fund may invest in multiple series or tranches of a senior floating rate interest, which may have varying terms and carry different associated risks. A Fund may also enter into unfunded loan commitments, which are contractual obligations for future funding. Unfunded loan commitments may include revolving credit facilities, which may obligate the Fund to supply additional cash to the Borrower on demand. Unfunded loan commitments represent a future obligation in full. A Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a senior floating rate interest. In certain circumstances, a Fund may receive various fees upon the restructure of a senior floating rate interest by a Borrower. Fees earned/paid may be recorded as a component of income or realized gain/loss in the Statements of Operations. |
Senior floating rate interests are typically rated below-investment-grade, which suggests they are more likely to default and generally pay higher interest rates than investment-grade loans. A default could lead to non-payment of income, which would result in a reduction of income to a Fund, and there can be no assurance that the liquidation of any collateral would satisfy the Borrowers obligation in the event of non-payment of scheduled interest or principal payments, or that such collateral could be readily liquidated. See each Funds Schedule of Investments, if applicable, for outstanding senior floating rate interests as of January 31, 2020.
d) | Mortgage-Related and Other Asset-Backed Securities A Fund may invest in mortgage-related and other asset-backed securities. These securities include mortgage pass-through securities, collateralized mortgage obligations, commercial mortgage-backed securities, stripped mortgage-backed securities, asset-backed securities, collateralized debt obligations and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. Mortgage-related securities are created from pools of residential or commercial mortgage loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and others. Asset-backed securities are created from many types of assets, including auto loans, credit card receivables, home equity loans, and student loans. These securities provide a monthly payment that consists of both interest and principal payments. Interest payments may be determined by fixed or adjustable rates. The rate of prepayments on underlying mortgages will affect the price and volatility of a mortgage-related security, and may have the effect of shortening or extending the effective duration of the security relative to what was anticipated at the time of purchase. The timely payment of principal and interest of certain mortgage-related securities is guaranteed by the full faith and credit of the United States Government. Mortgage-related and other asset-backed securities created and guaranteed by non-governmental issuers, including government-sponsored corporations, may be supported by various forms of insurance or guarantees, but there can be no assurance that the private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. See each Funds Schedule of Investments, if applicable, for mortgage-related and other asset-backed securities as of January 31, 2020. |
4. | Financial Derivative Instruments: |
The following disclosures contain information on how and why a Fund may use derivative instruments, the credit-risk-related contingent features in certain derivative instruments, and how derivative instruments affect a Funds financial position and results of operations. The location and fair value amounts of these instruments on the Statements of Assets and Liabilities and the realized gains and losses and changes in unrealized gains and losses on the Statements of Operations, each categorized by type of derivative contract, are included in the following Additional Derivative Instrument Information footnote. The derivative instruments outstanding as of period-end are disclosed in the notes to the Schedules of Investments, if applicable. The amounts of realized gains and losses and changes in unrealized gains and losses on derivative instruments during the period are disclosed in the Statements of Operations.
a) | Futures Contracts A Fund may enter into futures contracts. A futures contract is an agreement between two parties to buy or sell an asset at a set price on a future date. A Fund may use futures contracts to manage risk or obtain exposure to the investment markets, commodities, or movements in interest rates and currency values. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the investments held by a Fund and the prices of futures contracts and the possibility of an illiquid market. Upon entering into a futures contract, a Fund is required to deposit with a futures commission merchant (FCM) an amount of cash or U.S. Government or Agency Obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate amount equal to the change in value (variation margin) is paid or received by a Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed on the Statements of Assets and Liabilities. |
During the six-month period ended January 31, 2020, Tax-Aware Bond ETF, Short Duration ETF and Total Return Bond ETF had entered into Futures Contracts.
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Hartford Active Fixed Income ETFs |
Notes to Financial Statements (continued)
January 31, 2020 (Unaudited)
b) | Foreign Currency Contracts A Fund may enter into foreign currency contracts that obligate the Fund to purchase or sell currencies at specified future dates. Foreign currency contracts may be used in connection with settling purchases or sales of securities to hedge the currency exposure associated with some or all of a Funds investments and/or as part of an investment strategy. Foreign currency contracts are marked to market daily and the change in value is recorded by a Fund as an unrealized gain or loss. A Fund will record a realized gain or loss when the foreign currency contract is settled. |
Foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statements of Assets and Liabilities. In addition, risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of the contracts and from unanticipated movements in the value of the foreign currencies relative to the U.S. dollar. Upon entering into a foreign currency contract, a Fund may be required to post margin equal to its outstanding exposure thereunder.
During the six-month period ended January 31, 2020, Short Duration ETF and Total Return Bond ETF had entered into Foreign Currency Contracts.
c) | Options Contracts An option contract is a contract sold by one party to another party that offers the buyer the right, but not the obligation, to buy (call) or sell (put) an investment or other financial asset at an agreed-upon price during a specific period of time or on a specific date. Option contracts are either over-the-counter (OTC) options or executed in a registered exchange (exchange-traded options). A Fund may write (sell) covered call and put options on futures, swaps (swaptions), securities, commodities or currencies. Covered means that so long as a Fund is obligated as the writer of an option, it will own either the underlying investments or currency or an option to purchase the same underlying investments or currency having an expiration date of the covered option and an exercise price equal to or less than the exercise price of the covered option, or will segregate or earmark cash or other liquid investments having, for written call options, a value equal to the greater of the exercise price or the market value of the underlying instrument and, for written put options, a value equal to the exercise price. Writing put options may increase a Funds exposure to the underlying instrument. Writing call options may decrease a Funds exposure to the underlying instrument. Premiums received from writing options that expire are treated as realized gains. Premiums received from writing options that are exercised or closed are added to the proceeds or offset amounts paid on the underlying futures, swaps, investments or currency transactions to determine the realized gain or loss. A Fund, as a writer of an option, has no control over whether the underlying instrument may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the instrument underlying the written option. There is the risk a Fund may not be able to enter into a closing transaction because of an illiquid market. A Fund may also purchase put and call options. Purchasing call options may increase a Funds exposure to the underlying instrument. Purchasing put options may decrease a Funds exposure to the underlying instrument. A Fund pays a premium, which is included on the Funds Statements of Assets and Liabilities as an investment and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Certain options may be purchased with premiums to be determined on a future date. The premiums for these options are based upon implied volatility parameters at specified terms. The risk associated with purchasing put and call options is generally limited to the premium paid. Premiums paid for purchasing options that are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying investment transaction to determine the realized gain or loss. Entering into OTC options also exposes a Fund to counterparty risk. Counterparty risk is the possibility that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements. |
During the six-month period ended January 31, 2020, Total Return Bond ETF had entered into Options Contracts.
d) | Swap Contracts A Fund may invest in swap contracts. Swap contracts are agreements to exchange or swap investment cash flows, assets, foreign currencies or market-linked returns at specified, future intervals. Swap contracts are either privately negotiated in the over-the-counter market (OTC swaps) or cleared through a central counterparty or derivatives clearing organization (centrally cleared swaps). A Fund may enter into credit default, total return, cross-currency, interest rate, inflation and other forms of swap contracts to manage its exposure to credit, currency, interest rate, commodity and inflation risk. Swap contracts are also used to gain exposure to certain markets. In connection with these contracts, investments or cash may be identified as collateral or margin in accordance with the terms of the respective swap contracts and/or master netting arrangement to provide assets of value and recourse in the event of default or bankruptcy/insolvency. |
Swaps are valued in accordance with the Valuation Procedures. Changes in market value, if any, are reflected as a component of net changes in unrealized appreciation or depreciation on the Statements of Operations. Daily changes in valuation of centrally cleared swaps, if any, are recorded as a receivable or payable for the change in value (variation margin) on the Statements of Assets and Liabilities. Realized gains or losses on centrally cleared swaps are recorded upon the termination of the swap. OTC swap payments received or paid at the beginning of the measurement period are reflected as such on the Statements of Assets and Liabilities and represent premiums paid or received upon entering into the swap contract to compensate for differences between the stated terms of the swap contract and prevailing market conditions (credit spreads, currency exchange rates, interest rates and other relevant factors). These upfront premiums are recorded as realized gains or losses on the Statements of Operations upon termination or maturity of the swap. A liquidation payment received or made at the termination or maturity of the swap is recorded as a realized gain or loss on the Statements of Operations. Net periodic payments received or paid by a Fund are included as part of realized gains or losses on the Statements of Operations.
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Hartford Active Fixed Income ETFs |
Notes to Financial Statements (continued)
January 31, 2020 (Unaudited)
Entering into these contracts involves, to varying degrees, elements of liquidation, counterparty, credit and market risk in excess of the amounts recognized on the Statements of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these contracts, that the counterparty to the contracts may default on its obligation to perform or disagree as to the meaning of contractual terms in the contracts, and that there may be unfavorable changes in market conditions (credit spreads, currency exchange rates, interest rates and other relevant factors).
A Funds maximum risk of loss from counterparty risk for OTC swaps is the net value of the discounted cash flows to be received from the counterparty over the contracts remaining life, and current market value, to the extent that amount is positive. The risk is mitigated by having a master netting arrangement between a Fund and the counterparty, which allows for the netting of payments made or received (although such amounts are presented on a gross basis within the Statements of Assets and Liabilities, as applicable) as well as the posting of collateral to a Fund to cover the Funds exposure to the counterparty. In a centrally cleared swap, while a Fund enters into an agreement with a clearing broker to execute contracts with a counterparty, the performance of the swap is guaranteed by the central clearinghouse, which reduces the Funds exposure to counterparty risk. However, the Fund is still exposed to a certain amount of counterparty risk through the clearing broker and clearinghouse. The clearinghouse attempts to minimize this risk to its participants through the use of mandatory margin requirements, daily cash settlements and other procedures. Likewise, the clearing broker reduces its risk through margin requirements and required segregation of customer balances.
Credit Default Swap Contracts The credit default swap market allows a Fund to manage credit risk through buying and selling credit protection on a specific issuer, asset or basket of assets. Certain credit default swaps involve the exchange of a fixed rate premium for protection against the loss in value of an underlying investment or index in the event of a credit event, such as payment default or bankruptcy.
Under a credit default swap contract, one party acts as guarantor by receiving the fixed periodic payment in exchange for the commitment to purchase the underlying investment at par if the defined credit event occurs. Upon the occurrence of a defined credit event, the difference between the value of the reference obligation and the swaps notional amount is recorded as realized gain or loss on swap transactions in the Statements of Operations. A buyer of credit protection agrees to pay a counterparty to assume the credit risk of an issuer upon the occurrence of certain events. The seller of the protection receives periodic payments and agrees to assume the credit risk of an issuer upon the occurrence of certain events. Although specified events are contract specific, credit events are generally defined as bankruptcy, failure to pay, restructuring, obligation acceleration, obligation default or repudiation/moratorium. A sellers exposure is limited to the total notional amount of the credit default swap contract. These potential amounts would be partially offset by any recovery values of the respective referenced obligations or upfront payments received upon entering into the contract.
Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap contracts on corporate issues, sovereign government issues or U.S. municipal issues as of year-end are disclosed in the notes to the Schedules of Investments, as applicable, and serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and there may also be upfront payments required to be made to enter into the contract. Wider credit spreads represent a deterioration of the referenced entitys credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the contract. For credit default swap contracts on credit indices, the quoted market prices and resulting values serve as the indicator of the current status of the payment/performance risk. Increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced equitys credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the contract.
During the six-month period ended January 31, 2020, Total Return Bond ETF had entered into Credit Default Swap Contracts.
Interest Rate Swap Contracts Certain Funds are subject to interest rate risk exposure in the normal course of pursuing its investment objectives. A Fund may use interest rate swaps to hedge interest rate and duration risk across a portfolio at particular duration points to maintain its ability to generate income at prevailing market rates. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate, based on a specified interest rate or benchmark (e.g. London Interbank Offered Rate (LIBOR)), multiplied by a notional amount, in return for payments equal to a fixed rate multiplied by the same amount, for a specific period of time. The net interest received or paid on interest rate swap contracts is recorded as a realized gain or loss. Interest rate swaps are marked to market daily and the change, if any, is recorded as an unrealized gain or loss in the Statements of Operations. When the interest rate swap contract is terminated early, a Fund records a realized gain or loss equal to the difference between the current market value and the upfront premium or cost.
If an interest rate swap contract provides for payments in different currencies, the parties might agree to exchange the notional amount as well. Interest rate swaps may also depend on other prices or rates, such as the value of an index. The risks of interest rate swaps include changes in market conditions, which will affect the value of the contract or the cash flows and the possible inability of the counterparty to fulfill its obligations under the contract. A Funds maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from the counterparty over the contracts remaining life, to the extent that amount is positive.
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Hartford Active Fixed Income ETFs |
Notes to Financial Statements (continued)
January 31, 2020 (Unaudited)
During the six-month period ended January 31, 2020, Total Return Bond ETF had entered into Interest Rate Swap Contracts.
Total Return Swap Contracts Certain Funds may invest in total return swap contracts in pursuit of the Funds investment objective or for hedging purposes. An investment in a total return swap allows a Fund to gain or mitigate exposure to underlying reference assets. Total return swap contracts involve commitments where cash flows are exchanged based on the price of underlying reference assets and based on a fixed or variable interest rate. One party receives payments based on the price appreciation or depreciation of the underlying reference asset, in exchange for paying to or receiving from the counterparty seller an agreed-upon interest rate. A variable interest rate may be correlated to a base rate, such as the LIBOR, and is adjusted each reset period, which is defined at the beginning of the contract. Therefore, if interest rates increase over the term of the swap contract, the party paying the rate may be required to pay a higher rate at each swap reset date.
Total return swap contracts on indices involve commitments to pay interest in exchange for a market-linked return. One party pays out the total return of a specific reference asset, which may be an equity, index, or bond, and in return receives a regular stream of payments. To the extent the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, a Fund will receive a payment from or make a payment to the counterparty. If the Fund is a payer in a total return swap, it may be subject to unlimited losses. They are also subject to counterparty risk. If the counterparty fails to meet its obligations, the Fund may lose money.
During the six-month period ended January 31, 2020, Total Return Bond ETF had entered into Total Return Swap Contracts.
e) | Additional Derivative Instrument Information: |
Tax-Aware Bond ETF
The Effect of Derivative Instruments on the Statement of Assets and Liabilities as of January 31, 2020:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts |
Foreign Exchange Contracts |
Credit Contracts |
Equity Contracts |
Commodity Contracts |
Other Contracts |
Total | ||||||||||||||||||||||
Assets: |
| |||||||||||||||||||||||||||
Liabilities: |
| |||||||||||||||||||||||||||
Unrealized depreciation on futures contracts(1) |
$ | 28,414 | $ | | $ | | $ | | $ | | $ | | $ | 28,414 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 28,414 | $ | | $ | | $ | | $ | | $ | | $ | 28,414 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Amount represents the cumulative depreciation on futures contracts as disclosed within the Schedule of Investments under the open Futures Contracts section. Only current days variation margin, if any, is reported within the Statement of Assets and Liabilities. |
The Effect of Derivative Instruments on the Statement of Operations for the period ended January 31, 2020:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts |
Foreign Exchange Contracts |
Credit Contracts |
Equity Contracts |
Commodity Contracts |
Other Contracts |
Total | ||||||||||||||||||||||
Realized Gain (Loss) on Derivatives Recognized as a Result of Operations: |
||||||||||||||||||||||||||||
Net realized gain (loss) on futures contracts |
$ | 1,587 | $ | | $ | | $ | | $ | | $ | | $ | 1,587 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 1,587 | $ | | $ | | $ | | $ | | $ | | $ | 1,587 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized as a Result of Operations: |
||||||||||||||||||||||||||||
Net change in unrealized appreciation (depreciation) of futures contracts |
$ | (21,678 | ) | $ | | $ | | $ | | $ | | $ | | $ | (21,678 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | (21,678 | ) | $ | | $ | | $ | | $ | | $ | | $ | (21,678 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period ended January 31, 2020, the average amount or number per contract outstanding for each derivative type was as follows:
Derivative Description |
Average Notional Par, Contracts or Face Amount |
|||
Futures Contracts Long at Number of Contracts |
25 | |||
Futures Contracts Short at Number of Contracts |
(13 | ) |
|
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Hartford Active Fixed Income ETFs |
Notes to Financial Statements (continued)
January 31, 2020 (Unaudited)
Short Duration ETF
The Effect of Derivative Instruments on the Statement of Assets and Liabilities as of January 31, 2020:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts |
Foreign Exchange Contracts |
Credit Contracts |
Equity Contracts |
Commodity Contracts |
Other Contracts |
Total | ||||||||||||||||||||||
Assets: |
| |||||||||||||||||||||||||||
Unrealized appreciation on futures contracts(1) |
$ | 70,116 | $ | | $ | | $ | | $ | | $ | | $ | 70,116 | ||||||||||||||
Unrealized appreciation on foreign currency contracts |
| 4,159 | | | | | 4,159 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 70,116 | $ | 4,159 | $ | | $ | | $ | | $ | | $ | 74,275 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Liabilities: |
| |||||||||||||||||||||||||||
Unrealized depreciation on futures contracts(1) |
$ | 143,615 | $ | | $ | | $ | | $ | | $ | | $ | 143,615 | ||||||||||||||
Unrealized depreciation on foreign currency contracts |
| 10,482 | | | | | 10,482 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 143,615 | $ | 10,482 | $ | | $ | | $ | | $ | | $ | 154,097 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Amount represents the cumulative appreciation and depreciation on futures contracts as disclosed within the Schedule of Investments under the open Futures Contracts section. Only current days variation margin, if any, is reported within the Statement of Assets and Liabilities. |
The Effect of Derivative Instruments on the Statement of Operations for the period ended January 31, 2020:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts |
Foreign Exchange Contracts |
Credit Contracts |
Equity Contracts |
Commodity Contracts |
Other Contracts |
Total | ||||||||||||||||||||||
Realized Gain (Loss) on Derivatives Recognized as a Result of Operations: |
||||||||||||||||||||||||||||
Net realized gain (loss) on futures contracts |
$ | (142,253 | ) | $ | | $ | | $ | | $ | | $ | | $ | (142,253 | ) | ||||||||||||
Net realized gain (loss) on foreign currency contracts |
| (86,380 | ) | | | | | (86,380 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | (142,253 | ) | $ | (86,380 | ) | $ | | $ | | $ | | $ | | $ | (228,633 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized as a Result of Operations: |
||||||||||||||||||||||||||||
Net change in unrealized appreciation (depreciation) of futures contracts |
$ | 23,712 | $ | | $ | | $ | | $ | | $ | | $ | 23,712 | ||||||||||||||
Net change in unrealized appreciation (depreciation) of foreign currency contracts |
| (13,008 | ) | | | | | (13,008 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 23,712 | $ | (13,008 | ) | $ | | $ | | $ | | $ | | $ | 10,704 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period ended January 31, 2020, the average amount or number per contract outstanding for each derivative type was as follows:
Derivative Description |
Average Notional Par, Contracts or Face Amount |
|||
Futures Contracts Long at Number of Contracts |
96 | |||
Futures Contracts Short at Number of Contracts |
(106 | ) | ||
Foreign Currency Contracts Purchased at Contract Amount |
$ | 244,995 | ||
Foreign Currency Contracts Sold at Contract Amount |
$ | 3,817,652 |
Total Return Bond ETF
The Effect of Derivative Instruments on the Statement of Assets and Liabilities as of January 31, 2020:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts |
Foreign Exchange Contracts |
Credit Contracts |
Equity Contracts |
Commodity Contracts |
Other Contracts |
Total | ||||||||||||||||||||||
Assets: |
| |||||||||||||||||||||||||||
Investments in securities, at value (purchased options), market value |
$ | 555,446 | $ | | $ | | $ | | $ | | $ | | $ | 555,446 | ||||||||||||||
Unrealized appreciation on futures contracts(1) |
70,116 | | | | | | 70,116 | |||||||||||||||||||||
Unrealized appreciation on foreign currency contracts |
| 248,083 | | | | | 248,083 | |||||||||||||||||||||
Unrealized appreciation on swap contracts(2) |
| | 533,320 | | | | 533,320 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 625,562 | $ | 248,083 | $ | 533,320 | $ | | $ | | $ | | $ | 1,406,965 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Liabilities: |
| |||||||||||||||||||||||||||
Unrealized depreciation on futures contracts(1) |
$ | 865,646 | $ | | $ | | $ | | $ | | $ | | $ | 865,646 | ||||||||||||||
Unrealized depreciation on foreign currency contracts |
| 41,322 | | | | | 41,322 | |||||||||||||||||||||
Unrealized depreciation on swap contracts(2) |
3,341,262 | | 13,579 | | | | 3,354,841 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 4,206,908 | $ | 41,322 | $ | 13,579 | $ | | $ | | $ | | $ | 4,261,809 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57 |
|
Hartford Active Fixed Income ETFs |
Notes to Financial Statements (continued)
January 31, 2020 (Unaudited)
(1) | Amount represents the cumulative appreciation and depreciation on futures contracts as disclosed within the Schedule of Investments under the open Futures Contracts section. Only current days variation margin, if any, is reported within the Statement of Assets and Liabilities. |
(2) | Amount represents the cumulative appreciation and depreciation on centrally cleared swaps, if applicable, as disclosed within the Schedule of Investments. Only the current days variation margin, if any, are reported within the Statements of Assets and Liabilities. OTC swaps are reported within the Statement of Assets and Liabilities within Unrealized appreciation and depreciation on OTC swap contracts, if applicable. |
The Effect of Derivative Instruments on the Statement of Operations for the period ended January 31, 2020:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts |
Foreign Exchange Contracts |
Credit Contracts |
Equity Contracts |
Commodity Contracts |
Other Contracts |
Total | ||||||||||||||||||||||
Realized Gain (Loss) on Derivatives Recognized as a Result of Operations: |
||||||||||||||||||||||||||||
Net realized gain (loss) on purchased options contracts |
$ | 131,239 | $ | | $ | | $ | | $ | | $ | | $ | 131,239 | ||||||||||||||
Net realized gain (loss) on futures contracts |
(1,142,601 | ) | | | | | | (1,142,601 | ) | |||||||||||||||||||
Net realized gain (loss) on written options contracts |
134,940 | | | | | | 134,940 | |||||||||||||||||||||
Net realized gain (loss) on swap contracts |
(191,302 | ) | | (5,184 | ) | | | | (196,486 | ) | ||||||||||||||||||
Net realized gain (loss) on foreign currency contracts |
| 465,662 | | | | | 465,662 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | (1,067,724 | ) | $ | 465,662 | $ | (5,184 | ) | $ | | $ | | $ | | $ | (607,246 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized as a Result of Operations: |
||||||||||||||||||||||||||||
Net change in unrealized appreciation (depreciation) of investments in purchased options contracts |
$ | 170,607 | $ | | $ | | $ | | $ | | $ | | $ | 170,607 | ||||||||||||||
Net change in unrealized appreciation (depreciation) of futures contracts |
453,853 | | | | | | 453,853 | |||||||||||||||||||||
Net change in unrealized appreciation (depreciation) of swap contracts |
(1,466,604 | ) | | 564,989 | | | | (901,615 | ) | |||||||||||||||||||
Net change in unrealized appreciation (depreciation) of foreign currency contracts |
| 137,759 | | | | | 137,759 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | (842,144 | ) | $ | 137,759 | $ | 564,989 | $ | | $ | | $ | | $ | (139,396 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period ended January 31, 2020, the average amount or number per contract outstanding for each derivative type was as follows:
Derivative Description |
Average Notional Par, Contracts or Face Amount |
|||
Purchased Options Contracts at Number of Contracts |
4,831,667 | |||
Futures Contracts Long at Number of Contracts |
172 | |||
Futures Contracts Short at Number of Contracts |
(319 | ) | ||
Written Options Contracts at Number of Contracts |
(89,960,000 | ) | ||
Swap Contracts at Notional Amount |
$ | 78,381,750 | ||
Foreign Currency Contracts Purchased at Contract Amount |
$ | 2,526,130 | ||
Foreign Currency Contracts Sold at Contract Amount |
$ | 38,616,464 |
f) | Balance Sheet Offsetting Information Set forth below are tables which disclose both gross information and net information about instruments and transactions eligible for offset in the financial statements, and instruments and transactions that are subject to a master netting arrangement, as well as amounts related to margin, reflected as financial collateral (including cash collateral), held at clearing brokers, counterparties and a Funds custodian. The master netting arrangements allow the clearing brokers to net any collateral held in or on behalf of a Fund, or liabilities or payment obligations of the clearing brokers to a Fund, against any liabilities or payment obligations of a Fund to the clearing brokers. A Fund is required to deposit financial collateral (including cash collateral) at the Funds custodian on behalf of clearing brokers and counterparties to continually meet the original and maintenance requirements established by the clearing brokers and counterparties. Such requirements are specific to the respective clearing broker or counterparty. Certain master netting arrangements may not be enforceable in a bankruptcy. |
The following tables present a Funds derivative assets and liabilities, presented on a gross basis as no amounts are netted within the Statements of Assets and Liabilities, by counterparty net of amounts available for offset under a master netting agreement or similar agreement (MNA) and net of the related collateral received/pledged by a Fund as of January 31, 2020:
Tax-Aware Bond ETF
Derivative Financial Instruments: |
Assets | Liabilities | ||||||
Futures contracts |
$ | | $ | (28,414 | ) | |||
|
|
|
|
|||||
Total gross amount of derivative assets and liabilities in the Statement of Assets and Liabilities |
| (28,414 | ) | |||||
|
|
|
|
|||||
Derivatives not subject to a MNA |
| 28,414 | ||||||
|
|
|
|
|||||
Total gross amount of assets and liabilities subject to MNA or similar agreements |
$ | | $ | | ||||
|
|
|
|
|
58 |
|
Hartford Active Fixed Income ETFs |
Notes to Financial Statements (continued)
January 31, 2020 (Unaudited)
Short Duration ETF
Derivative Financial Instruments: |
Assets | Liabilities | ||||||
Foreign currency contracts |
$ | 4,159 | $ | (10,482 | ) | |||
Futures contracts |
70,116 | (143,615 | ) | |||||
|
|
|
|
|||||
Total gross amount of derivative assets and liabilities in the Statement of Assets and Liabilities |
74,275 | (154,097 | ) | |||||
|
|
|
|
|||||
Derivatives not subject to a MNA |
(70,116 | ) | 143,615 | |||||
|
|
|
|
|||||
Total gross amount of assets and liabilities subject to MNA or similar agreements |
$ | 4,159 | $ | (10,482 | ) | |||
|
|
|
|
Counterparty |
Gross Amount of Assets |
Financial Instruments and Derivatives Available for Offset |
Non-cash Collateral Received* |
Cash Collateral Received* |
Net Amount of Assets |
|||||||||||||||
Barclays |
$ | 4,159 | $ | (1,596 | ) | $ | | $ | | $ | 2,563 | |||||||||
Counterparty |
Gross Amount of Liabilities |
Financial Instruments and Derivatives Available for Offset |
Non-cash Collateral Pledged* |
Cash Collateral Pledged* |
Net Amount of Liabilities |
|||||||||||||||
Barclays |
$ | (1,596 | ) | $ | 1,596 | $ | | $ | | $ | | |||||||||
Citibank NA |
(8,491 | ) | | | | (8,491 | ) | |||||||||||||
Morgan Stanley |
(395 | ) | | | | (395 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | (10,482 | ) | $ | 1,596 | $ | | $ | | $ | (8,886 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
* | In some instances, the actual collateral received and/or pledged may be more than the amount shown. |
Total Return Bond ETF
Derivative Financial Instruments: |
Assets | Liabilities | ||||||
Foreign currency contracts |
$ | 248,083 | $ | (41,322 | ) | |||
Futures contracts |
70,116 | (865,646 | ) | |||||
Purchased options |
555,446 | | ||||||
Swap contracts |
533,320 | (3,354,841 | ) | |||||
|
|
|
|
|||||
Total gross amount of derivative assets and liabilities in the Statement of Assets and Liabilities |
1,406,965 | (4,261,809 | ) | |||||
|
|
|
|
|||||
Derivatives not subject to a MNA |
(91,999 | ) | 4,209,309 | |||||
|
|
|
|
|||||
Total gross amount of assets and liabilities subject to MNA or similar agreements |
$ | 1,314,966 | $ | (52,500 | ) | |||
|
|
|
|
Counterparty |
Gross Amount of Assets |
Financial Instruments and Derivatives Available for Offset |
Non-cash Collateral Received* |
Cash Collateral Received* |
Net Amount of Assets |
|||||||||||||||
Banc of America Securities LLC |
$ | 48,243 | $ | | $ | | $ | | $ | 48,243 | ||||||||||
Bank of Montreal |
18,370 | | | | 18,370 | |||||||||||||||
Barclays |
845 | (845 | ) | | | | ||||||||||||||
BNP Paribas Securities Services |
4,493 | (71 | ) | | | 4,422 | ||||||||||||||
Canadian Imperial Bank of Commerce |
1,623 | | | | 1,623 | |||||||||||||||
Citibank NA |
18,876 | (3,548 | ) | | | 15,328 | ||||||||||||||
Deutsche Bank Securities, Inc. |
114,918 | (209 | ) | | | 114,709 | ||||||||||||||
Goldman Sachs & Co. |
259,057 | (7,479 | ) | | | 251,578 | ||||||||||||||
HSBC Bank USA |
411,425 | | | | 411,425 | |||||||||||||||
JP Morgan Chase & Co. |
76,100 | (16,526 | ) | | | 59,574 | ||||||||||||||
Morgan Stanley |
310,468 | (18,967 | ) | | | 291,501 | ||||||||||||||
National Australia Bank Limited |
4,862 | | | | 4,862 | |||||||||||||||
RBC Dominion Securities, Inc. |
36,658 | | | | 36,658 | |||||||||||||||
RBS Greenwich Capital |
20 | | | | 20 | |||||||||||||||
Standard Chartered Bank |
1,151 | | | | 1,151 | |||||||||||||||
State Street Global Markets LLC |
7,854 | (24 | ) | | | 7,830 | ||||||||||||||
UBS AG |
3 | (3 | ) | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 1,314,966 | $ | (47,672 | ) | $ | | $ | | $ | 1,267,294 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
59 |
|
Hartford Active Fixed Income ETFs |
Notes to Financial Statements (continued)
January 31, 2020 (Unaudited)
Total Return Bond ETF (continued)
Counterparty |
Gross Amount of Liabilities |
Financial Instruments and Derivatives Available for Offset |
Non-cash Collateral Pledged* |
Cash Collateral Pledged* |
Net Amount of Liabilities |
|||||||||||||||
Barclays |
$ | (4,143 | ) | $ | 845 | $ | | $ | | $ | (3,298 | ) | ||||||||
BNP Paribas Securities Services |
(71 | ) | 71 | | | | ||||||||||||||
Citibank NA |
(3,548 | ) | 3,548 | | | | ||||||||||||||
Deutsche Bank Securities, Inc. |
(209 | ) | 209 | | | | ||||||||||||||
Goldman Sachs & Co. |
(7,479 | ) | 7,479 | | | | ||||||||||||||
JP Morgan Chase & Co. |
(16,526 | ) | 16,526 | | | | ||||||||||||||
Morgan Stanley |
(18,967 | ) | 18,967 | | | | ||||||||||||||
State Street Global Markets LLC |
(24 | ) | 24 | | | | ||||||||||||||
UBS AG |
(1,533 | ) | 3 | | | (1,530 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | (52,500 | ) | $ | 47,672 | $ | | $ | | $ | (4,828 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
* | In some instances, the actual collateral received and/or pledged may be more than the amount shown. |
5. | Principal Risks: |
A Funds investments expose it to various types of risks associated with financial instruments and the markets. A Fund may be exposed to the risks described below. Each Funds prospectus provides details of its principal risks.
Certain investments held by a Fund expose the Fund to various risks which may include, but are not limited to, interest rate, prepayment, and extension risks. Interest rate risk is the risk that fixed income securities will decline in value because of changes in interest rates. As nominal interest rates rise, the values of certain fixed income securities held by a Fund are likely to decrease. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Duration is useful primarily as a measure of the sensitivity of a fixed income securitys market price to interest rate (i.e., yield) movements. Senior floating rate interests and securities subject to prepayment and extension risk generally offer less potential for gains when interest rates decline. Rising interest rates may cause prepayments to occur at a slower than expected rate, thereby effectively lengthening the maturity of the security and making the security more sensitive to interest rate changes. Prepayment and extension risk are major risks of mortgage-backed securities, senior floating rate interests and certain asset-backed securities. For certain asset-backed securities, the actual maturity may be less than the stated maturity shown in the Schedule of Investments, if applicable. As a result, the timing of income recognition relating to these securities may vary based upon the actual maturity.
Investing in the securities of non-U.S. issuers, whether directly or indirectly, involves certain considerations and risks not typically associated with securities of U.S. issuers. Such risks include, but are not limited to: generally less liquid and less efficient securities markets; generally greater price volatility; exchange rate fluctuations; imposition of restrictions on the expatriation of funds or other protectionist measures; less publicly available information about issuers; the imposition of withholding or other taxes; higher transaction and custody costs; settlement delays and risk of loss attendant in settlement procedures; difficulties in enforcing contractual obligations; less regulation of securities markets; different accounting, disclosure and reporting requirements; more substantial governmental involvement in the economy; higher inflation rates; and greater social, economic and political uncertainties. These risks are heightened for investments in issuers from countries with less developed markets.
Securities lending involves the risk that a Fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. A Fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events could also trigger adverse tax consequences for a Fund that lends its holdings.
Credit risk depends largely on the perceived financial health of bond issuers. In general, the credit rating is inversely related to the credit risk of the issuer. Higher rated bonds generally are deemed to have less credit risk, while lower or unrated bonds are deemed to have higher risk of default. The share price, yield and total return of a fund that holds securities with higher credit risk may be more volatile than those of a fund that holds bonds with lower credit risk. A Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which a Fund has unsettled or open transactions will default.
6. | Federal Income Taxes: |
a) | Each Fund intends to continue to qualify as a Regulated Investment Company (RIC) under Subchapter M of the Internal Revenue Code (IRC) by distributing substantially all of its taxable net investment income and net realized capital gains to its shareholders each year. Each Fund has distributed substantially all of its income and capital gains in prior years, if applicable, and intends to distribute substantially all of its income and capital gains during the calendar year ending December 31, 2020. Accordingly, no provision for federal income or excise taxes has been made in the accompanying financial statements. Distributions from short-term capital gains are treated as ordinary income distributions for federal income tax purposes. |
|
60 |
|
Hartford Active Fixed Income ETFs |
Notes to Financial Statements (continued)
January 31, 2020 (Unaudited)
b) | Capital Loss Carryforward Under the Regulated Investment Company Modernization Act of 2010, funds are permitted to carry forward capital losses for an unlimited period. At July 31, 2019 (tax year end), each Funds capital loss carryforwards for U.S. federal income tax purposes were as follows: |
Fund |
Short-Term Capital Loss Carryforward with No Expiration |
Long-Term Capital Loss Carryforward with No Expiration |
||||||
Short Duration ETF |
$ | 51,809 | $ | 306,397 |
Municipal Opportunities ETF, Tax-Aware Bond ETF and Total Return Bond ETF had no capital loss carryforwards for U.S. federal income tax purposes as of July 31, 2019.
During the fiscal year ended July 31, 2019, the Municipal Opportunities ETF, Tax-Aware Bond ETF and Total Return Bond ETF utilized $50,989, $18,273 and $219,216, respectively, of prior year capital loss carryforwards.
c) | Tax Basis of Investments The aggregate cost of investments for federal income tax purposes at January 31, 2020 was substantially the same for book purposes. The net unrealized appreciation/(depreciation) on investments, which consists of gross unrealized appreciation and depreciation, is disclosed below: |
Fund |
Tax Cost | Gross Unrealized Appreciation |
Gross Unrealized (Depreciation) |
Net Unrealized Appreciation/ (Depreciation) |
||||||||||||
Municipal Opportunities ETF |
$ | 144,379,333 | $ | 8,654,362 | $ | (23 | ) | $ | 8,654,339 | |||||||
Tax-Aware Bond ETF |
68,718,490 | 1,669,316 | (28,530 | ) | 1,640,786 | |||||||||||
Short Duration ETF |
113,449,602 | 3,023,599 | (280,472 | ) | 2,743,127 | |||||||||||
Total Return Bond ETF |
835,397,547 | 38,814,685 | (5,956,516 | ) | 32,858,169 |
7. | Expenses: |
a) | Investment Management Agreement Hartford Funds Management Company, LLC (HFMC or the Adviser) serves as each Funds investment manager pursuant to an Investment Management Agreement with the Trust. HFMC is an indirect subsidiary of The Hartford Financial Services Group, Inc. (The Hartford). HFMC has overall investment supervisory responsibility for each Fund. In addition, HFMC provides administrative personnel, services, equipment, facilities and office space for proper operation of each Fund. HFMC has contracted with Wellington Management Company LLP (Wellington Management) under a sub-advisory agreement pursuant to which Wellington Management performs the daily investment of the assets of each of Municipal Opportunities ETF, Short Duration ETF, and Total Return Bond ETF in accordance with each Funds investment objective and policies. HFMC has contracted with Schroder Investment Management North America Inc. (SIMNA) under a sub-advisory agreement and SIMNA has contracted with Schroder Investment Management North America Limited (SIMNA Ltd.) under a sub-sub-advisory agreement with respect to Tax-Aware Bond ETF. SIMNA and SIMNA Ltd. perform the daily investment of the assets of Tax-Aware Bond ETF in accordance with the Funds investment objective and policies. Each Fund pays a fee to HFMC, a portion of which may be used to compensate the applicable sub-adviser. |
Under the Investment Management Agreement, the Adviser agrees to pay all expenses of the Trust, except (i) brokerage expenses and other expenses (such as stamp taxes and acquired fund fees and expenses) connected with the execution of portfolio transactions or in connection with creation and redemption transactions; (ii) legal fees or expenses in connection with any arbitration, litigation or pending or threatened arbitration or litigation, including any settlements in connection therewith; (iii) extraordinary expenses; (iv) distribution fees and expenses paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act; and (v) the advisory fee payable to the Adviser under the Investment Management Agreement. The payment or assumption by the Adviser of any expense of the Trust that the Adviser is not required by the Investment Management Agreement to pay or assume shall not obligate the Adviser to pay or assume the same or any similar expense of the Trust on any subsequent occasion.
The schedule below reflects the rates of compensation paid to HFMC for investment management services rendered as of January 31, 2020; the rates are accrued daily and paid monthly based on each Funds average daily net assets, at the following annual rates:
Fund |
Management Fee Rates | |
Municipal Opportunities ETF |
0.29% | |
Tax-Aware Bond ETF |
0.39% | |
Short Duration ETF |
0.29% | |
Total Return Bond ETF |
0.29% |
b) | Distribution Plans Each Fund has adopted a Rule 12b-1 Distribution and Service Plan in accordance with Rule 12b-1 under the 1940 Act pursuant to which payments of up to 0.25% of each Funds average daily net assets may be made for the sale and distribution of its shares. The Board has determined that the Funds may not make payments under the Rule 12b-1 Distribution and Service Plan until authorized to do |
|
61 |
|
Hartford Active Fixed Income ETFs |
Notes to Financial Statements (continued)
January 31, 2020 (Unaudited)
so by affirmative action of the Board. No Rule 12b-1 fees are currently paid by the Funds and there are no plans to impose these fees. However, in the event Rule 12b-1 fees are charged in the future, they will be paid out of the respective Funds assets, and over time, these fees increase the cost of your investment and they may cost you more than certain other types of asset-based charges. |
For the period ended January 31, 2020, the Funds did not pay any Rule 12b-1 fees.
c) | Other Related Party Transactions Certain officers of the Trust are trustees and/or officers of HFMC and/or The Hartford or its subsidiaries. For the six-month period ended January 31, 2020, a portion of the Trusts Chief Compliance Officers (CCO) compensation was paid by HFMC. As part of the Funds Investment Management Agreement, HFMC also pays any CCO compensation on behalf of the Funds. |
8. | Securities Lending: |
The Trust has entered into a securities lending agency agreement (lending agreement) with Citibank, N.A. (Citibank). A Fund may lend portfolio securities to certain borrowers in U.S. and non-U.S. markets in an amount not to exceed one-third (331⁄3%) of the value of its total assets. If a Fund security is on loan, under the lending agreement, the borrower is required to deposit cash or liquid securities as collateral at least equal to 100% of the market value of the loaned securities; cash collateral is invested for the benefit of the Fund by the Funds lending agent pursuant to collateral investment guidelines. The collateral is marked to market daily, in an amount at least equal to the current market value of the securities loaned.
A Fund is subject to certain risks while its securities are on loan, including the following: (i) the risk that the borrower defaults on the loan and the collateral is inadequate to cover the Funds loss; (ii) the risk that the earnings on the collateral invested are not sufficient to pay fees incurred in connection with the loan; (iii) the risk that the principal value of the collateral invested may decline; (iv) the risk that the borrower may use the loaned securities to cover a short sale, which may in turn place downward pressure on the market prices of the loaned securities; (v) the risk that return of loaned securities could be delayed and interfere with portfolio management decisions; and (vi) the risk that any efforts to restrict the securities for purposes of voting may not be effective. These events could also trigger adverse tax consequences for the Fund.
The Funds retain loan fees and the interest on cash collateral investments but are required to pay the borrower a rebate for the use of cash collateral. In cases where the lent security is of high value to borrowers, there may be a negative rebate (i.e., a net payment from the borrower to the Funds). Upon termination of a loan, the Funds are required to return to the borrower an amount equal to the cash collateral, plus any rebate owed to the borrowers.
The net income earned on the securities lending (after payment of rebates and Citibanks fee) is included on the Statements of Operations as Investment Income from securities lending. The Funds also receive payments from the borrower during the period of the loan, equivalent to dividends and interest earned on the securities loaned, which are recorded as Investment Income from dividends or interest, respectively, on the Statements of Operations.
The following table presents the market value of the Funds securities on loan, net of amounts available for offset under the master netting arrangements and any related collateral received by the Funds as of January 31, 2020.
Fund |
Investment Securities on Loan, at market value, Presented on the Statement of Assets and Liabilities(1) |
Collateral Posted by Borrower |
Net Amount(2) |
|||||||||
Total Return Bond ETF |
$ | 1,177,677 | $ | (1,177,677 | ) | $ | |
(1) | It is each Funds policy to obtain additional collateral from, or return excess collateral to, the borrower by the end of the next business day following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than that required under the lending contract. |
(2) | Net amount represents the net amount receivable due from the counterparty in the event of default. |
The total cash and non-cash collateral received by each Fund in connection with securities lending transactions is presented below:
Fund |
Cash Collateral |
Non-Cash Collateral |
||||||
Total Return Bond ETF |
$ | 1,217,588 | $ | |
|
62 |
|
Hartford Active Fixed Income ETFs |
Notes to Financial Statements (continued)
January 31, 2020 (Unaudited)
9. | Secured Borrowings: |
The following table reflects a breakdown of transactions accounted for as secured borrowings, the gross obligation by the type of collateral pledged, and the remaining contractual maturity of those transactions as of January 31, 2020.
Certain Transfers Accounted for as Secured Borrowings
Remaining Contractual Maturity of the Agreements
Total Return Bond ETF |
Overnight and Continuous |
<30 days | Between 30 & 90 days |
>90 days | Total | |||||||||||||||
Securities Lending Transactions(1) |
| |||||||||||||||||||
Corporate Bonds |
$ | 118,922 | $ | | $ | | $ | | $ | 118,922 | ||||||||||
Municipal Bonds |
1,098,666 | | | | 1,098,666 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 1,217,588 | $ | | $ | | $ | | $ | 1,217,588 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Borrowings |
$ | 1,217,588 | $ | | $ | | $ | | $ | 1,217,588 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross amount of recognized liabilities for securities lending transactions |
|
$ | 1,217,588 | |||||||||||||||||
|
|
(1) | Amount represents the payable for cash collateral received on securities on loan. This will generally be in the Overnight and Continuous column as the securities are typically callable on demand. |
10. | Custodian and Transfer Agent: |
State Street serves as Custodian for the Funds pursuant to a custodian agreement (Custodian Agreement) dated December 31, 2014, as amended November 21, 2017. As Custodian, State Street holds each Funds assets, calculates the net asset value of the shares and calculates net income and realized capital gains or losses. State Street serves as Transfer Agent of each Fund pursuant to a transfer agency agreement (Transfer Agency Agreement) dated February 13, 2018. As Transfer Agent, State Street maintains the records of each Authorized Participants ownership of each Fund and processes the purchases and redemptions of Creation Units.
For the services provided under the Custodian Agreement and Transfer Agency Agreement, HFMC, and not the Funds, compensates State Street pursuant to the Funds unitary management fee structure.
11. | Affiliate Holdings: |
As of January 31, 2020, affiliates of The Hartford had ownership of shares in certain Funds as follows:
Fund |
Percentage of Fund | |
Municipal Opportunities ETF |
57% | |
Tax-Aware Bond ETF |
30% | |
Short Duration ETF |
31% |
As of January 31, 2020, affiliated funds of funds in the aggregate owned a portion of the Funds identified below. Therefore, these Funds may experience relatively large purchases or redemptions of their shares as a result of purchase and sale activity from these affiliated funds of funds. Affiliated funds of funds owned shares in the Fund listed below as follows:
Fund |
Percentage of Fund | |
Short Duration ETF |
42% | |
Total Return Bond ETF |
90% |
12. | Investment Transactions: |
For the six-month period ended January 31, 2020, the cost of purchases and proceeds from sales of investment securities (excluding short-term investments) were as follows:
Fund |
Cost of Purchases Excluding U.S. Government Obligations |
Sales Proceeds Excluding U.S. Government Obligations |
Cost of Purchases For U.S. Government Obligations |
Sales Proceeds For U.S. Government Obligations |
Total Cost of Purchases |
Total Sales Proceeds |
||||||||||||||||||
Municipal Opportunities ETF |
$ | 42,123,322 | $ | 32,700,027 | $ | | $ | | $ | 42,123,322 | $ | 32,700,027 | ||||||||||||
Tax-Aware Bond ETF |
48,529,469 | 17,408,418 | 32,095,655 | 32,256,208 | 80,625,124 | 49,664,626 | ||||||||||||||||||
Short Duration ETF |
18,942,402 | 15,389,948 | 1,857,189 | 1,479,935 | 20,799,591 | 16,869,882 | ||||||||||||||||||
Total Return Bond ETF |
102,298,162 | 99,621,168 | 111,515,218 | 58,871,145 | 213,813,380 | 158,492,313 |
|
63 |
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Hartford Active Fixed Income ETFs |
Notes to Financial Statements (continued)
January 31, 2020 (Unaudited)
13. | Share Transactions: |
Each Fund will issue and redeem shares at NAV only with certain Authorized Participants in large increments known as Creation Units. Purchases of Creation Units are made by tendering a basket of designated securities to a Fund and redemption proceeds are paid with a basket of securities from the Fund with a balancing cash component to equate the market value of the basket securities delivered or redeemed to the NAV per Creation Unit on the transaction date. Cash may be substituted in an amount equivalent to the value of certain securities generally when they are not available in sufficient quantity for delivery. Each Funds shares are available in smaller increments to individual investors in the secondary market at market prices and may be subject to commissions. Authorized Participants may be required to pay a transaction fee when purchasing and redeeming Creation Units of the Fund. The transaction fee is used to defray the costs associated with the issuance and redemption of Creation Units.
Purchase or redemption of Creation Units is only available to an Authorized Participant. An Authorized Participant is either (1) a Participating Party, (i.e., a broker-dealer or other participant in the clearing process of the Continuous Net Settlement System of the NSCC) (Clearing Process), or (2) a participant of DTC (DTC Participant), and, in each case, must have executed an agreement (Participation Agreement) with the Distributor with respect to creations and redemptions of Creation Units.
If a Creation Unit is purchased or redeemed for cash or outside of the Clearing Process, a higher transaction fee may be charged. The following table discloses Creation Unit breakdown for each Fund:
Fund |
Standard Creation Unit Shares |
Standard In-kind Creation Fee |
Value at January 31, 2020 |
Standard In-kind Redemption Fee |
||||||||||||
Municipal Opportunities ETF |
50,000 | $ | 400 | $ | 2,120,000 | $ | 400 | |||||||||
Tax-Aware Bond ETF |
50,000 | $ | 500 | 1,060,000 | $ | 500 | ||||||||||
Short Duration ETF |
50,000 | $ | 400 | 2,051,000 | $ | 400 | ||||||||||
Total Return Bond ETF |
50,000 | $ | 500 | 2,043,500 | $ | 500 |
Shares of Municipal Opportunities ETF, Tax-Aware Bond ETF and Total Return Bond ETF are listed and traded throughout the day on the NYSE Arca and shares of Short Duration ETF are listed and traded on Cboe BZX. Shares of each Fund are publicly traded. Retail investors may purchase or sell shares in the secondary market (not from the Fund) through a broker or dealer. Investors purchasing or selling shares in the secondary market may pay a commission, market premium or discount or other transaction charge, to a broker or dealer, as well as some or all of the spread between the bid and the offered price for each purchase or sale transaction. Unless imposed by a broker or dealer, there is no minimum dollar amount upon purchase and no minimum number of shares that must be purchased in the secondary market. Because transactions in the secondary market occur at market prices, an investor may pay more than NAV upon purchase of shares and may receive less than a Funds NAV upon sale of shares.
Because each Fund is structured as an ETF, individual shares may only be purchased and sold on a listing exchange through a broker-dealer. The price of shares is based on market price, and because ETF shares trade at market prices rather than at NAV, shares may trade at a price greater than NAV (a premium) or less than NAV (a discount). Each Fund will only issue or redeem Creation Units (50,000 shares) to Authorized Participants who have entered into agreements with the Distributor. The Funds generally will issue or redeem Creation Units in return for a designated basket of securities (and an amount of cash) that the Fund specifies each day. The Funds do not impose any restrictions on the frequency of purchases and redemptions; however, the Funds reserve the right to reject or limit purchases at any time.
The following information is for the six-month period ended January 31, 2020 and the year ended July 31, 2019:
For the Six-Month Period Ended January 31, 2020 |
For the Year Ended July 31, 2019 |
|||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Municipal Opportunities ETF | ||||||||||||||||
Shares Sold |
650,000 | $ | 27,286,758 | 3,050,000 | $ | 120,705,261 | ||||||||||
Shares Redeemed |
(400,000 | ) | (16,861,884 | ) | | | ||||||||||
Other Capital |
| 11,037 | | 51,773 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Increase (Decrease) |
250,000 | 10,435,911 | 3,050,000 | 120,757,034 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
For the Six-Month Period Ended January 31, 2020 |
For the Year Ended July 31, 2019 |
|||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Tax-Aware Bond ETF | ||||||||||||||||
Shares Sold |
2,250,000 | $ | 47,225,213 | 250,000 | $ | 5,235,438 | ||||||||||
Shares Redeemed |
(300,000 | ) | (6,323,537 | ) | | | ||||||||||
Other Capital |
| 40,162 | | 3,927 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Increase (Decrease) |
1,950,000 | 40,941,838 | 250,000 | 5,239,365 | ||||||||||||
|
|
|
|
|
|
|
|
|
64 |
|
Hartford Active Fixed Income ETFs |
Notes to Financial Statements (continued)
January 31, 2020 (Unaudited)
For the Six-Month Period Ended January 31, 2020 |
For the Year Ended July 31, 2019 |
|||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Short Duration ETF | ||||||||||||||||
Shares Sold |
450,000 | $ | 18,403,112 | 2,400,000 | $ | 96,183,975 | ||||||||||
Shares Redeemed |
(350,000 | ) | (14,324,483 | ) | (200,000 | ) | (8,032,678 | ) | ||||||||
Other Capital |
| 16,364 | | 52,108 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Increase (Decrease) |
100,000 | 4,094,993 | 2,200,000 | 88,203,405 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
For the Six-Month Period Ended January 31, 2020 |
For the Year Ended July 31, 2019 |
|||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Total Return Bond ETF | ||||||||||||||||
Shares Sold |
1,800,000 | $ | 73,365,593 | 14,500,000 | $ | 559,765,672 | ||||||||||
Shares Redeemed |
| | (1,200,000 | ) | (46,687,112 | ) | ||||||||||
Other Capital |
| 58,692 | | 525,462 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Increase (Decrease) |
1,800,000 | 73,424,285 | 13,300,000 | 513,604,022 | ||||||||||||
|
|
|
|
|
|
|
|
14. | Indemnifications: |
Under the Trusts organizational documents, the Trust shall indemnify its officers and trustees to the full extent required or permitted under the applicable laws of the State of Delaware and federal securities laws. In addition, the Trust, on behalf of the Funds, may enter into contracts that contain a variety of indemnifications. The Trusts maximum exposure under these arrangements is unknown. However, as of the date of these financial statements, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
15. | Recent Accounting Pronouncement: |
The FASB issued ASU 2017-08 (the ASU) to amend the amortization period to the earliest call date for purchased callable debt securities held at a premium. The ASU is effective for public entities for fiscal years beginning after December 15, 2018, and for private entities one year later. Upon initial adoption, the impacted Funds adjusted the cost of their callable debt securities by the cumulative amount of amortization that would have been recognized had the amortization period initially extended only to the earliest call date, with a corresponding reclassification between interest income and net realized gain (loss) on investments or net unrealized appreciation (depreciation) of investments in the Statements of Operations. The adoption of the ASU does not affect the impacted Funds net asset values and the cumulative effect to the impacted Funds resulting from the adoption of amending the amortization period to the earliest call date for callable debt securities is as follows:
As of August 1, 2019 |
For the Six Months Ended January 31, 2020 |
|||||||||||||||
Fund |
Cost of Investments |
Interest Income |
Net Unrealized Appreciation (Depreciation) of Investments |
Net Realized Gain (Loss) on Investments |
||||||||||||
Municipal Opportunities ETF |
$ | 20,003 | $ | 11,712 | $ | 16,185 | $ | 27,897 | ||||||||
Short Duration ETF |
429 | (90 | ) | 90 | | |||||||||||
Total Return Bond ETF |
(34,683 | ) | (15,380 | ) | (30,272 | ) | 45,652 |
In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). The update introduces new fair value disclosure requirements, eliminates some prior fair value disclosure requirements, and modifies certain existing fair value disclosure requirements.
ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, however, an entity is permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements. Management has elected to early adopt the provisions of ASU 2018-13 that eliminate disclosure requirements effective with the current reporting period. The impact of each Funds early adoption of these provisions was limited to changes in the Funds financial statement disclosures regarding fair value, primarily those disclosures related to transfers between Level 1 and Level 2 of the fair value hierarchy and the timing of transfers between levels of the fair value hierarchy. Management is currently evaluating the potential impact of adopting the additional provisions of ASU 2018-13.
16. | Subsequent Events: |
In connection with the preparation of the financial statements of the Funds as of and for the period ended January 31, 2020, events and transactions subsequent to January 31, 2020, through the date the financial statements were issued have been evaluated by the Funds management for possible adjustment and/or disclosure.
The affects to public health, business and market conditions resulting from the coronavirus (COVID-19) pandemic that escalated during the first quarter of 2020 may have a significant negative impact on the performance of the Funds investments. The extent and duration of this impact is currently unclear.
|
65 |
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Hartford Active Fixed Income ETFs |
HOW TO OBTAIN A COPY OF EACH FUNDS PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures that each Fund uses to determine how to vote proxies relating to portfolio securities and information about how each Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30, are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SECs website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
Each Fund will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. Each Funds Form N-PORT reports are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SECs website at http://www.sec.gov.
|
66 |
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Hartford Active Fixed Income ETFs |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited)
Hartford Funds Exchange-Traded Trust
Hartford Municipal Opportunities ETF
Hartford Schroders Tax-Aware Bond ETF
Hartford Short Duration ETF
Hartford Total Return Bond ETF
(each a Fund and collectively, the Funds)
Section 15(c) of the Investment Company Act of 1940, as amended (the 1940 Act), requires that each registered investment companys board of trustees, including a majority of those trustees who are not interested persons of the investment company, as defined in the 1940 Act (the Independent Trustees), annually review and consider the continuation of the investment companys investment management and sub-advisory agreements. At its meeting held on August 6-7, 2019, the Board of Trustees (the Board) of Hartford Funds Exchange-Traded Trust (the Trust), including each of the Independent Trustees, unanimously voted to approve (i) the continuation of an investment management agreement by and between Hartford Funds Management Company, LLC (HFMC) and the Trust on behalf of each of the Funds (the Investment Management Agreement); (ii) the continuation of an investment sub-advisory agreement (the Schroders Sub-Advisory Agreement) by and between HFMC and Schroder Investment Management North America Inc. (SIMNA Inc.) on behalf of Hartford Schroders Tax-Aware Bond ETF; (iii) a separate secondary sub-advisory agreement (the Sub-Sub-Advisory Agreement) by and between SIMNA Inc. and Schroder Investment Management North America Limited (SIMNA Ltd.) on behalf of Hartford Schroders Tax-Aware Bond ETF; and (iv) the continuation of an investment sub-advisory agreement (the Wellington Sub-Advisory Agreement and collectively with the Investment Management Agreement, the Schroders Sub-Advisory Agreement and the Sub-Sub-Advisory Agreement, the Agreements) by and between HFMC and Wellington Management Company LLP (Wellington, and together with HFMC, SIMNA Inc. and SIMNA Ltd., the Advisers), on behalf of Hartford Municipal Opportunities ETF, Hartford Short Duration ETF and Hartford Total Return Bond ETF.
In the months preceding the August 6-7, 2019 meeting, the Board requested and reviewed written responses from the Advisers to questions posed to the Advisers on behalf of the Independent Trustees and supporting materials relating to those questions and responses. In addition, the Board considered such additional information as it deemed reasonably necessary to evaluate the Agreements, as applicable, with respect to each Fund, which included information furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the approval of the Agreements that was presented at the Boards meetings held on June 18, 2019 and August 6-7, 2019. Information provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal, compliance and risk management matters, sales and marketing activity, and the other services provided to each Fund by the Advisers and their affiliates. The Board also considered the materials and in-person presentations by Fund officers and representatives of HFMC received at the Boards meetings on June 18, 2019 and August 6-7, 2019 concerning the Agreements.
The Independent Trustees, advised by independent legal counsel throughout the evaluation process, engaged service providers to assist them with evaluating the Agreements with respect to each Fund, as applicable. Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data, was retained to provide the Board with reports on how each Funds contractual management fees and overall expense ratio compared to those of comparable registered investment companies with similar investment objectives. The Independent Trustees also engaged an independent financial services consultant (the Consultant) to assist them in evaluating each Funds management fees, overall expense ratio and investment performance. In addition, the Consultant reviewed the profitability methodologies utilized by HFMC in connection with the continuation of the Investment Management Agreement.
In determining whether to approve the Agreements for a Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate through the exercise of their reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Boards determination to approve the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the approval of the Agreements. The Board was also furnished with an analysis of its fiduciary obligations in connection with its evaluation of the Agreements and, throughout the evaluation process, the Board was assisted by counsel for the Funds. The Independent Trustees were also separately assisted by independent legal counsel throughout the evaluation process. A more detailed summary of the important, but not necessarily all, factors the Board considered with respect to its approval of the Agreements is provided below.
Nature, Extent and Quality of Services Provided by the Advisers
The Board requested and considered information concerning the nature, extent and quality of the services provided to each Fund by the Advisers. The Board considered, among other things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers professional personnel who provide services to the Funds, including each Advisers ability and experience in attracting and retaining qualified personnel to service the Funds. The Board considered each Advisers reputation and overall financial strength, as well as its willingness to consider and implement organizational and operational changes designed to enhance services to the funds managed by HFMC and its affiliates (the Hartford Funds). In addition, the Board considered the quality of each Advisers communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Funds and other Hartford Funds.
|
67 |
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Hartford Active Fixed Income ETFs |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) (continued)
The Board also requested and evaluated information concerning each Advisers regulatory and compliance environment. In this regard, the Board requested and reviewed information about each Advisers compliance policies and procedures, compliance history, and a report from the Funds Chief Compliance Officer about each Advisers compliance with applicable laws and regulations, including responses to regulatory developments and any compliance or other issues raised by regulators. The Board also noted the Advisers support of the Funds compliance control structure, as applicable, and, in particular, the resources devoted by the Advisers in support of the Funds obligations pursuant to Rule 38a-1 under the 1940 Act and the Funds liquidity risk management program, as well as the efforts of the Advisers to combat cybersecurity risks and invest in business continuity planning.
With respect to HFMC, the Board noted that, under the Investment Management Agreement, HFMC is responsible for the management of the Funds, including oversight of fund operations and service providers, and the provision of administrative and investment management services in connection with selecting, monitoring and supervising the Sub-advisers. In this regard, the Board evaluated information about the nature and extent of responsibilities retained and risks assumed by HFMC that were not delegated to or assumed by the Sub-advisers. The Board considered HFMCs ongoing monitoring of people, process and performance, including its quarterly reviews of each of the Hartford Funds, semi-annual meetings with the leaders of each Funds portfolio management team, and oversight of the Hartford Funds portfolio managers. The Board recognized that HFMC has demonstrated a record of initiating changes to the portfolio management and/or investment strategies of the Hartford Funds when warranted. The Board considered HFMCs periodic due diligence reviews of each Sub-adviser and ongoing oversight of each Sub-advisers investment approach and results, process for monitoring best execution of portfolio trades and other trading operations by each Sub-adviser, and approach to risk management with respect to the Funds and the service providers to the Funds. The Board considered HFMCs oversight of the securities lending program and noted the income earned by the Funds in connection with their participating in the program. The Board also considered HFMCs day-to-day oversight of each Funds compliance with its investment objective and policies as well as with applicable laws and regulations. In addition, the Board considered that HFMC or its affiliates are responsible for providing the Funds officers.
With respect to the Sub-advisers, which are responsible for the daily investment of their respective Funds, subject to oversight by HFMC, the Board considered, among other things, each Sub-advisers investment personnel, investment process, investment research capabilities and resources, performance record, trade execution capabilities and experience. The Board considered the quality and experience of each Funds portfolio manager(s), the number of accounts managed by the portfolio manager(s), and each Sub-advisers method for compensating the portfolio manager(s). The Board also considered each Sub-advisers succession planning to ensure continuity of portfolio management services provided to the Funds.
The Board considered HFMCs efforts to provide investors in the Hartford Funds with a broad range of investment styles and asset classes and the assumption of entrepreneurial and other risks by HFMC in connection with sponsoring new funds to expand these opportunities for shareholders and providing ongoing services to each Fund. The Board considered the special attributes of the Funds, which are exchange-traded funds, relative to traditional mutual funds and the benefits that are expected to be realized from an investment in the Funds, rather than a traditional mutual fund. The Board also considered the resources devoted by HFMC and its affiliates in developing and maintaining an infrastructure necessary to support the ongoing operations of the Funds.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to each Fund by HFMC and the Sub-advisers.
Performance of each Fund and the Advisers
The Board considered the investment performance of each Fund. In this regard, the Board reviewed the performance of each Fund over different time periods presented in the materials and evaluated HFMCs analysis of the Funds performance for these time periods. The Board considered information and materials provided to the Board by the Advisers concerning Fund performance, as well as information from Broadridge comparing the investment performance of each Fund to an appropriate universe of peer funds. For details regarding each Funds performance, see the Fund-by-Fund synopsis below.
The Board considered the detailed investment analytics reports provided by HFMCs Investment Advisory Group throughout the year, including in connection with the approval of the Agreements. These reports included, among other things, information on each Funds gross returns and net returns, the Funds investment performance relative to an appropriate benchmark and peer group (if available), various statistics concerning the Funds portfolio, a narrative summary of various factors affecting Fund performance and commentary of the effect of current and recent market conditions. The Board considered the Advisers work with the Investment Committee, which assists the Board in evaluating the performance of each Fund at periodic meetings throughout the year and specifically with respect to the approval of the Agreements. The Board also considered the analysis provided by the Consultant relating to each Funds performance track record.
In light of all the considerations noted above, the Board concluded that it had continued confidence in HFMCs and each Sub-advisers overall capabilities to manage the Funds, as applicable.
Costs of the Services and Profitability of the Advisers
The Board reviewed information regarding HFMCs cost to provide investment management and related services to each Fund and HFMCs profitability, both overall and for each Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed
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68 |
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Hartford Active Fixed Income ETFs |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) (continued)
information about the profitability to HFMC and its affiliates from all services provided to each Fund and all aspects of their relationship with the Fund, including information regarding profitability trends over time. The Board also requested and received information relating to the operations and profitability of the Sub-advisers. The Board considered representations from HFMC, SIMNA Inc. and Wellington that the respective Sub-advisers fees were negotiated at arms length and that the sub-advisory fees are paid by HFMC and not the Funds. The Board also considered that SIMNA Ltd. is an affiliate of SIMNA Inc. and that SIMNA Ltd.s sub-sub-advisory fees would be paid by SIMNA Inc., not the Hartford Schroders Tax-Aware Bond Fund. Accordingly, the Board concluded that the profitability of each Sub-adviser is a less relevant factor with respect to the Boards consideration of the sub-advisory agreements.
The Board considered the Consultants review of the methodologies and estimates used by HFMC in calculating profitability in connection with the continuation of the Investment Management Agreement, including a description of the methodology used to allocate certain expenses. The Board noted the Consultants view that HFMCs process for calculating and reporting Fund profitability is reasonable and consistent with the process previously reviewed by the Consultant. In this regard, the Board noted that the Consultant had previously performed a full review of this process and reported that such process is sound and consistent with common industry practice.
Based on these considerations, the Board concluded that the profits realized by the Advisers and their affiliates from their relationships with the Funds were not excessive.
Comparison of Fees and Services Provided by the Advisers
The Board considered the comparative information that had been provided at meetings on June 18, 2019 and August 6-7, 2019 with respect to the services rendered to and the management fees to be paid by each Fund to HFMC and the total expense ratio of the Fund. The Board considered that HFMC would pay all expenses of the Trust, except for: (i) interest and taxes; (ii) brokerage commissions and other expenses (such as stamp taxes) connected with the execution of portfolio transactions; (iii) expenses incident to the creation and redemption of its shares; (iv) legal fees in connection with any arbitration, litigation or pending or threatened arbitration or litigation, including any settlements in connection therewith and any obligation which the Trust may have to indemnify its officers and Trustees with respect thereto; (v) distribution fees and expenses paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act; (vi) such extraordinary non-recurring expenses as may arise; and (vii) acquired fund fees and expenses. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to SIMNA Inc. and Wellington with respect to each Fund, as applicable. In this regard, the Board requested and reviewed information from HFMC, SIMNA Inc. and Wellington relating to the management and sub-advisory fees, including the sub-advisory fee schedule for each Fund and the amount of the management fee retained by HFMC, and total operating expenses for each Fund. The Board also reviewed information from Broadridge comparing each Funds contractual management fees and total expense ratio relative to an appropriate group of funds selected by Broadridge in consultation with the Consultant. For details regarding each Funds expenses, see the Fund-by-Fund synopsis below.
The Board considered the methodology used by Broadridge to select the applicable peer groups and noted that the peer groups are comprised of only other actively managed exchange-traded funds. While the Board recognized that comparisons between a Fund and its peer funds may be imprecise given, among other differences, the different service levels and characteristics of registered investment companies and the different business models and cost structures of the Advisers, the comparative information provided by Broadridge assisted the Board in evaluating the reasonableness of each Funds fees and total operating expenses. In addition, the Board considered the analysis and recommendations of the Consultant relating to each Funds fees and total operating expenses.
The Board received information regarding fees charged by HFMC to other Hartford Funds that are mutual funds with investment strategies similar to those of Hartford Municipal Opportunities ETF, Hartford Schroders Tax-Aware Bond ETF, Hartford Short Duration ETF, and Hartford Total Return Bond ETF. The Board reviewed information about structural, operational and other differences between the Funds and the mutual funds, including differences in the marketplace in which each type of product must compete. The Board also received information regarding fees charged by the Sub-advisers to any other clients with investment strategies similar to those of the Funds, including institutional separate account clients and registered fund clients for which a Sub-adviser serves as either primary investment adviser or sub-adviser. The Board considered the explanations provided by the Sub-advisers about any differences between a Sub-advisers services to the Funds and the services it provides to other types of clients. In this regard, the Board reviewed information about the generally broader scope of services and compliance, reporting and other legal burdens and risks of managing registered funds compared with those associated with managing assets of non-registered fund clients such as institutional separate accounts.
Based on these considerations, the Board concluded that each Funds fees and total operating expenses, in conjunction with the information about quality of services, profitability, economies of scale, and other matters considered, were reasonable in light of the services provided.
Economies of Scale
The Board considered information regarding the extent to which economies of scale may be realized as a Fund grows and whether fee levels reflect these economies of scale for the benefit of shareholders of the Fund. The Board also considered that any economies of scale achieved by a Fund would benefit HFMC due to the unitary fee structure of each Fund. The Board considered that each Fund could achieve some economies of scale as assets in the Fund grow. The Board considered that, although the Funds unitary fee structure does not have breakpoints, the Funds unitary fee rates
|
69 |
|
Hartford Active Fixed Income ETFs |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) (continued)
had been set competitively and/or priced to scale at inception and are maintained at those competitive fixed rates even if a particular Funds assets decline and/or operating costs rise. In addition, the Board considered that making additional investments intended to enhance services available to the Funds and their shareholders is another means of sharing anticipated or potential economies of scale with shareholders. The Board also considered that HFMC has been active in managing expenses, which has resulted in benefits being realized by shareholders.
After considering all of the information available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the benefit of each Funds shareholders based on currently available information and the effective management fees and total expense ratio for each Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor future growth in each Funds assets and the appropriateness of management fee breakpoints or other methods to share benefits from economies of scale.
Other Benefits
The Board considered other benefits to the Advisers and their affiliates from their relationships with the Funds.
Fund-by-Fund Factors
For purposes of the Fund-by-Fund discussion below, Fund performance is referred to as in line with a Funds benchmark where it was 0.5% above or below the benchmark return, and each Funds performance relative to its benchmark reflects the net performance of the Fund as of March 31, 2019.
Hartford Municipal Opportunities ETF
| The Board noted that the Funds performance was in the 1st quintile of its performance universe for the 1-year period. The Board also noted that the Funds performance was in line with its benchmark for the 1-year period. |
| The Board noted that the Funds contractual management fee, actual management fee and total expenses were ranked 1st out of five in its expense group. In considering the Funds expenses, the Board noted the shareholder savings expected to result from a permanent fee reduction implemented in 2018. |
Hartford Schroders Tax-Aware Bond ETF
| The Board noted that the Funds performance was in the 1st quintile of its performance universe since the Funds inception. The Board also noted that the Funds performance was in line with its benchmark since the Funds inception. The Board noted recent changes to the Funds portfolio management team. |
| The Board noted that the Funds contractual management fee was in the 3rd quintile of its expense group, while its actual management fee and total expenses were in the 4th quintile. |
Hartford Short Duration ETF
| The Board noted that the Funds performance was in the 1st quintile of its performance universe since the Funds inception. The Board also noted that the Funds performance was above its benchmark since the Funds inception. |
| The Board noted that the Funds contractual management fee and total expenses were in the 2nd quintile of its expense group, while its actual management fee was in the 3rd quintile. |
Hartford Total Return Bond ETF
| The Board noted that the Funds performance was in the 1st quintile of its performance universe for the 1-year period. The Board also noted that the Funds performance was in line with its benchmark for the 1-year period. |
| The Board noted that the Funds contractual management fee and total expenses were in the 2nd quintile of its expense group, while its actual management fee was in the 3rd quintile. In considering the Funds expenses, the Board noted the shareholder savings expected to result from a permanent fee reduction implemented in 2018. |
* * * *
Based upon its review of these various factors, among others, the Board concluded that it is in the best interests of each Fund and its shareholders for the Board to approve the Agreements. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Trustees met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant materials and consider their responsibilities under relevant laws and regulations.
|
70 |
|
THIS PRIVACY POLICY IS NOT PART OF THIS REPORT
CUSTOMER PRIVACY NOTICE
The Hartford Financial Services Group, Inc. and Affiliates*
(herein called we, our, and us)
This Privacy Policy applies to our United States Operations
If you have any questions or comments about this privacy notice, please feel free to contact us at The Hartford Consumer Rights and Privacy Compliance Unit, One Hartford Plaza, Hartford, CT 06155, or at ConsumerPrivacyInquiriesMailbox@thehartford.com.
This Customer Privacy Notice is being provided on behalf of The Hartford Financial Services Group, Inc. and its affiliates (including the following as of March 2020), to the extent required by the Gramm-Leach-Bliley Act and implementing regulations:
1stAGChoice, Inc.; Access CoverageCorp, Inc.; Access CoverageCorp Technologies, Inc.; Assurances Continentales Continentale Verzekeringen N.V; Bracht, Deckers & Mackelbert N.V.; Business Management Group, Inc.; Canal Re S.A.; Cervus Claim Solutions, LLC; First State Insurance Company; FTC Resolution Company LLC; Hart Re Group L.L.C.; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.; Hartford Casualty Insurance Company; Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Distributors, LLC; Hartford Funds Management Company, LLC; Hartford Funds Management Group, Inc.; Hartford Holdings, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest; Hartford Insurance Company of the Southeast; Hartford Insurance, Ltd.; Hartford Integrated Technologies, Inc.; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford Lloyds Corporation; Hartford Lloyds Insurance Company; Hartford Management, Ltd.; Hartford Productivity Services LLC; Hartford of Texas General Agency, Inc.; Hartford Residual Market, L.C.C.; Hartford Specialty Insurance Services of Texas, LLC; Hartford STAG Ventures LLC; Hartford Strategic Investments, LLC; Hartford Underwriters General Agency, Inc.; Hartford Underwriters Insurance Company; Heritage Holdings, Inc.; Heritage Reinsurance Company, Ltd.; HLA LLC; HL Investment Advisors, LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lattice Strategies LLC; Maxum Casualty Insurance Company; Maxum Indemnity Company; Maxum Specialty Services Corporation; Millennium Underwriting Limited; MPC Resolution Company LLC; Navigators (Asia) Limited; Navigators Corporate Underwriters Limited; Navigators Holdings (Europe) N.V.; Navigators Holdings (UK) Limited; Navigators Insurance Company; Navigators International Insurance Company Ltd.; Navigators Management Company, Inc.; Navigators Management (UK) Limited; Navigators N.V.; Navigators Specialty Insurance Company; Navigators Underwriting Agency Limited; Navigators Underwriting Limited; New England Insurance Company; New England Reinsurance Corporation; New Ocean Insurance Co., Ltd.; NIC Investments (Chile) SpA; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance Company; Pacific Insurance Company, Limited; Property and Casualty Insurance Company of Hartford; Sentinel Insurance Company, Ltd; The Navigators Group, Inc.; Trumbull Flood Management, L.L.C.; Trumbull Insurance Company; Twin City Fire Insurance Company; Y-Risk, LLC.
Revised March 2020
This report is submitted for the general information of the shareholders of the Funds referenced in this report. It is not authorized for distribution to persons who are not shareholders of one or more Funds referenced in this report unless preceded or accompanied by a current prospectus for the relevant Funds. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of any Fund listed in this report. Such offering is only made by prospectus, which includes details as to the offering price and other material information.
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.
Investors should carefully consider a funds investment objectives, risks, charges and expenses. This and other important information is contained in the funds prospectus and summary prospectus, which can be obtained by visiting hartfordfunds.com. Please read it carefully before investing.
Hartford Funds Management Company, LLC (HFMC) is the investment manager for the active ETFs. Hartford Municipal Opportunities ETF, Hartford Short Duration ETF and Hartford Total Return Bond ETF are sub-advised by Wellington Management Company LLP (Wellington). Hartford Schroders Tax-Aware Bond ETF is sub-advised by Schroder Investment Management North America Inc. (SIMNA) and Schroder Investment Management North America Ltd. (SIMNA Ltd, together with SIMNA, Schroders) serves as a sub-sub-adviser to Tax-Aware Bond ETF. The ETFs are distributed by ALPS Distributors, Inc., which is not affiliated with Wellington, Schroders or HFMC.
ETFSAR-AFI20 03/20 215499 HFA000669 Printed in U.S.A.
Item 2. Code of Ethics.
Not applicable to this semi-annual filing.
Item 3. Audit Committee Financial Expert.
Not applicable to this semi-annual filing.
Item 4. Principal Accountant Fees and Services.
Not applicable to this semi-annual filing.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) | The Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the semi-annual report filed under Item 1 of this form. |
(b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrants board of trustees during the period covered by this report.
Item 11. Controls and Procedures.
(a) | The registrants principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrants disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the 1940 Act) (17 CFR 270.30a-3(c))) are generally effective to provide reasonable assurance, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
(b) | There were no changes in the registrants internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that have materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
(a)(1) Not applicable |
(a)(3) Not applicable |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HARTFORD FUNDS EXCHANGE-TRADED TRUST | ||||
Date: April 9, 2020 | By: | /s/ James E. Davey | ||
James E. Davey | ||||
President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: April 9, 2020 | By: | /s/ James E. Davey | ||
James E. Davey | ||||
President and Chief Executive Officer | ||||
Date: April 9, 2020 | By: | /s/ Amy N. Furlong | ||
Amy N. Furlong | ||||
Treasurer | ||||
(Principal Financial Officer and Principal Accounting Officer) |
CERTIFICATION
I, James E. Davey, certify that:
1. | I have reviewed this report on Form N-CSR of Hartford Funds Exchange-Traded Trust (File Number 811-23222, CIK Number 0001501825); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed to the registrants auditors and the audit committee of the registrants board of trustees (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: April 9, 2020
/s/ James E. Davey |
||||
James E. Davey |
||||
President and Chief Executive Officer |
CERTIFICATION
I, Amy N. Furlong, certify that:
1. | I have reviewed this report on Form N-CSR of Hartford Funds Exchange-Traded Trust (File Number 811-23222, CIK Number 0001501825); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed to the registrants auditors and the audit committee of the registrants board of trustees (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: April 9, 2020
/s/ Amy N. Furlong |
||||
Amy N. Furlong |
||||
Treasurer |
||||
(Principal Financial Officer and Principal Accounting Officer) |
Exhibit 13(a)(4)(i) to Form N-CSR
Change in Registrants Independent Public Accountant
On November 6, 2019, Hartford Funds Exchange-Traded Trust (the Trust) dismissed Ernst and Young LLP (EY) as the independent registered public accounting firm with respect to each series of the Trust (the Funds). EYs report on the Funds financial statements for the fiscal period ended July 31, 2019, contained no adverse opinion or disclaimer of opinion nor was EYs report qualified or modified as to uncertainty, audit scope or accounting principles. During the Funds fiscal year ended on July 31, 2019, and through November 6, 2019 (the Covered Period), (i) there were no disagreements with EY on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of EY, would have caused them to make reference to the subject matter of the disagreements in connection with their reports on the Funds financial statements for the Covered Period, and (ii) there were no reportable events of the kind described in Item 304(a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934, as amended.
The Audit Committee of the Trusts Board of Trustees participated in and approved the decision to engage PricewaterhouseCoopers LLP (PwC) as the independent registered public accounting firm for the fiscal year ended July 31, 2020. The selection of PwC does not reflect any disagreements with or dissatisfaction by the Trust or the Board of Trustees with the performance of the Funds prior independent registered public accounting firm, EY. During the Funds fiscal period ended July 31, 2019, neither the Funds, nor anyone on their behalf, consulted with PwC on items which: (i) concerned the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Funds financial statements; or (ii) concerned the subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of Regulation S-K) or reportable events (as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K).
The Trust requested EY to furnish it with a letter address to the Securities and Exchange Commission stating whether EY agrees with the statements contained above. A copy of that letter is attached hereto as Exhibit 13(a)(4)(ii).
April 9, 2020
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Ladies and Gentlemen:
We have read Exhibit 13(a)(4)(i) of Form N-CSRS dated April 9, 2020, of Hartford Funds Exchange-Traded Trust and are in agreement with the statements contained in the first three sentences of the first paragraph in Exhibit 13(a)(4)(i) therein. We have no basis to agree or disagree with other statements of the registrant contained therein.
/s/ Ernst & Young LLP
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Hartford Funds Exchange-Traded Trust (the Registrant) does hereby certify, to such officers knowledge, that:
The semi-annual report on Form N-CSR of the Registrant for the period ended January 31, 2020 (the Form N-CSR) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Date: April 9, 2020 | By: | /s/ James E. Davey | ||
James E. Davey | ||||
President and Chief Executive Officer | ||||
Date: April 9, 2020 | By: | /s/ Amy N. Furlong | ||
Amy N. Furlong | ||||
Treasurer | ||||
(Principal Financial Officer and Principal Accounting Officer) |
This certification is being furnished to the Securities and Exchange Commission pursuant to Rule 30a-2(b) under the Investment Company Act of 1940, as amended, and 18 U.S.C. Section 1350 and is not being filed as part of the Report with the Securities and Exchange Commission.
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