Politics & Investing
A Campaign for Your Future
Most investors surveyed think volatility will increase leading up to the 2016 presidential election1 To gauge investor sentiment about the upcoming presidential election, we surveyed a group of American investors. Not surprisingly, a majority of us, 61%, expect the election to result in increased market volatility.
No Effect
29% 10%
Less Volatility
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK GUARANTEE
1
61%
More Volatility
Politics & your portfolio Presidential elections can be nerve-wracking. How might a new administration’s policies impact our
610% %
day-to-day lives, our jobs, and the wealth we’ve worked hard to accumulate? Presidents serve the people. And as they strive to protect our nation’s future, we must stay focused on
1our own financial futures. Because of the anxiety elections can cause, it’s important to understand the 9% relationship between politics and investments to approach the election process with confidence.
“Markets hate change, but ultimately find their footing. The upcoming election will likely cause more stress to American voters than to the stock market.” Nanette Abuhoff Jacobson Asset Allocation Strategist at Wellington Management and Global Investment Strategist for Hartford Funds
2
10%
Investor Perceptions
5%
America’s political pulse
0% J
As we head into the 2016 election, “we the people” are uncertain. The stakes have changed for this election, and we want a new type of president—one who will shake things up to face today’s challenges, such as terrorism, in addition to protecting our jobs and our portfolios.
In general, a higher percentage of investors surveyed think a Republican president will be better for their investments1
Most investors surveyed think presidents have some influence on stock market performance1
Which do you think will be better for your investments?
How much influence does a president have on the stock market?
14% 23%
43%
NONE
A LOT
64%
A LITTLE
A Republican President
24% Americans’ overall views of the federal government are very negative4
A Democratic President
Only 19% say they can trust the government always or most of the time, among the lowest levels in the past half-century
32%
60%
No Effect
Doesn’t matter
29% 10%
Less Volatility
Due to rounding, percentages may not appear to add up to 100%. 3
610% %
77%
61% 1958
1 Trust 9%the gov’t always/most of the time
More Volatility
19%
17% 1970
1980
1990
2000
2010 2015
%
%
% Jun ’15
Jul ’15
Aug ’15
Sep ’15
Oct ’15
Nov ’15
Dec ’15
Debates are great for ratings
Terrorism is the #1 issue on our minds leading into the election2 Recent trends in “most important” U.S. problems 20%
16%
15%
13%
10%
9% 7%
The first Republican primary debate, televised by Fox News in August 2015, averaged 24 million viewers.6 In past election cycles, GOP primary debates at this point have averaged only 2 to 5 million viewers.7
5% 0% 6/15
7/15
8/15
9/15
10/15
11/15
12/15
n Economy n Government n Gun violence n Terrorism
REPUBLICAN
DEMOCRATIC
MORE THAN
MORE THAN
24m 15m
P E O P L E WAT C H E D
The main hope for a new president is that we elect someone who can bring about change3 Which of the following is more important to you in a presidential candidate?
In October 2015, the first Democratic primary debate averaged 15.3 million viewers, making it DEMOCRATIC DEBATE REPUBLICAN DEBATE the highest-rated Democratic debate in history.5 M O R E T H A N M O R E T H A N
15 MILLION 24 MILLION
55%
PEOPLE WATCHED
PEOPLE WATCHED
37% New ideas and a different approach
Experience and a proven record DEMOCRATIC DEBATE MORE THAN
36%
15 MILLION
PEOPLE WATCHED 5%
Due to rounding, percentages may not appear to add up to 100%. 4
Political Party & Market Performance Political Party & Market Performance
Past party performance is no guarantee of future results Although the difference in the returns below seems to contradict the headline above, in all actuality, presidents have little direct control over the stock market.
Underlying factors that govern the stock market10
So what does control the stock market and influence the economy?
1. Company/business profitability
Average annual returns under Republican & Democrat presidential terms9
2. Interest rates Currently, low interest rates are helping to boost
Average Annual S&P 500 Returns (1/20/1961 - 12/31/2015)
Increased demand for goods and services boost company profits and, ultimately, stock prices.
economic growth and make firms more profitable, and helping stocks to look more attractive than saving money in a bank or holding bonds.
3. Investor confidence & expectations
13.29%
We’re driven by emotion. When the going is good, so are we. But when prices fall, we often follow suit and exit the market.
8.71%
4. Global markets In the course of analyzing all our investment choices, stocks can benefit when bonds or other investments seem less appealing, depending on the investing environment.
Republican
Democrat
The S&P 500 Index is a composite of 500 leading companies in the United States. Past performance is not indicative of future results. The performance shown above is index performance and is not representative of any fund’s performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only.
Black Monday If you were an investor during the Crash of 1987, it’s likely you remember that day well. On October 19, 1987, the market plummeted, shedding 22% of its value before nightfall. President Ronald Reagan was quick to reassure the nation. “All the economic indicators are solid,” Reagan said. “There is nothing wrong with the economy.”
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Does the stock market have a commander in chief? Of the many factors that influence the stock market, the president is likely the least of them. As mentioned on the previous page, broader macroeconomic influences are what truly drive the
iPhoneTM vs. White House: Which has a bigger effect on the markets?
Indeed, equities ended the year in the black. Granted, the market was only up a scant 2%. But 1987 ended in positive territory, not negative. More importantly, investors who didn’t abandon equities during those dark days were
markets. Consider this: As the largest company in the S&P 500 Index,11 the release of a new, cutting-edge product from Apple will move the market more directly than the president.
The power of the iPhone11
Made mainly overseas and sold worldwide, it stimulates the global economy
Sales typically surge when a new phone or upgrade is announced
Apple is responsible for creating and supporting 1.9 million jobs. Nearly threequarters of those jobs—1.4 million—are attributable to the iOS ecosystem12
94% of small businesses use smartphone technology, saving them $65 billion a year and increasing productivity13
handsomely rewarded. A modest $10,000 invested immediately before Black Monday on October 16, 1987, would have been worth $119,830 (average annual return 9.20%) by December 31, 2015.9
Past performance is not indicative of future results. The performance shown above is index performance and is not representative of any fund’s performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only.
$10,000 invested on 10/16/87 would have grown to
$119,830 by 12/31/15 Average Annual Return
9.20%
Political Party & Market Performance Political Party & Market Performance
Party affiliation & market performance—are they related? done well in the long term with a mix of Democratic and Republican presidents.
There’s a perpetual debate as to whether one party can better handle the presidency than the other. For investors, it’s a moot point. As the chart below shows, stocks have
$10,000 invested in 1961 would have grown to nearly $2 million in 20159 Average annual S&P 500 Index returns during each administration
$10,000,000
John F. Kennedy
Lyndon B. Johnson
Richard M. Nixon
Gerald R. Ford
Jimmy Carter
Ronald R. Reagan
1961–1963
1963–1969
1969–1974
1974–1977
1977–1981
1981–1989
12.4%
$1,000,000
S&P 500 Index
10.3%
-1.6%
S&P 500 Index
18.1%
S&P 500 Index
11.7%
S&P 500 Index
14.2%
S&P 500 Index
S&P 500 Index
12/31/60 7
1965
1970
1975
1980
1985
Past performance is not indicative of future results. The performance shown above is index performance and is not representative of any fund’s performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only.
Black Monday
U.S. Bombs Libya
Iran Contra Scandal
Record Unemployment
Reagan Shot by John Hinkley
Record Inflation
Hostage Crisis in Iran Oil Crisis
Carter's “Malaise” Speech
“Whip Inflation Now”
U.S. Withdraws from Vietnam
Nixon Resigns
Oil Embargo
Watergate Scandal
Kent State Shootings
Tet Offensive, Vietnam
Riots in Watts, Los Angeles
JFK Assassinated
Cuban Missile Crisis
$1,000
Bay of Pigs
$10,000
Assassination of Martin Luther King
$100,000
Every president faces challenging events and must conquer crises during their time in office. But as a country, we’ve always found a way to overcome them.
“America was not built on fear. America was built on courage, on imagination, and an unbeatable determination to do the job at hand.” —Harry Truman, President
George H.W. Bush
Bill Clinton
George W. Bush
Barack Obama
1989–1993
1993–2001
2001–2009
2009-2017
1995
2000
14.9%
2005
2010
ISIS Attacks
Ebola Outbreak
Troubled Debut of Affordable Care Act
80,000 People Riot as Greece Signs Austerity Measures
S&P 500 Index
The 2008 Financial Crisis
Hurricane Katrina
Enron Bankruptcy
9/11
Y2K Technology Fears
Clinton Impeached
Global Economic Turmoil
Bombing of Federal Building in Oklahoma City
Missile Attack Against Iraq
Los Angeles Riots
Persian Gulf War (Desert Storm)
Exxon Valdez Oil Spill
Iraq Invades Kuwait
1990
-2.9%
S&P 500 Index
General Motors Files for Bankruptcy Hurricane Sandy British Petroleum Oil Spill
17.2%
S&P 500 Index
War Against Iraq
15.7%
S&P 500 Index
$1,894,374
12/31/15
8
Political Party & Market Performance The Cost of Anxiety 57%
36%
Investment decisions during election years year, those who stay invested throughout, and those who 5% contribute during election years.
As the election draws near, increased uncertainty puts us on edge, and we might feel the urge to flee to safer investments.
Based on the final returns, acting on the fear of an unknown outcome may actually be more detrimental to your portfolio than waiting for the unknown to work itself out.
The chart below shows the outcomes for investors who exit the market during election years and re-enter the following
Choosing safety during election years can cost you9 Growth of $10,000 Invested in S&P 500 Index $3,000,000
$2,869,460
n Fully invested, and added $2,000 during election years $2,500,000 $2,000,000
n Fully invested n Fully invested, but moved to cash during election years $1,894,374
$1,500,000
$1,136,820
$1,000,000
$500,000
$10,000 12/31/60 1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
12/31/15
The investor who made additions invested a total of $26,000.
Past performance is not indicative of future results. The performance shown above is index performance and is not representative of any fund’s performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only.
’60
’64
’68
’72
’76
’80
’84
’88
’92
’96
’00
’04
’08
’12
’16
Presidential Wisdom Look back almost 85 years, and today’s economic concerns can seem almost trivial. The country was debilitated by the Depression when Franklin D. Roosevelt was elected president in 1932. Congress, and a beleaguered nation, hung on every word of FDR’s first inaugural address, hoping for national insight. He gave us national inspiration.
9
More ups than downs Read our lips: Investing reactively is typically a poor campaign strategy for your finances. And changing allocations before an election could be especially costly. Why?
Historically, election year returns have been positive 85% of the time. Of the last 14 election cycles, election years have produced positive returns 12 times.
Election year returns have been mostly positive9 S&P 500 Index Returns 40%
Election Year Stats
20%
Number of positive election years:
12
Number of negative election years:
2
0%
-20%
-40%
’60
’64
’68
’72
’76
’80
’84
’88
’92
’96
’00
’04
’08
’12 ’15
Past performance is not indicative of future results. The performance shown above is index performance and is not representative of any fund’s performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only. 40%
20%
0%
-20%
“Let me assert my firm belief,” Roosevelt solemnly intoned, “that the only thing we have to fear is, fear itself.” -40%
’60 ’68 ’72 desperate ’76 ’80 as ’84 Of course, he’64was right. And, those days were, $100 invested after that historic speech would have grown to some $823,600 (average annual return 11.50%) by
December 31, 2015.9 Granted, even $100 was hard to come by back then. But Roosevelt’s message was not ’88 material ’92 ’96 ’04 ’08 about things.’00Roosevelt’s words’12 then, and still today, speak to faith…in our nation, in our future, and in our ourselves.
Past performance is not indicative of future results. The performance shown above is index performance and is not representative of any fund’s performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only.
$100 invested on 3/06/33 would have grown to
$823,600 by 12/31/15 Average Annual Return
11.50% 10
Political Party & Market Performance The Cost of Anxiety
Diversify and carry a big stick Here’s another reason to stay invested: The market and its asset classes are unpredictable. The chart below illustrates that each year, different asset classes outperform.
Rather than try to time the market around an election or political party, prepare a diversified portfolio that can take advantage of the ebbs and flows of the market.
Investment performance shifts regardless of political party
Best
worst
Ronald Reagan: Term 1
Ronald Reagan: Term 2
George H.W. Bush
Bill Clinton: Term 1
Bill Clinton: Term 2
George W. Bush: Term 1
George W. Bush: Term 2
Barack Obama: Term 1
Barack Obama: Term 2
16.25
43.82
16.47
16.87
17.12
9.16
6.72
19.44
16.19
14.48
17.55
16.00
15.68
16.11
8.44
4.44
15.81
15.69
14.32
17.12
12.80
14.96
9.98
7.43
3.74
15.21
14.00
12.45
17.00
11.99
14.26
8.82
6.08
2.01
11.05
7.95
12.21
12.81
11.32
11.72
7.69
5.50
-0.66
10.51
6.11
12.21
12.10
10.59
8.00
7.45
4.75
-2.08
10.51
1.81
11.14
11.02
9.69
6.79
6.44
2.79
-5.14
3.51
1.10
9.93
9.02
6.91
5.49
6.20
2.16
-5.23
2.37
0.75
7.16
7.21
-4.15
4.67
5.40
-0.19
-5.35
0.14
0.04
n Large Caps n Mid Caps n Small Caps n International n US Government Bonds n US Corporate Bonds n Short Duration n Cash n Diversified Portfolio
Past performance is not indicative of future results. The performance shown above is index performance and is not representative of any fund’s performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only. Indices are unmanaged and not available for direct investment, and do not represent the performance of a single fund or any of the Hartford Funds. n Large-Caps Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. n Mid Caps Russell Midcap Value Index measures the performance of the mid-cap value segment of the U.S. equity universe. n Small Caps Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. n International Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE) is a free float-adjusted capitalization index that is designed to measure developed market equity performance, and excludes the U.S. and Canada. n US Governmant Bonds Barclays US Government Bond Index includes US dollar denominated, fixed-rate, nominal US Treasuries and US agency debentures. n US Corporate Bonds Barclays US Credit Index measures the investment grade, US dollardenominated, fixed-rate, taxable corporate and government related bond markets. n Short Duration Barclays 1-3 Year Government/Corporate Bond Index is a broad measure of the performance of short-term government and corporate fixed-rate debt issues. n Cash Bank of America Merrill Lynch U.S. 3 Month Treasury Bill Index is an index of short-term U.S. Government securities with a remaining term to final maturity of less than three months. n Diversified Portfolio is represented by equal allocations to all indices (except Cash). Performance is from January 20, 1981 through December 31, 2015. Source: Morningstar Direct, 1/16
“ Beginning this moment, this nation will never use more foreign oil than we did in 1977 – never.” 11
—Jimmy Carter
Faith in the future For example, innovation is so rapid that most of us take it for granted. Whether we notice it or not, new technology and products are constantly helping the economy grow by creating new jobs and products to be consumed.
Mudslinging and negative campaigning sway our focus toward pessimism, undermining our confidence to invest. But as we see it, there’s always a way to find optimism in the future and reasons to invest in it.
Innovation is constant and can drive markets14
1961-63 John F. Kennedy
1969-74 Richard M. Nixon
Audio cassettes Communications satellite Light-emitting diode (LED)
●
●
Floppy disk Liquid-crystal display (LCD) First video game
● 1963-69 Lyndon B. Johnson Artificial heart Computer mouse Bar-code scanner
––
●
1977-81 Jimmy Carter
1989-93: George H.W. Bush
Magnetic Resonance Imaging (MRI) Walkman
●
●
1974-77 Gerald R. Ford
Laser & ink-jet printers Post-It notes Liposuction
World Wide Web & Internet Digital answering machine
●
●
1981-89 Ronald Reagan
Digital cell phones Prozac
iPod & iPhone Hybrid car Facebook Blu-rays
● 1993-01 Bill Clinton
Personal GPS widely available HIV protease inhibitor Google
● 2009-16 Barack Obama 3-D printing Android iPad
Sources: The Top 50 Inventions of the Past 50 Years, popularmechanics.com, 11/05; 20th Century Timeline, inventors.about.com, retrieved 1/6/16; The 90s - the technology, science, and inventions 20th Century Timeline, inventors.about.com, retrieved 1/6/16
14
We’ve made great strides toward achieving oil independence. But while we’re currently enjoying some of the lowest oil prices we’ve seen in years, since Jimmy Carter’s presidency we’ve seen oil prices hit repeated record highs. Think back to 1979, when the nation suffered through its second gas rationing period (the first was in 1973). If your license plate ended in an
odd number back then, on an “even” day you couldn’t buy a gallon of gas at any price. Yet, had you invested $10,000 on July 16, 1979, the day after then-President Jimmy Carter’s famous “malaise” speech, your investment would have grown to $547,094 (average annual return 11.60%) by December 31, 2015.9
Past performance is not indicative of future results. The performance shown above is index performance and is not representative of any fund’s performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only.
2001-09 George W. Bush
$10,000 invested on 7/16/79 would have grown to
$547,094 by 12/31/15 Average Annual Return
11.60% 12
Political Party & Market Performance Next Steps
Your campaign for long-term success The White House
Your House
Presidential candidates have priorities and agendas with a four-year vision. We the people, on the other hand, need to have a decades-long vision. There are many influences on your portfolio beyond who’s sitting in the White House, so don’t allow anxiety around elections to derail your portfolio from working toward your long-term goals.
Stay invested in your own campaign Elections can be daunting. Will the new administration’s policy changes impact your investments? Don’t let this short-term anxiety get in the way of your long-term strategy. Making an anxiety-based change today is more likely to be harmful than weathering the potential changes you fear.
“Read My Lips…” “It’s the Economy…” Just how powerful can pocketbook politics be in deciding elections? Consider President George H.W. Bush. Bush handily won his party’s nomination (“Read my lips…No new taxes!”) and the election of 1988. By 1991, Bush seemed unbeatable for re-election, with a near record 89% approval rating following the Gulf War. But like financial markets, politics can turn quickly. By the summer of 1992, his approval rating had plummeted to a dismal 29%, weighed down by national fears that we were going into recession, and the perception that he had reneged on his promise not to raise taxes. 13
Seek a trusted advisor The president has a cabinet of informed advisors. You should, too. A financial advisor can be a guide and an effective sounding board, and can help you create a plan to stay on track toward reaching your goals. As the bar chart shows, investors who move in and out of the markets have historically underperformed the market. A financial advisor can help stay on track to reach your goals.
Individual investors have underperformed the market15 30-Year Returns for Period Ending 12/31/14
10.4%
Have a strategy session Every candidate employs an intentional, well-thought out strategy to their campaign. Have you done the same with your investments? Are your sights set on the right goals and over the right time frame? Have you considered your tolerance for risk? These are critical considerations.
3.7% S&P 500 Index
Average Equity Investor
Past performance is not indicative of future results. The performance shown above is index performance and is not representative of any fund’s performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only. Source: DALBAR’s Annual Quantitative Analysis of Investor Behavior (QAIB), 2015. Performance data for indices represents a lump sum investment in January 1985 to December 2014 with no withdrawals. Dalbar’s Quantitative Analysis of Investor Behavior Methodology: Dalbar’s Quantitative Analysis of Investor Behavior uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Index Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1985, to December 31, 2014, the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.” Based on this behavior, the analysis calculates the “average investor return” for various periods. These results are then compared to the returns of respective indices.
15
Meanwhile, little-known Arkansas Gov. Bill Clinton was capitalizing on those concerns, in what was a hard-hitting political campaign.
“It’s the economy, stupid,” became a national catch phrase symbolizing just how powerful pocketbook politics can be.
In the waning days of the campaign, polls indicated that Bush was narrowing the gap. But on November 3, economic issues overpowered international interests. Bush lost the popular vote by a 43% to 38% margin, and
$10,000 invested in January 1993, when President Clinton took office, would have grown to $74,036 (average annual return 9.12%) by year end 2015.9
Past performance is not indicative of future results. The performance shown above is index performance and is not representative of any fund’s performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only.
A $10,000 invested on 1/20/1993 would have grown to
$74,036 by 12/31/15 Average Annual Return
9.12%
At Hartford Funds, your investment satisfaction is our measure of success. That’s why we use an approach we call human-centric investing that considers not only how the economy and stock market impact your investments, but also how societal influences, generational differences, and your stage of life shape you as an investor. Instead of cookie-cutter recommendations and generic goals, we think you deserve personalized advice from a financial advisor who understands your financial situation and can build a financial plan tailored to your needs. Delivering strong performance is always our top priority. But the numbers on the page are only half the story. The true test is whether or not an investment is performing to your expectations.
Hartford Funds survey, 9/15; 794 total respondents with $100,000 to $500,000 invested.
1
2
Americans Name Terrorism as No. 1 U.S. Problem, gallup.com, 12/14/15
3
Pew Research Center, September 2015 Political Survey
Pew Research Center, Beyond Distrust: How Americans View Their Government, 11/23/15
4
5
Democratic debate hits record 15.3 million viewers, money.cnn.com, 10/14/15
6
Republican debate completely smashed CNBC’s ratings record, fortune.com, 10/29/15
7
CNBC’s debate draws record 14 million viewers - well short of Fox and CNN, money.cnn. com, 10/29/15
8
Fox’s GOP debate had record 24 million viewers, money.cnn.com, 8/7/15
Morningstar Direct, 1/16
9
Factors Affecting the Stock Market, economicshelp.org/blog, 5/4/12, most recent data available used
10
When iPhones Ring, the Economy Listens, nytimes.com, 10/25/14, most recent data available used
11
Creating jobs through innovation, 2015 Update, apple.com
12
How Mobile Technology Has Revolutionized Small Business, http://tech.co/ mobiletechnology-revolutionized-small-business, 10/26/14, most recent data available used
13
Sources: The Top 50 Inventions of the Past 50 Years, popularmechanics.com, 11/05, most recent data available used; 20th Century Timeline, inventors.about.com, retrieved 1/6/16; The 90s - the technology, science, and inventions 20th Century Timeline, inventors.about.com, retrieved 1/6/16
14
All investments are subject to risks, including possible loss of principal. Diversification does not ensure a profit or protect against a loss in a declining market. Mid-and small-cap stocks can have greater risk and volatility than large-cap stocks. Foreign investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. Fixed-income securities are subject to credit risk, liquidity risk, call risk, and interest-rate risk. As interest rates rise, bond prices generally fall. Mortgage-backed securities are subject to credit risk, interest-rate risk, prepayment risk, and extension risk.
Investors should carefully consider the investment objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus and summary prospectus, which can be obtained by calling 888-843-7824 (retail) or 800-279-1541 (institutional). Investors should read them carefully before they invest. Hartford Funds are underwritten and distributed by Hartford Funds Distributors, LLC. Hartford Funds Management Company, LLC is the Funds’ investment manager. The Funds are sub-advised by Wellington Management Company LLP (with the exception of certain fund of funds), a SEC-registered investment adviser unaffiliated with Hartford Funds. Wellington Management Company LLP is a SEC-registered investment adviser and is unaffiliated with Hartford Funds. 119087-1 MAI040_0516
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK GUARANTEE
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