Hartford Large Cap Growth ETF Q1 2026 Commentary

Growth stocks significantly underperformed value stocks over the quarter as investors rotated into cyclicals and defensive names amid anxiety about AI disruption. The portfolio's relative underperformance was driven mainly by sector allocation, with top detractors including not owning Costco and overweight positions in KKR and DoorDash. The piece points to a risk-off rotation and unfavorable positioning rather than a company-specific fundamental shock.

Analysis

The key signal is not just style rotation, but a regime shift in what the market is willing to pay for duration. When investors start monetizing AI adjacency and crowded growth exposure, the first beneficiaries are usually the “real economy” cash-flow names with visible earnings and balance-sheet optionality; the second-order losers are the high-multiple compounders whose bull case depends on continued multiple expansion, not just operating execution. That makes KKR and DASH more vulnerable than they look on fundamentals alone, because both are implicitly tied to capital-market liquidity and risk appetite.

The KKR underweight/overweight problem is more nuanced than simple factor pain: private markets are increasingly a funding source for public-market volatility, and any slowdown in exits or fundraising can feed back into management fees, deployment pace, and markups with a lag of 1-3 quarters. If public multiples keep compressing, the carry narrative becomes less effective as a valuation support, and anything that smells like “financial engineering beta” gets de-rated faster than the broad market.

DASH faces a different second-order issue: consumer demand may hold up, but unit economics can still be pressured if merchants push back on take rates or promotional intensity rises in a softer risk environment. In a rotation toward defensives, the market is implicitly saying it wants profitability today, not path-to-profitability optionality. That means even modest disappointments in order growth or contribution margin could trigger outsized downside over the next 1-2 quarters.

The contrarian view is that the move may be partially overdone if AI anxiety is driving indiscriminate growth de-risking. If AI capex and productivity gains begin to translate into better ad efficiency, lower delivery costs, or improved underwriting/portfolio returns, the market could rapidly re-rate select growth names within months. The setup argues for separating true long-duration exposure from businesses where AI is actually a margin tailwind rather than a disruption risk.

Key Decisions for Investors

• Short DASH into any 5-10% bounce over the next 2-6 weeks; risk/reward favors a further de-rating if growth decelerates or margins miss, with downside likely larger than upside in a risk-off tape.
• Reduce or hedge KKR exposure via short-dated put spreads over the next 1-3 months; the catalyst is slower exits/fundraising and multiple compression if public risk assets stay under pressure.
• Pair trade: long a cyclically exposed value basket vs. short a growth basket with KKR/DASH as constituents; this expresses the regime shift without taking broad market beta, and should work over the next quarter if factor rotation persists.
• For existing growth exposure, buy downside protection on names with AI-disruption overhangs rather than selling outright; the market is overshooting on sentiment, so optionality is preferable to linear liquidation.