Navigating volatile markets
Capital Group has been awarded Asia Asset Management’s Best of the Best Regional Award 2022 for Most Resilient Fund for its New Perspective strategy, a durable portfolio designed to help navigate volatile markets. The firm was also awarded best performing European Equity (5 Years) and best performing Global Equity (5, 10 and 25 Years).
Throughout its 48-year history the strategy has successfully invested through change. Over its lifetime, it has navigated the 1970s energy crisis, various inflationary environments, unprecedented swings in exchange rates, seismic shifts in the structure of the global economy, multiple recessions and financial bubbles, unparalleled monetary policy experiments and a global health pandemic. Throughout these periods of significant market upheaval, the portfolio has demonstrated long-term resilience and consistency in its excess return generation.
Positive excess returns
Since inception, and over three, five, ten and 15-year time periods, the New Perspective strategy has consistently captured more than 100% of the upside when equity markets are rising, outpacing the MSCI ACWI (previously MSCI World) when markets have rallied. It has also shown resilience in down markets, capturing less than 100% of the downside when global markets declined and offering investors an element of relative downside protection when markets fell.
As a core, flexible strategy, New Perspective has outpaced the global equity market during every major prolonged style-driven market cycle since 1975 and overall has delivered attractive long-term excess returns in both value-driven and growth-driven markets, with composite, index and excess returns totaling 11.5%, 8.7% and 2.8% respectively since inception, as at end February 2022.
And although New Perspective has never been constructed based on a single, top-down view of inflation, the strategy has often outpaced global markets across a variety of different inflationary environments, from deflation to low inflation to high inflation.
Current positioning
Today, Russia’s recent invasion of Ukraine has potentially significant economic impacts at a time when there is mounting pressure on investors to navigate sharply higher inflation, interest rate hikes and weaker returns from growth stocks.
And while the Russia-Ukraine situation remains extremely uncertain, from a financial perspective, Russian and Ukrainian securities have borne the brunt of the initial fallout. However, past crises have shown that it is often the second- and third-order effects that have the biggest and most lasting impact, according to Capital Group’s investment directors, Singapore-based Andy Budden and New York-based David Polak.
As it has done throughout its 90-year history, Capital Group will focus on long-term fundamentals and work closely with their clients as events unfold. However, given the circumstances, Budden and Polak acknowledge that there are additional factors at play, such as investment sanctions, trading restrictions and operational difficulties, which may have the potential to take precedence over fundamentals.
Longer term outlook
The Capital System is Capital Group’s multi-manager approach to portfolio construction, deliberately designed to achieve cognitive diversity and ensure a well-diversified portfolio of high-conviction, long-term investments. New Perspective’s portfolio is built on a truly company-by-company basis with no systematic style or factor biases. It is not based on a small number of top-down binary outcomes.
And with economic growth in 2022 likely to be slower than 2021 and inflation expected to remain at elevated levels – in part due to increasing geopolitical uncertainties – the result could be a different environment to the narrow-growth-driven markets of the past few years.
In addition, potential changes to monetary policy from some of the world’s central banks and elevated valuation multiples mean it will be key to have a well-balanced portfolio by geography, sector, type of company and natural of growth (secular and cyclical), as well as maintaining a long-term investment horizon.
Importantly, Budden and Polak do not view current investment opportunities as binary. New Perspective continues to offer exposure to various growth opportunities, as well as more cyclical and economically sensitive growth such as financials, travel and aviation, leisure and hospitality, consumption and construction. In addition, exposure to secular growers and long-term disruptors in cloud computing and digital infrastructure, e-commerce and digital payments, digital media and entertainment, electrification or vehicles and transformational health care is underpinned by a broad set of core foundational investments that include steady compounders, subscription models, networks providing annuity-like cashflows, drivers of stable long-term trends in manufacturing and logitistics and drivers of sustainability.