A history lesson for turbulent times: ‘Stay calm and stay invested’

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This is a sponsored article from Capital Group.

History has shown that investors can navigate troubled economic waters by trusting in the long-term prospects of multinational companies with the resources and flexibility to bear the whips and scorns of time.

Escalating Sino-US trade tensions, the seething cauldron of Brexit, and rising volatility in global financial markets have combined to send a collective shiver through the investment universe as 2019 dawns beneath dark clouds of uncertainty.

But opportunities remain, particularly for investors who are prepared to take a long-term view and favour multinationals with the resources and flexibility to react to changing conditions, according to Capital Group. Capital Group’s New Perspective strategy has delivered annual returns of 11.0% p.a.1 over its 45-year history, driven by a reassuring philosophy: stay calm and stay invested.

“The way we look at the world is that there are a lot of great things going on and a lot of really good companies to invest in at attractive valuations, so the prospects for decent investment returns are good,” said Andy Budden, Capital Group’s investment director.

“But you have to be smart and selective about which stocks to hold and which markets to invest in. Secondly, you have to accept we are going through a period when volatility is coming back and it is going to be a rocky road.”

Managed by the same experienced team and following the same flexible approach as the US strategy, the Capital Group New Perspective Fund (LUX) is now available to investors in Europe and Asia (since 30 October 2015).

A rocky road with a silver lining
The road ahead could be as long as it is rocky, with Budden describing the trade conflict between the US and China as a multi-faceted issue that could persist for decades to come.

“This strategic rivalry is likely to continue for the next 20-30 years, so this is something we need to get used to and really learn to understand,” he explained, adding that multinationals have the innate ability to react to such situations, defining their ability to thrive in adversity.

“By definition, they are operating in multiple markets. They have diverse revenue streams and often diverse ranges of products,” he said.

“They have facilities in many markets around the world, which gives them a lot of flexibility. And they have experienced management teams, many of which have been through these kinds of challenging situations before.”

Nike – a company caught more than most in the crosshairs of the current trade war – is a powerful case in point.

“The reality is Nike has been developing production facilities outside China for a number of years in response to cost pressures in China. So it is quite easy for Nike to accelerate its investment in low-cost production outside China,” Budden said.

“Is this disruptive for Nike? Yes. But is Nike flexible and agile and very experienced in dealing with these kinds of situations? Yes, absolutely. They can quickly react to this different type of environment.”

The same core belief has persuaded Capital Group to remain invested in Amazon since 2007. It continues to see attractive long-term potential for the company as e-commerce grows and cloud computing remains at an early stage of its upward trajectory.

Capital Group is also very positive on the prospects for biotech, and Budden believes companies creating new treatments for critical disease and personalised medicine will “transform healthcare and be an exciting place to invest”.

Global air travel is set to be yet another area of explosive growth.

“We are really quite excited about the aircraft manufacturers benefitting from continued growth in the number of people travelling by air, especially in Asia where there were 100 million first-time travellers in 2017 alone,” he explained.

Fortune favours the patient
In this new era of colliding uncertainty and growth potential, investors should raise their eyes from bleak daily headlines and apply the sense of historical context that has produced strong gains for the New Perspective strategy over four-and-a-half decades, Budden believes.
“Our advice to investors right now is to stay calm and stay invested. People should only be investing in equities for the long term, but especially when you have this combination of long-term growth characteristics with heightened volatility, it really is important to stay invested,” he said, adding that since 1949, the average decline in the S&P 500 over the course of nine recorded bear markets was 33%2, while the average gain for bull markets over the same period was 263%.2

“History shows that investing with a long-term horizon and riding through bear markets and recessions can be rewarding,” he said. “Staying invested matters more than market timing. The important thing is to find great companies and great funds and stay invested in them over the long term.”

1 Data as at 31 December 2018. Returns calculated geometrically for the Capital Group New Perspective Composite, in US$ terms, from inception (31 March 1973). Net of management fees and expenses for the B share class as a representative share class of Capital Group New Perspective Fund (LUX) (launched 30 October 2015), applying the maximum Total Expense Ratio (TER) of 165 bps, based on the long-term annual management charge of 150 bps. Source: Capital Group2 As at 31 December 2018. Bear markets are peak-to-trough price declines of 20% or more in the S&P 500. Bull markets are all other periods. Returns shown on a logarithmic scale. Sources: Capital Group, RIMES, Standard & Poor’s

FOR PROFESSIONAL INVESTORS AND INFORMATION PURPOSES ONLY

Past results are not a guarantee of future results. The value of shares and income from them can go down as well as up and you may lose some or all of your initial investment. This information has been provided solely for informational purposes and is not an offer, or solicitation of an offer, or a recommendation to buy or sell any security or instrument listed herein.

This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. It has not been reviewed by the Hong Kong Securities and Futures Commission. Statements attributed to an individual represent the opinions of that individual as of the date published and may not necessarily reflect the view of Capital Group or its affiliates. While Capital Group uses reasonable efforts to obtain information from third-party sources which it believes to be reliable, Capital Group makes no representation or warranty as to the accuracy, reliability or completeness of the information.

This communication has been prepared by Capital International, Inc., a member of Capital Group, a company incorporated in California, United States of America. The liability of members is limited. The Fund is a sub-fund of Capital International Fund (CIF), organised as an investment company with variable capital (SICAV) under the laws of the Grand Duchy of Luxembourg and authorised by the CSSF as a UCITS. CIInc is the Representative of the Fund in Singapore and Hong Kong. A copy of the Hong Kong Covering Document and the Singapore Prospectus incorporating the Luxembourg Prospectus for the fund is available online at www.thecapitalgroup.com/asia.

© 2019 Capital Group. All rights reserved.

This is a sponsored article from Capital Group.

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