In 2020, I dusted off my old economics textbook and reread the section on creative destruction. The term was coined by Austrian economist Joseph Schumpeter back in the 1950s. According to Dr. Schumpeter, the “gale of creative destruction” describes the constant cycle of innovation that replaces obsolete companies, products and services with new ones. The profit motive for entrepreneurs is what drives this process. This big-picture, fundamental economic concept will have a major impact on investments for the next several years. Of course, there will be harmful fallout from this process that society will wrestle with. I don’t want to minimize that. But over the long term, creative destruction is positive for investors.
Our entire fixed income investment team gets together two or three times a year to discuss macro issues and their potential impacts on bond markets in a forum we call our Portfolio Strategy Group. At last year’s virtual forums, I talked about “creative destruction at lightspeed”: how the COVID-19 shutdowns — which have extracted a distressing human toll — accelerated into a period of less than one year a cycle that could have taken years or decades.
This development could be negative for bonds in the early stages, as expanding demand runs into supply disruptions (even unproductive companies and industries produce some goods and services required by productive businesses). That could lead to a period, maybe a short period, with higher inflation that might be serious enough for central banks to re-think their commitment to zero interest rates. And that could have an impact on bond markets. But beyond that period, the major improvement in productivity should support non-inflationary growth – that’s a major positive over the long term for capital markets, including the bond market.
Capital Group Canadian Core Plus Fixed Income FundTM (Canada) reflects a lot of these ideas. The mandate is diversified and flexible, and we can allocate to non-Canadian developed market bonds, emerging market debt, high yield debt and more.
Right now, the portfolio has a slightly defensive interest rate posture, but not extremely so. It has a lighter allocation to provincial bonds and Canada housing bonds, as their valuations are stretched. On the other hand, as of the end of February, the mandate had a larger allocation to credit than the FTSE Canada Universe Bond Index, as our credit analysts have faith that they have potential through the whole cycle. And, its holdings outside of Canada are at a low level compared to past years. The portfolio’s foreign-domiciled holdings are generally hedged into the Canadian dollar. If we do get a period of inflation that impacts monetary policy, we're prepared to become more defensive in our interest rate and yield curve positioning. It’s something that we're going to be watching over the next three to six months.
Our latest insights
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
Unless otherwise indicated, the investment professionals featured do not manage Capital Group‘s Canadian mutual funds.
References to particular companies or securities, if any, are included for informational or illustrative purposes only and should not be considered as an endorsement by Capital Group. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds or current holdings of any investment funds. These views should not be considered as investment advice nor should they be considered a recommendation to buy or sell.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not be comprehensive or to provide advice. For informational purposes only; not intended to provide tax, legal or financial advice. We assume no liability for any inaccurate, delayed or incomplete information, nor for any actions taken in reliance thereon. The information contained herein has been supplied without verification by us and may be subject to change. Capital Group funds are available in Canada through registered dealers. For more information, please consult your financial and tax advisors for your individual situation.
Forward-looking statements are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied in any forward-looking statements made herein. We encourage you to consider these and other factors carefully before making any investment decisions and we urge you to avoid placing undue reliance on forward-looking statements.
The S&P 500 Composite Index (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2023 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC.
FTSE source: London Stock Exchange Group plc and its group undertakings (collectively, the "LSE Group"). © LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group companies. "FTSE®" is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under licence. All rights in the FTSE Russell indices or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indices or data and no party may rely on any indices or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company's express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication. The index is unmanaged and cannot be invested in directly.
BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Neither Bloomberg nor Bloomberg’s licensors approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
MSCI does not approve, review or produce reports published on this site, makes no express or implied warranties or representations and is not liable whatsoever for any data represented. You may not redistribute MSCI data or use it as a basis for other indices or investment products.
Capital believes the software and information from FactSet to be reliable. However, Capital cannot be responsible for inaccuracies, incomplete information or updating of the information furnished by FactSet. The information provided in this report is meant to give you an approximate account of the fund/manager's characteristics for the specified date. This information is not indicative of future Capital investment decisions and is not used as part of our investment decision-making process.
Indices are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.
All Capital Group trademarks are owned by The Capital Group Companies, Inc. or an affiliated company in Canada, the U.S. and other countries. All other company names mentioned are the property of their respective companies.
Capital Group funds are offered in Canada by Capital International Asset Management (Canada), Inc., part of Capital Group, a global investment management firm originating in Los Angeles, California in 1931. Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.
The Capital Group funds offered on this website are available only to Canadian residents.