The Cold War was raging, Jimmy Carter became the first candidate from the Deep South elected President since the Civil War and Apple Computer was a newly established company the year Joyce Gordon began her career at Capital Group. She started as an assistant at age 19 – the youngest employee ever hired at the firm at that time.
It didn’t take Gordon long to recognize that the investment analyst role was the job to have at Capital. “For the first couple of years I was in a clerical role, but I decided pretty quickly that I wanted to work as an investment analyst,” she recalls. “Portfolio managers depend on the analysts to provide the information they need to make investment decisions. And I really liked the camaraderie and mutual respect among the investment professionals.” With Capital’s backing, Gordon earned her degree and then an MBA at night. In 1987 she became an analyst covering savings and loans.
“Two years later, my responsibilities expanded to include the banking sector. That was in 1989, right before the commercial real estate crisis, when the average bank lost 67% of its value over 12 months,” she says. “It was about the only group of stocks that was declining because the crisis was centred around real estate. It was a lonely existence. I remember my research director saying, ‘Joyce, you are so lucky. You’re getting five years’ experience in one year.’”
Today, Joyce is an equity portfolio manager and here she shares her perspective on the current environment and the lessons learned about investing through volatile markets.
The U.S. economy is firmly in late-cycle territory. How are you thinking about portfolio positioning today? Are you doing anything differently?
Now that the Federal Reserve has halted its interest rate hikes and taken a more dovish stance, I expect the decade-long U.S. expansion can continue, even though we are in the late stages of the cycle. I also feel that markets can continue to offer appreciation.
But equity markets tend to be more volatile during the late cycle. In part, that’s because order volumes start to come down — or at least level off — which increases the potential for companies to fall short of their earnings estimates. So I expect markets to be volatile going forward.
In this environment I am looking to be more defensive, focusing on established companies with a track record of generating steady revenue regardless of what is happening in the economy.
What type of companies are you looking at today that might have those qualities?
Utilities with long-term contracts and a stable rate base, tend to hold up well in troubled economic times. I also look closely at U.S. defense contractors, health care companies, and food companies, many of which have held up better than the market during past declines.
These types of companies tend to have low debt levels; sometimes they are net cash. And many of them pay dividends. I am looking not just for a high dividend yield — but the longer this expansion continues, the more attention I pay to dividend sustainability. I want to make sure a company will be able to pay its dividend through the cycle. Should a company decide to cut its dividend, support for the stock price collapses. That’s what happened with a lot of companies in the Great Recession of 2008 and 2009.