Who’s the new bond leader among active management firms in the U.S.? According to Institutional Investor magazine, it’s Capital Group.
In an article published in March entitled “This New Bond Leader Doesn’t Have a King,” the magazine documents the slow, steady rise of the global Capital Group organization in the fixed income universe. Founded 92-years ago as an equities-only investor, Los Angeles-based Capital Group bought its first bonds — U.S. Treasuries and corporates — many years later in 1973.
The magazine extols Capital Group as an “intentionally faceless asset manager” that has “significantly outgrown its peers” among U.S.-based active managers. Over the past five years, Capital Group’s U.S.-based fixed income strategies have pulled in more than double the fixed income strategy assets of any active peer, according to the magazine.
As of March 31, 2023, Capital Group manages US$467 billion in fixed income assets around the world across a wide variety of bond strategies, including core, global, and multi-sector credit.
Broad fixed income capabilities
In terms of personnel, the global Capital Group organization has 241 investment professionals in fixed income, with expertise spanning portfolio management, research and macro analysis, trading and more.
A process built on experience
This didn’t happen overnight, explains Capital Group fixed income business development director Ryan Murphy, who is featured in the article. Murphy acknowledges the fixed income buildout picked up speed over the last 10 years as the fixed income world demanded greater research capabilities, coverage and expertise.
The foundational pillar bringing it all together is The Capital System™ of investing, which also explains the “doesn’t have a king” reference in the article’s title. Unlike some investment management companies that rely on a single individual or “star portfolio manager,” Capital Group doesn’t have any singular decision-maker or “star.” Rather, for its funds the firm uses teams of portfolio managers who manage individual sleeves. Another crucial point of differentiation is that Capital Group analysts also get their own sleeve of a portfolio to manage, a structure uncommon in the industry. The multi-manager structure has resulted in better collaboration and investing, and it incentivizes analysts who often deliver the best ideas out of their research, Murphy says.
“As a firm with deep research and immense collaboration among the fixed income and equity analysts, the investment teams know the industries and companies — their businesses and the capital structures — really well,” Murphy says.
Discussions with Capital Group equity professionals bridge the world between stocks and bonds, with fixed income investment professionals routinely meeting with their counterparts sharing research, intelligence and insights that benefits investors in both asset classes.
“There’s always an investment opportunity somewhere across the fixed income universe. Maybe it can be found in credit curves, maybe liquidity is mispriced, maybe the market’s view of an industry or country or sector is different from ours or maybe companies aren’t valued correctly. Because there’s always an investment opportunity, you must be flexible when it comes to generating alpha. If you rely too heavily on one tool or only have skills in one area, then when that area is fairly priced, there’s less room to add value. But our investors deserve and expect good returns, so you should have experience, capabilities and insight in every dimension of the market,” says Murphy.
Overlaying both equity and fixed income worlds are macroeconomic and political economists who are regional specialists. Some are U.S.-focused, others European and still others Asia and the Pacific Rim. There’s also a multidisciplinary research team at Capital Group that seeks to gain a deeper understanding of market disruptions, assessing the risks and evaluating the opportunities that arise during times of crisis.
“Collaborative views — independent views — is how you elicit better bottom-up implementation and investing. It’s an acknowledgement that you don’t want one voice dominating the room and you don’t want to run into the perils of groupthink,” Murphy said.
The structure also creates career development and succession opportunities that might be less common or even nonexistent at other asset managers.
This was recently exemplified in 2023 with the retirement of fixed income portfolio manager Thomas Høgh, who retired after 32 years with Capital Group. Høgh, who got his start at Capital as a fixed income analyst covering Yankee bonds and non-U.S. bond markets, progressed to become a portfolio manager and worked on two Capital Group funds in Canada: Capital Group Global Balanced Fund™ (Canada) and Capital Group World Bond Fund™ (Canada). He has been succeeded by fixed income portfolio managers Philip Chitty on Global Balanced and Tom Reithinger on World Bond. Chitty has 19 years of experience at Capital and Tom Reithinger, nine years.
“The multiple-manager system eases transition planning and avoids the perils of a ‘star system’ reducing key-person risk,” says Murphy.
In so doing, it’s designed to last generations and is a key reason the global Capital Group organization is marking 50 years of fixed income investing.
“And we’re looking forward to the next 50,” says Murphy.
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