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Capital Group New Economy: designed to capture growth and innovation
Mario DiVito
Investment Specialist
KEY TAKEAWAYS
  • The New Economy strategy was well-positioned going into the coronavirus pandemic and has delivered strong results compared to the MSCI ACWI.
  • The pandemic has accelerated trends across a number of industries and created some clear tailwinds 
  • Portfolio managers are focused on investing in the most dynamic globally innovative companies.

In this Q&A, investment director Mario DiVito shares some insights into the New Economy strategy and some of the reasons behind its success in 2020. 

 

Why has the New Economy strategy been so resilient this year? 


During the COVID-19 led correction in the first quarter of 2020, growth stocks defied conventional thinking in outpacing traditionally defensive sectors of the market. While some might dismiss this as an anomaly, it became clear that several leading growth companies in fact had very resilient revenue streams and strong balance sheets to provide support during the market correction. The New Economy strategy was well positioned going into the pandemic in several key industries across technology, media, and consumer discretionary that benefitted in the work from home environment. During the market pullback, top portfolio holdings Amazon, Netflix, Microsoft, and Tencent Holdings provided positive absolute results as global markets sold off. As the market recovered, many of these same positions also participated as beneficiaries of key trends established, with strong earnings to support the thesis. 


While there have been industries and companies with tailwinds in 2020, there were clear losers in the travel, leisure, and aerospace industries, which were directly impacted by collapse in demand. Within aerospace, the long-term secular growth story was disrupted and positions in both Airbus and Boeing were relative detractors. Meanwhile, in hotels, our position in Marriott International was relatively weak as hospitality industries were hit hard by reductions in travel. 

 

How has the New Economy strategy’s opportunity set evolved due to COVID-19?


This has been quite a year and it has been interesting to observe how companies have adapted to the environment. While presenting several challenges, the pandemic also accelerated trends across a number of industries and created some clear tailwinds over this period:


• The impact of major social media platforms as a global communication tool
• The importance of e-commerce, which now includes growing demand for grocery or food delivery
• The surge in media consumption to video on demand or online gaming
• The critically important role of healthcare innovation to diagnose and treat patients globally. 


The common thread across these themes is that innovation and technology enable efficiencies to drive better experiences for the end consumer. 

 

Can you give us an insight into some of the key opportunities the portfolio managers are focused on? 


Portfolio managers are focused on uncovering opportunities using a bottom-up investment approach, in order to identify leading companies within industries that have a large and growing total addressable market. One such opportunity is e-commerce penetration, which continues to grow globally. The large platforms, such as Amazon’s dominant position in the US, Alibaba in China, and Mercadolibre in Latin America, continue to gain market share. 


In a parallel track with e-commerce growth is the increased usage of digital/mobile payments in the move toward a cashless society. Top holdings in the portfolio include Mastercard. Lastly, the current environment has accelerated growth in online gaming and subscription-based entertainment. China’s Tencent – the world’s largest gaming company by revenue – reached record daily spending and daily active users (DAU) for its games Honor of Kings and Peacekeeper Elite (approximately 200 million DAU combined) during Chinese New Year. Companies that have been at the forefront of the move from linear entertainment to subscription video on demand (SVOD), such as Netflix, have benefitted from the increased demand for at-home entertainment.




Risk factors you should consider before investing:
  • This material is not intended to provide investment advice or be considered a personal recommendation.
  • The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment.
  • Past results are not a guide to future results.
  • If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease.
  • Depending on the strategy, risks may be associated with investing in fixed income, derivatives, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.
 



 

Past results are not a guarantee of future results. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

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. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.