New Perspective strategy: navigating volatile markets
Equity Investment Director
May 30, 2022
Russia’s military aggression against Ukraine, which has become Europe’s largest ground war in generations, has impacted millions of people and triggered a large-scale humanitarian crisis as vulnerable Ukrainians take shelter or flee their homes. The intensification and spread of the conflict is deeply troubling and is having a devastating impact on those people caught in the crisis. This article focuses on the market and economic implications of the conflict.
Russia’s invasion of Ukraine has sent shockwaves through the world. In addition to the tragic impact on the Ukrainian people, the conflict has potentially significant economic impacts. The sanctions that have been put in place against Russia – coupled with the highly unpredictable situation – have resulted in considerable market volatility. This comes at a time when there is mounting pressure on investors to navigate sharply higher inflation, interest rate hikes and weaker returns from growth stocks.
While the extent of the latest developments remain unclear, it is worth remembering the importance of sound investment advice, portfolio diversification and taking a long-term perspective.
A track record of resilience
Throughout its 48-year history, the Capital Group New Perspective strategy has successfully invested through change. Over its lifetime, it has navigated the 1970s energy crisis, various inflationary environments, unprecedented swings in exchange rates, seismic shifts in the structure of the global economy, multiple recessions and financial bubbles, unparalleled monetary policy experiments and a global health pandemic.
Throughout these periods of significant market upheaval, the portfolio has demonstrated long-term resilience and consistency in its excess return generation.
New Perspective strategy’s excess returns across a variety of market environments
Since inception in 1973
Upside and downside capture ratios
Value vs. Growth
Average rolling three-year excess returns p.a. in different style environments2
Average rolling three-year excess returns p.a. in different inflationary environments3
Past results are not a guarantee of future results. Returns in US$ terms. Results shown for the Capital Group New Perspective Composite (inception: 31 March 1973) are asset-weighted and based on initial weights and monthly returns. Relative returns calculated geometrically for the Capital Group New Perspective Composite, compared with the index in footnote 1.
Up/down markets: Positive excess returns
Since inception, and over 3, 5, 10 and 15-year time periods, the New Perspective strategy has consistently captured more than 100% of the upside when equity markets are rising. This means it has outpaced the MSCI ACWI1 when markets have rallied. Importantly, it has also shown resilience in down markets, capturing less than 100% of the downside when global markets declined, offering investors an element of relative downside protection when markets fell.4
Different style-driven environments: Positive excess returns
New Perspective is a core, flexible strategy that has outpaced the global equity market1 during every major prolonged style-driven market cycle since 1975.4 The exception to this was the three-year period in the mid-1980s, which was primarily due to the portfolio being underexposed to Japanese-listed companies at the height of the Japan equity bubble, rather than any type of ‘style’-driven market environment. Overall, the strategy has delivered attractive long-term excess returns in both value-driven and growth-driven markets
Different inflationary environments: Positive excess returns
Although New Perspective has never been constructed based on a single, top down view of inflation, the strategy has often outpaced global markets across a variety of different inflationary environments, from deflation to low inflation to high inflation.
The Russia-Ukraine situation remains extremely uncertain, with each day bringing new developments that can have reverberating impacts around the world. From a financial market perspective, Russian and Ukrainian securities have borne the brunt of the initial fallout. However, past crises show us that it is often the second- and third-order effects that have the biggest and most lasting impact.
Russian holdings represent 0.00% (rounding to the hundredths place) of the portfolio. 5, 6 Our portfolio managers are closely monitoring the situation and analysing ongoing developments and will adjust holdings as needed, subject to prevailing regulations.
As we have done throughout our 90-year history, we will focus on the long-term fundamentals and work closely with our clients as events unfold. But given the circumstances, there are additional factors at play such as investment sanctions, trading restrictions and operational difficulties, which may have the potential to take precedence over fundamentals.
Data as at 31 December 2021 and attributed to Capital Group and/or MSCI, unless otherwise specified.
Past results are not a guarantee of future results
1. MSCI ACWI (with net dividends reinvested) from 30 September 2011; previously MSCI World (with net dividends reinvested).
2. Relative return of MSCI ACWI World Growth and MSCI ACWI World Value (with net dividends reinvested) used to determine when “value outperforms growth” and “growth outperforms value” from 30 September 2011; previously MSCI World (Growth and Value).
3. Based on US inflation rates using the IA SBBI US Inflation index. Source: CFA Institute
4. Results for the Capital Group New Perspective Composite, gross of management fees and expenses in US$ terms.
5. Provisional portfolio holdings data as at 11 March 2022. As a result of rounding to the nearest hundredth. Data shown for Capital Group New Perspective Fund (LUX) as the representative account for the strategy.
6. Due to the current situation in Russia and Ukraine, while the Russian domestic stock market was suspended for the entire day on the 28 February, our Russia and Ukraine equity securities (including global depository receipts and American depository receipts) held in the portfolio reflected the market price decline on the 28 February. As a result, there has been a negative impact on portfolio relative to the index. Russian holdings in all Capital Group portfolios are now being Fair Valued in accordance with Capital Group’s standard procedures.
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. Currency hedging seeks to limit this, but there is no guarantee that hedging will be totally successful.
Depending on the strategy, risks may be associated with investing in fixed income, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.
Andy Budden is an Investment Director at Capital Group. He has 30 years of investment industry experience and has been with Capital Group for 19 years. Earlier in his career at Capital, he was an investment specialist. Prior to joining Capital, he worked at Watson Wyatt Investment Consulting. He holds both a master’s degree and a bachelor’s degree in engineering from the University of Cambridge. He is an associate member of the Institute of Actuaries. Andy is based in Singapore.
David Polak leads the team for equities and represents a number of Capital’s global equity strategies. In addition, he is the global investment director for ESG. He has 38 years of investment industry experience and has been with Capital Group for 16 years. Prior to joining Capital, he was a managing director in the equity businesses of UBS and Deutsche Bank. He holds a bachelor’s degree in economics from University College London graduating with honours. David is based in New York.
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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.