Capital Ideas

Investment insights from Capital Group

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Long-Term Investing
As assets have grown, our size has not been a hindrance to our highest convictions

Size and scale afford Capital Group important advantages. Our global reach, reputation and financial strength help us attract and retain talented associates committed to serving our investors. We have access to corporate management and other resources that are an intrinsic part of fundamental investment research.


In an industry that has natural redemption rates, steady, moderate growth is a benefit to our organisation and our investors. Growth provides opportunities to enhance our investment capabilities and offer new services that are relevant and provide clients with useful investment strategies.


Size and growth of assets can present challenges. We take very seriously questions about our ability to effectively manage large pools of assets, particularly at those times when assets are growing faster than the markets.


Over decades managing portfolios that are large in comparison to some other asset managers, we’ve carefully developed organisational structures, systems and incentives to help monitor and manage asset growth while enabling our investment professionals to pursue their highest convictions.


 


Scalability, flexibility and diversity


Conceived in the late 1950s, our approach to managing investment strategies, which we call The Capital SystemSM, was originally designed to enhance the consistency of our investment returns — to smooth out the highs and lows of volatility. As we’ve refined it over time, it has proven to be highly effective at helping to manage asset growth.


Funds or mandates using The Capital System are divided into portions that are managed independently by portfolio managers. In most funds/mandates, a portion of the portfolio, called the Research Portfolio, is managed directly by investment analysts, providing them the opportunity to pursue their convictions within the industries or sectors they cover.


A fund’s/mandate’s overall objective tends to be broad enough to accommodate a variety of perspectives, reinforcing our belief that there can be many paths to pursuing investment success. The assets assigned to individual managers are distinct, smaller portfolios, each of which reflects the managers’ unique approach to finding investment opportunities.


The Capital System provides a mechanism for managing large pools of assets without overwhelming individual managers with asset levels that could hinder their pursuit of high-conviction ideas. Its modular design allows us to add managers as assets grow. While we may not be able to repeat this process ad infinitum, currently there is no set limit to the number of managers on a team. Our key focus remains our ability to introduce individuals into the portfolio over time who can provide strong investment returns. Typically new managers must add value to the fund/mandate through a unique investment approach, while helping ensure that the overall portfolio remains consistent with its investment objectives. 


As we add portfolio managers and analysts across the organisation, we continually monitor and adjust the composition of Capital’s investment groups
to maintain a highly collaborative and communicative environment. Consequently, we have periodically reorganised the groups and initiated movement between them in a process that has produced the three equity groups we have today (Exhibit 1).
 


Exhibit 1: An important part of our long history has been a focus on organising our investment professionals into smaller groups to promote more effective communication and increase the diversity of investment ideas, a process we refer to as disaggregation.


Each investment group is global in scope and operates independently. Each group manages assets across a range of investment objectives.


Historical view of Capital’s equity investment groups


Source: Capital Group. Data as of 31 December 2019, unless otherwise stated.
Numbers show the % split of assets under management between growth, growth-and-income and income within each investment group. Excludes cash, fixed income and forward contract gain/loss; numbers may not sum to 100% due to rounding.


 

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.