Capital Ideas

Investment insights from Capital Group

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Long-Term Investing
A distinctive approach to investing
Rob Lovelace
Equity Portfolio Manager

Capital Group has been investing around the globe for more than 60 years. Its unique multiple-portfolio manager approach, The Capital SystemSM, sets it apart from many other global asset managers. Rob Lovelace – who is vice chairman and president of The Capital Group Companies, chief executive officer of Capital Research and Management Company, and an equity portfolio manager has been instrumental in the evolution of the New Perspective strategy. In this Q&A, he explains what differentiates Capital Group, and sets out the importance of collaboration in maintaining a competitive advantage.


What is unique about Capital Group?


At Capital Group, our aim is to manage assets so that people have the financial resources that they need, throughout their lives and in their retirement. We are entrusted with our investors’ assets; we manage them and our investors expect their investments to grow over time. We take that responsibility seriously, and have decades of experience of taking a truly long-term approach. We strive to build long-lasting relationships, some of which could last many decades.


We know that there are some asset managers with a long pedigree, but it is unusual to have one – like Capital Group – that is culturally and philosophically the same company as it was when it began.


Many of our competitors have undergone multiple mergers and transformations over time, so those companies simply do not resemble the organisations they evolved from. We have grown, but we have the same goals and underlying principles that we had when the company was founded, in 1931.


What is The Capital SystemSM, and how did it come about?


We use a multiple-portfolio-manager system that was designed in the 1950s, in response to a problem of succession planning. We recognised very early on that having to switch managers can be challenging in terms of trying to ensure continuity of results. At that time, one significant manager had a health issue, and there was a debate about who should replace him. There were two possible candidates, both of whom had similar track records, and it was decided that whoever did better over a two-year period would become the manager.


Over that time, one manager initially did better, but then the other pulled ahead. Overall, however, their returns were broadly comparable over the entire period. This is important – it showed us that either manager might have been effective in the role, but that in working together it could be possible to deliver our investors good outcomes with lower volatility.


In our view, volatility of results matters. Too much volatility may unsettle investors and may lead them to sell at difficult periods. Recognising this helped us to create a modular system that draws on the skills of a number of managers working together.


We maintain extensive records of historical returns and investment characteristics, enabling us to identify established trends and patterns from individual managers. By understanding how managers and individual portfolios have behaved in a variety of market conditions, we can build balanced teams made up of individuals with diverse approaches. (Former and current New Perspective managers are highlighted in Exhibit 1, below.)


Our modular system – The Capital SystemSM – allows managers to follow their highest convictions while limiting the risks associated with isolated decision making. It allows management to flow seamlessly from one active manager to another, if changes are needed, without disrupting the philosophy of a strategy. It helps us deal with inflows and outflows effectively too, as we can expand or contract the team as the assets under management change.


 


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, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.


Rob Lovelace is vice chairman and president of The Capital Group Companies, Inc., chief executive officer of Capital Research and Management Company, and an equity portfolio manager. Rob has 35 years of investment experience (as-of 12/31/2020), all with Capital Group. Earlier in his career, Rob covered global mining & metals companies as an equity investment analyst. He holds a bachelor’s degree in mineral economics (geology) from Princeton University. He also holds the Chartered Financial Analyst® designation. 


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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.