Capital IdeasTM

Investment insights from Capital Group

Global Equities
Episode 26 – Durable secular trends
Matt Reynolds
Investment Director
Jody Jonsson
Vice Chair

In this episode, Equity Investment Director Matt Reynolds engages with Jody Jonsson, Vice Chair of Capital Group and Portfolio Manager, covering three significant areas. Firstly, Jody shares her current perspectives on the markets and highlights areas that she’s finding interesting. Secondly, as a US-based investor with a global outlook, Jody discusses the types of companies she actively seeks and highlights their long-term attributes. Finally, the discussion delves into the durable secular growth drivers that are poised to shape future results.

Matt Reynolds is an investment director at Capital Group. He has 31 years of investment industry experience and has been with Capital Group for five years. Prior to joining Capital, Matt worked as head of Australian equities at Colonial First State Global Asset Management. He holds a bachelor's degree in economics from The University of Sydney. He also holds the Chartered Financial Analyst® designation. Matt is based in Sydney.

Jody Jonsson is vice chair of Capital Group and president of Capital Research and Management Company. She also serves on the Capital Group Management Committee and is an equity portfolio manager. She has 35 years of investment industry experience and has been with Capital Group for 33 years. Earlier in her career, as an equity investment analyst at Capital, Jody covered insurance, U.S. household & personal care, restaurants & lodging and cruise lines companies. Before joining Capital, she was an equity research analyst at Fidelity Management & Research Company in Boston and an officer in the public finance division of Irving Trust Company in New York. Jody holds an MBA from Stanford Graduate School of Business, where she was an Arjay Miller Scholar, and a bachelor’s degree in economics from Princeton University graduating cum laude. Jody is based in Los Angeles.

Matt Reynolds: Hello, I'm Matt Reynolds and this is Capital Ideas, your connection with the minds and insights helping shape the world of investments. Today I'm joined by Jody Jonsson, who is Vice Chair of Capital Group and Portfolio Manager on New Perspective Fund.

Today we're going to cover in this podcast, three areas of interest. Firstly, we'll touch on Jody’s current views of the markets and areas that she's finding interesting. Secondly, we'll be looking at Jody’s investment as a US-based investor with a global perspective, the types of companies she's looking for and their attributes over time. And then finally, from a third area, we'll look at and touch on some of the very durable secular growth drivers that we think could help to support results as you look forward over the longer-term. So, Jody, welcome to the podcast.

Jody Jonsson: Great to be here with you, Matt. Thank you.

Matt Reynolds: And if I can just start off with your views of the current views on the markets. We've obviously seen the macro transitioning a lot over the last couple of years, and we've also seen the markets narrow in their leadership over the last year or so, very aggressively. How do you use these two phenomena in framing your views of the current investment environment?

Jody Jonsson: Well, it is true that markets up to now have been fairly narrowly focused on the largest capitalization US technology companies. But I do think that's changing. And that's a positive for stock pickers such as ourselves, I think. Already, the Magnificent Seven are not really acting as a group. They have very different fundamentals. They're in completely different businesses. And at least year to date in 2024, they've been behaving very differently in terms of their performance as stocks.

It's also encouraging, I think, that this year we've seen other markets contributing more. Japan, Europe, and other sectors beyond technology have participated in market leadership. So, I think we're already seeing a broadening. But more widely than that, I do think we're in a different environment than we've been in for the last 30 to 40 years. Basically, my entire career, we've been in an environment of declining interest rates and declining inflation. And an environment where generally geopolitics were benign, and the world was coming together and globalizing more and more. And I think in the last couple of years, many of those conditions have gone into reverse somewhat, or at least gone into a more normalized environment, let's say with interest rates and inflation out of the zero rate, zero inflation environment we've been in for the last 15 years or so. And I think this is just healthy normalization. But I think it is a different environment than we've been accustomed to for the last couple of decades. And so, I think we have to think a little bit differently about valuations, cost of capital and that sort of thing.

Matt Reynolds: And so, when we think about that type of environment, does that influence the way you see growth in terms of what you're looking for in some of the sectors around the world? I mean, the Magnificent Seven from your comments, I'm going to suggest maybe some of them don't look so magnificent so far this year. And as that market broadens out, are you looking for different aspects of the market from a growth point of view, maybe even from a sector point of view?

Jody Jonsson: Yes, as I said, I think the market's been very focused on technology as the main growth sector. But we've been finding growth in many other areas that are a little bit less obvious. We've been fans of health care for a long time. We're interested in industrial companies that can help on the transition toward decarbonization and electrification. We think there are a lot of areas of growth that the market has kind of overlooked. And I do think in a higher interest rate environment, you have to think about cost of capital differently. A zero-rate environment favoured a lot of companies that were unprofitable or had unproven business models. When all of a sudden, the cost of capital goes higher, those business models are shown to be vulnerable often. And so, I think it favours companies that are self-funding, have strong balance sheets, and are less dependent on the whims of the equity market.

Matt Reynolds: Okay, that's great. In your earlier comments, you touched on Japan. In Japan, the equity market has been very strong. What is your current view on Japan?

Jody Jonsson: I would say that our analysts are finding more to get excited about in Japan than they have in quite a long time. And to me, it feels like it's awakening from a long slumber. I think managements of companies have gotten a lot more aware of capital allocation, returns on capital, more focused on divesting of businesses that are not core, unwinding cross shareholdings, things like that, all of which I think are favourable for how returns on capital should improve in that market.

Matt Reynolds: Okay, so let's broaden out that thought a little bit more in terms of your based in LA, but you're truly a global investor with a global remit to invest in really any geography. But how do you narrow that down from a company point of view? What are you looking for in terms of the companies you want to include in your portfolio?

Jody Jonsson: So, my remit is to invest in what I call the global champions. I tend to favour strong multinational companies that have demonstrated proficiency outside of their home markets, that have clearly demonstrated an ability to operate around the world, to diversify their supply chains, their sources of production, their customer bases. And most of those companies don't depend on the economy of any particular country or region. They are truly global in how their business is spread around. And I think that also makes them more resilient. As we've seen some of the shocks that have happened post COVID, we've seen often where companies were vulnerable because they were too reliant on a certain region or a certain supplier. And I think companies are now moving towards establishing more resiliency and redundancy in their operations. And I think multinational companies are best positioned to do that at the lowest cost.

Matt Reynolds: Do you think multinationals can still thrive in a world that's increasingly characterized by a geopolitical risk environment where there's great uncertainty in some of the trading patterns, we've seen post COVID? How does a global champion act in terms of dealing with those new forces?

Jody Jonsson: I actually think those are the companies that are best positioned to deal with these sorts of changes. They're experienced in dealing with geopolitical uncertainty, disruptions, wars, inflation, supply shocks. Most of those companies have considerable experience in difficult environments. And I think we can point to many examples, like in semiconductors and pharmaceuticals and elsewhere where companies have quite nimbly responded to these challenges.

Matt Reynolds: Okay. So, from a geography point of view, does it concern you if you have more or less weighting to a particular geography as a result? Or are you more agnostic to that?

Jody Jonsson: Well, what we find with these global champion companies is that they're really not that dependent on the geography in which they are based. Their country of domicile is just incidental to where they're actually doing business. And when we look through to their underlying revenues, many of our companies are doing a third or more of their business in emerging markets, for example. So, when we look through our portfolio sort of transparently, we see that the actual location of their business is quite different from where they're domiciled. And so, just looking at the domicile, the portfolio holdings we have doesn't tell you the whole story about where they're operating.

Matt Reynolds: Yeah, that's a great insight.

Matt Reynolds: So, let's move on to the final part of the podcast and talk about some of the more durable secular trends that we observe as investors. Almost no conversation can go on these days without talking about AI. So, I'll bring it up right now. From an artificial intelligence point of view, how do you incorporate AI into your own thinking as a longer-term investor?

Jody Jonsson: Well, AI is certainly the theme of the moment and we do think it is a very important and game changing technology and I think we're in the earliest innings still of figuring out what it's going to mean beyond the technology sector. Obviously, the market has flocked to the clear beneficiaries such as the chip manufacturers and the hyperscalers. But I think the more interesting analysis will be how we differentiate within other industries like healthcare or financial services and how we identify the companies that are employing AI in a truly effective, cost saving, productive way and those who aren't. And I think that that would be the real differentiator. It's way too early at this stage to be able to identify those companies, but I think that's an opportunity for us as investors.

Matt Reynolds: Yeah. You touched on healthcare just a moment ago. Can we unpack that a little bit more? There seems to be some terrific new drugs that have come to market, most notably the GLP 1 drugs, which are obviously very well known by the audience. How do we think about investing in the healthcare sector? It's difficult. There's a lot of terminology and a lot of science within the sector. How do you approach that investment and what's your perspective on the potential for the healthcare over the medium to longer term from an investment point of view?

Jody Jonsson: One of the things we look for is a culture of innovation in a company. And our analysts go very, very deep on trying to understand how the companies are organized, how they attract the best scientists, often how they partner or are in license from other companies, and whether a company has enough in its pipeline and in its process of drug and other treatment development to sort of have a continuous model that doesn't just depend on one hit wonders. And so those are the kinds of companies that I try to look for - where I think they have a repeatable process in their own, I don't want to say just drugs, but their discovery, can they go beyond their first initial hit to other therapeutic areas that are not already very well served by other companies?

Matt Reynolds: It sounds similar to some of the recurring revenues or indeed, the picks and shovel types of revenues you see in industrials. Is that still a valid investment in a valid area to look for investments as well in terms of those industrial sectors?

Jody Jonsson: Well, the picks and shovel part around healthcare, we think yes, in terms of contract manufacturing, the companies that provide the fill and finish and the vials and all of the things that go into both discovery and research as well as delivery of the drugs themselves. You don't necessarily have to pick a winner there. You just know that the whole industry is going to need those inputs to the process.

On the more industrial side, yes, we do think there are a number of companies there. Again, not the most obvious ones, not necessarily the ones that everyone identifies as renewables beneficiaries, but there are other companies like Caterpillar, for example, which are quite involved in electrification, decarbonization. You wouldn't think of them. You think of Caterpillar making mining equipment, how is that decarbonizing? But they're doing a lot of autonomous vehicles, they're involved in mining the metals and minerals that go into electric batteries, etc. So, there are lots of ways that they win in this industrial and energy transition.

Matt Reynolds: Well, that's great, Jody. Thank you very much for those thoughts today. Just to bring it all together, really interesting to hear, you know, sort of three key areas in terms of your views.

The current market environment is almost more normal in terms of both rates and inflation at the moment. Secondarily, we're looking for global champions that can access many of the changes that we see in the world going forward in a really geographic, agnostic way. And then finally, looking longer-term, we're looking at the healthcare sector and other areas such as industrials where there's real innovation and a real potential for long-term results to be supported as they go about either discovering their new drugs in terms of the pipelines in healthcare. We're seeing AI creep into a lot of different investments from an enabler point of view that may flow into other industrials. And we're also seeing some of the more classic industrial’s areas, the piece and shovel suppliers, if you like, to industry change over time. So again, thank you, Jody. It's been great to have you on today's podcast.

Jody Jonsson: Thank you, Matt. It's a pleasure to be with you.

Matt Reynolds: We're always trying to get better. So, if you have any feedback, including topics you'd like to see addressed in future episodes, send us an email at Capital Ideas Podcasts Australia at And if you like what you've heard today, please follow us on your favourite podcast platform for Capital Ideas. This is Matt Reynolds reminding you that the most valuable asset is a long-term perspective.

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