Capital IdeasTM

Investment insights from Capital Group

The changing face of trade: idea-driven companies come to the fore

Global trade has transformed repeatedly throughout history, driven by a combination of technology and political policy. Digitisation is behind the latest shift in trade patterns, with far-reaching consequences for economies, companies, and individuals.

Many investors used to think of multinational companies as powerhouses in commodities or heavy industries, but a host of new global companies is rapidly emerging. If the 20th century was defined by a phenomenal rise in the transfer of goods and industrial commodities, the 21st century is being characterised by the rapid digitisation of services and the increasing automation of manufacturing. The knowledge economy, or digital trade, is gaining momentum, and this is giving rise to a new breed of global giants that are idea-driven — creative, nimble and networked companies, leveraging technology to their advantage.

This trend is evident from the changing makeup of the world’s largest companies: 20 years ago, this list was dominated by traditional behemoths in the oil, finance and industrials sectors; today, the bias is very much towards these idea-driven names at the forefront of this digital transformation, including Apple, Alphabet, Microsoft and Amazon. 

Top 20 largest companies in the MSCI ACWI by market cap

This information is not intended to be a solicitation to buy or sell any securities.
Sources: Capital Group, MSCI

With the internet, there are no real borders, which creates paradigm shifts in the way companies are organised and how products are consumed. Product adoption can be swift and distribution costs limited — the smartphone or tablet is the delivery mechanism.

Rob Lovelace quote

At Capital Group, we have been watching and investing in these patterns of global trade for over 50 years.

In response to the increasing dominance of globalisation and its blurring of regional boundaries, Capital Group developed ‘The New Geography of InvestingSM’, a method of evaluating companies and assessing risks based on economic exposure rather than country of domicile.

Key to this strategy has been a focus on global champions, those multinational companies well placed to benefit from changing trade patterns while also large enough to withstand global fluctuations. A ‘multinational’ mindset has also proved an effective filter for company selection over the decades, as these businesses tend to gain extra insight and diversified revenue streams by extending beyond their home market.

Whether the dominance of idea driven companies can continue over the next market cycle is yet to be seen. Ultimately, however, we believe that taking a fundamental, company-by-company perspective rather than a top-down approach offers a better lens through which to identify developing trends. And experience has shown that anticipating and seeking to benefit from change is integral to successful investing.

Beyond the data- in search f an information advantage- graph

Data as at 31 December 2022. Source: Capital Group

Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organisation; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.

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

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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.