Investment insights from Capital Group
Expect peaks and valleys on the road to economic recovery, according to veteran portfolio manager Rob Lovelace. There will be ups and downs, but Rob feels it’s a matter of when, not if, we make it across this valley.
Market recoveries have been powerful after large declines. In US equities, the average recovery has delivered cumulative returns of 279% and lasted 72 months, compared to a decline of 33% and 14 months for bear markets.1
The digitisation of daily life is here to stay. Even with rapid increases in e-commerce, digital payments and media consumption, there are still long runways for growth and years of potential opportunities on the horizon.
Dividends can be even more important in a low-rate world. For investors seeking dividend income, the combination of record dividend cuts and historically low interest rates emphasised the importance of being able to identify those companies that can sustain or quickly restart dividend payments.
It’s a stock picker‘s market. A dramatic shift in the macroeconomic backdrop means fundamental research is more important than ever. Attractive long-term opportunities can be found across the US, Europe, Japan and emerging markets, but selectivity is critical.
Lower for longer. Low growth and inflation suggest that the low interest rate environment is likely to persist. Against that backdrop, a diversified approach and active fundamental research is imperative.
New opportunities in US credit markets. During a flight to quality, we are taking advantage of select opportunities in corporate credit.
Dislocation in emerging market debt. Historically, local currency debt yielded more than US dollar debt. This relationship has now completely reversed, creating opportunities where the sell-off has been more than fundamentals warrant.
For illustrative purposes only.
sources: Capital Group, Bureau of Economic Analysis, Refinitiv Datastream. As at 31/05/20. Data for the three recovery scenarios are based on estimates from Capital Group economist Jared Franz. GDP: gross domestic product.
Past results are not a guarantee of future results.
sources: Capital Group, RIMES, Standard & Poor‘s. As at 31/5/20. The 2020 bear market is considered current as at 31/5/20 and is not included in the ‘average bear market’ calculations. All other bear market periods are peak-to-trough price declines of 20% or more in the S&P 500. Bull markets are all other periods. Returns shown on a logarithmic scale. Returns in USD.
1. sources: Capital Group, RIMES, Standard & Poor’s. As at 31/5/20. Bear markets are peak-to-trough declines of at least 20% in the S&P 500. Bull markets are all other periods. 2020 bear market not included in calculations. Returns in USD.
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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.