Capital Ideas^TM

Capital Group Multi-Sector Income Fund (LUX) takes an active, dynamic approach to asset allocation with a view to capturing relative value across sectors

It seems a long time since investors faced what could be considered a ‘normal’ market environment. The past several years have delivered the full gamut of policy and market conditions.

For almost a decade following the global financial crisis in 2008, investors faced record-low interest rate levels as central banks retained a very loose monetary policy stance. 

Just as central banks began the process of normalising interest rates from their very low levels, the Covid pandemic hit. This not only prompted looser monetary policy from central banks globally, but also saw co-ordinated fiscal easing as governments around the world tried to support their domestic economies.

Not two years later, sharp increases in inflation triggered another shift in policy with central banks hiking rates in an attempt to rein it in.

Against a shifting economic and policy backdrop, how can investors navigate different credit sectors to capture relative value and drive consistent income generation?

A key characteristic of Capital Group Multi-Sector Income Fund (LUX) (MSI, launched in November 2022) is its flexibility to adjust asset allocation across four key credit sectors depending on market conditions.¹ The fund follows the philosophy, process and has the same investment team as a multi-sector fixed income strategy from the US we have managed since 2019.

Flexibility around sector allocations has allowed the portfolio to increase exposure to areas that stood to benefit from macro tailwinds, such as an increased allocation to US high yield in 2020 when coordinated global central bank intervention prompted a ‘risk on’ sentiment in markets. Similarly in 2022, exposure to cash and investment-grade credit was increased in response to policy tightening measures. At the same time, high yield exposure was reduced to defend against spread widening.

The graphic below shows how its sector allocation has shifted over the past three years.

To read more on the process behind tilting the portfolio’s sector allocation download the full paper.

1. The managers have the option to invest in other areas in an opportunistic way if they identify particularly attractive opportunities, but this typically remains a small part of the overall allocation. This may include, but is not limited to, US government debt, municipal debt and non-corporate credit, in response to market conditions.

 

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.
• The Prospectus – together with any locally-required offering documentation – sets out risks, which, depending on the fund, may include risks associated with investing in fixed income, derivatives, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.
• The fund may invest in financial derivative instruments for investment purposes, hedging and/or efficient portfolio management.