Investment Insights | Capital Group


Investment Insights

July 2017
 |  FEATURING Greg Garrett

As Rates Rise, Keep Your Eyes on the LDI Prize

When will the Federal Reserve make its next move, and how high could rates go? These questions can seem like the only ones that matter in a hiking cycle. Plan sponsors, however, need to think differently. In an Asset TV “LDI Masterclass,” panelist Greg Garrett makes the case for looking at scenarios — and considering the possible impact on plan funded status.

Watch the full Masterclass video on Asset TV

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March 2017
 |  FEATURING Will McKenna & Michael T. Kerr

A Glimpse Inside The Growth Fund of America’s Portfolio

Mike Kerr, a principal investment officer of The Growth Fund of America®, shares his thinking on industries and companies currently held in the fund, including technology, entertainment and health care.

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The Fed Raises Rates, With an Eye on Inflation

A year after the Federal Reserve boosted the key interest rate for the first time in nearly a decade, it has finally raised it again. The move is an indicator of the central bank’s confidence in the health of the U.S. economy. Specifically, it signals that Fed officials believe the labor market and inflation are on the right track. 

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Low bond yields have sent investors piling into higher yielding sectors like utilities, stretching the valuations of many high-dividend-paying stocks. How should dividend-oriented investors navigate this environment of lofty valuations and low yields? Alan Berro, Principal Investment Officer of Washington Mutual Investors Fund℠, gives his perspective on addressing this conundrum. In this Q&A, he discusses:

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Defined benefit (DB) plans consistently report better returns — as much as 0.9% higher per year1 — than defined contribution (DC) plans. The Pension Protection Act gave plan sponsors tools to narrow this gap, such as investment re-enrollment and target date funds (TDFs) as default investments. These have helped improve investing behavior for many participants, but what about the 63% of DC plan participants who still make their own investment decisions?2

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Reflecting Plan Sponsor Risk Tolerance in Glide Path Design

Synchronize your risk tolerance and LDI glide path
  • What is the optimal way for a defined benefit plan to de-risk? This is one of the most challenging questions faced by plan sponsors.
  • To answer appropriately, a sponsor must first consider their risk tolerance and the objective factors influencing it — including the plan’s relative size, whether it’s open or closed, and business cyclicality.

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The Long View: The Changing Face of the Global Consumer

Consumer spending, long a driver of the global economy, is undergoing sweeping change. Whether it’s housing for millennials or health care for baby boomers, a significant shift in the way people spend money is underway in both advanced economies and the developing world.

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INVESTMENT INSIGHTS  |  September 2016  |  FEATURING Margaret H. Steinbach , Mike Gitlin & David A. Hoag

Is Aggressive Central Bank Intervention Working?

Quantitative Easing on Turbocharge in Major Economies

In response to the global financial crisis and the muted growth that persists years later, central banks across the globe have aggressively expanded their balance sheets using a range of both traditional and unconventional policy tools. As of the end of June, the combined balance sheets of the U.S. Federal Reserve, European Central Bank and Bank of  Japan totaled over $12.1 trillion — a  283% increase since June 2007. Never before have the balance sheets of the central banks of these major economies  been so inflated.

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INVESTMENT INSIGHTS  |  September 2016  |  FEATURING Margaret H. Steinbach , Mike Gitlin & David A. Hoag

How to Invest in the Post-Post-Crisis

U.S. Economy: Not an Environment for Aggressive Monetary Policy Tightening

It’s been said, and feared, for years that U.S. interest rates will quickly rise once the Federal Reserve starts to reverse course, resulting in declines in the prices of fixed income securities. Since the infamous “Taper Tantrum” in mid-2013, the Federal Reserve has been carefully trying to step away from the unprecedented easy money policy it has employed since the financial crisis. Yet, the power of the U.S. to  act in isolation has diminished over the past decade.

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Are the American Funds Exposed to Brexit?

International Funds Have the Highest Concentration of Investments in European Companies.

The U.K.’s June 23 vote to leave the European Union surprised many investors, triggering one of the steepest two-day selloffs for global equities in history. While markets have since recovered much of those losses, volatility will likely persist as the short- and long-term impact of Brexit on the U.K. and the rest of Europe remains unclear. The uncertainty has driven government bond yields to record lows and the U.S. dollar to a three-decade high against the British pound.

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July 2016
 |  FEATURING Matt Miller , Mark A. Brett & Jens Søndergaard

Brexit’s Fallout: Could a Shock to the System Be a Good Thing?

Capital Group portfolio manager Mark Brett and economist Jens Søndergaard, both based in London, discuss possible implications of the Brexit vote for the U.K., the European Union and investors.

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No doubt, the world’s markets spent the first half of 2016 on rocky ground. Investors have been confronted with the British vote to leave the European Union (“Brexit”), a “growth scare” in the U.S., the economic deceleration in China, and the introduction of negative interest rates in some markets. Nevertheless, the global economy is expected to remain on a path to growth — albeit very slow growth.

Looking ahead to the second half of 2016, market volatility is likely to remain elevated. What are the longer term implications of the Brexit vote? Can the resilient U.S. economy continue on its growth path? Will Chinese consumption remain healthy as the world’s second-largest economy continues to slow? Potential opportunity will likely arise for disciplined investors who can look past the near-term macroeconomic clouds toward individual companies with bright prospects.

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Three Reasons Why the U.K. Should Be O.K.

It’s not worth dwelling too much on the reasons why British voters opted to leave the European Union. That question will be analyzed by political pundits and the media for years to come. For investors, a key question today is, will the U.K. be OK going forward?

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INVESTMENT INSIGHTS  |  June 2016  |  FEATURING Robert H. Neithart

Uncovering Value in Emerging Markets Bonds Amid Political Change and Uneven Growth

Emerging markets bonds have notched big gains in 2016, despite political turmoil and economic setbacks. Though it is difficult to definitively say that the market has turned for the better, portfolio manager Rob Neithart says there are good reasons for investors to feel positive. The yield advantage of emerging markets over developed markets is hard to ignore, and in some cases valuations are as attractive as they’ve been in years.

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But Process Will Be Lengthy and Outcome Likely Not as Bad as Markets Fear

  • Stock markets slide in response to Brexit vote in an orderly decline
  • British pound suffers big loss, euro also slides against dollar
  • Market volatility to remain elevated as Britain and Europe reach new agreements
  • A long-term investment horizon remains key to successful investing

British voters surprised the world on Thursday by approving a proposal to abandon the European Union, with 51.9% of the vote in favor of leaving and 48.1% in favor of remaining. Global markets and currencies reacted negatively to the news, evidenced by a spike in volatility and declines across all major equity markets. Stocks gave up ground after rallying the prior week in the run-up to the vote.

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Brexit: How Did We Get Here?

Great Britain joined the European Union’s predecessor, the European Economic Community, in 1973 and it has always been a somewhat reluctant member. The EU now includes 28 nations, 19 of which are part of the single-currency monetary union known as the euro zone.

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European Union Faces Crucial Test in Brexit Referendum

U.K. voters will go to the polls on Thursday, June 23 to decide whether they should stay in the European Union or abandon the 28-nation bloc. The so-called Brexit vote is a significant challenge to the EU’s authority and threatens to further destabilize Europe at a time when weak economic growth and high debt levels are already straining intergovernmental relations.

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INVESTMENT INSIGHTS  |  June 2016  |  FEATURING Fergus N. MacDonald & David A. Hoag

Sub-Zero World: Not Much Positive About Negative Rates

  • Central banks are experimenting with negative interest rates in an attempt to jumpstart weak economies. 
  • Negative-yielding debt in Europe and Japan makes U.S. bonds attractive on a relative basis. 
  • Portfolio managers David Hoag and Fergus MacDonald warn that negative rates may be causing distortions in asset prices and the economy.
  • Quantitative easing and negative rates are bound to spark inflationary pressures over time. 
  • The U.S. Federal Reserve is unlikely to introduce negative rates.

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INVESTMENT INSIGHTS  |  April 2016  |  FEATURING Michael T. Kerr

The Long View: Investing in U.S. Innovation

The United States’ economy is in the midst of an extraordinary transformation, one that has the power to redefine America’s future. Across the country, the nation’s resilience in the face of adversity and its entrepreneurial spirit are providing unprecedented opportunities for companies and investors.

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INVESTMENT INSIGHTS  |  March 2016  |  FEATURING Stephen Green & Andrew H. Dougherty

China Mired in Slow Growth, Major FX Move Unlikely

As the world’s second-largest economy, China is at an important turning point. China’s leadership has pledged to put the economy on the right track and be less opaque about its currency moves. Economist Stephen Green and China affairs specialist Andrew Dougherty discuss:

  • The outlook for China’s economy and why a soft landing is more likely
  • The case against China pulling the trigger on a big, one-time devaluation of its currency
  • Whether China’s leadership can manage the political and social implications of deep structural reforms
  • Pockets of strength in the Chinese economy during this transition to consumption-led growth 

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INVESTMENT INSIGHTS  |  March 2016  |  FEATURING Joanna F. Jonsson & Georgios Damtsas

The New Breed of Global Companies Is Creative, Nimble and Networked

  • There’s been a shift in the makeup of global companies over the past decade to idea-driven companies
  • Speed of product adoption is much faster, but competition is greater
  • Marketing muscle and global distribution networks are crucial

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February 2016
 |  FEATURING Joanna F. Jonsson

Insights From a Morningstar® Award-Winning Manager

American Funds portfolio manager Jody Jonsson discusses the objectives of New Perspective Fund®, whose portfolio management team was recently named Morningstar’s International Stock Fund Manager of the Year. She also shares keys to the fund’s recent and long-term success.

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  • Volatility likely to persist amid global slowdown and uncertainty about central bank policies
  • Risk of a recession in the U.S. has increased due to a tightening of financial conditions
  • Fed likely to eschew any further rate increases in 2016
  • Negative interest rates and deflation pose a real threat in Japan and Europe
  • 2008 repeat still an unlikely scenario
  • Holding a broadly diversified portfolio with exposure to multiple asset classes is still likely the best approach

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INVESTMENT INSIGHTS  |  February 2016  |  FEATURING Mark A. Brett

The Dollar’s Ascent Could Be in Its Final Phase


  • The U.S. dollar’s five-year-long bull run may be coming to an end, particularly relative to major currencies such as the euro and the yen.
  • The headwind of a strong dollar should diminish for global and international stock portfolios.
  • Interest rate differentials and exchange rates do not always move in lockstep, so the Federal Reserve’s rate decisions won’t necessarily dictate what’s next for the dollar.
  • China’s apparent commitment to continue to devalue its currency is expected to cast a shadow over currencies in Asia and several other emerging markets.
  • As emerging economies adjust to weaker global industrial activity and Chinese growth that is slower and less commodity-intensive, some currencies may continue to weaken — but there are bright spots.

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Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses or the collective investment trust's Characteristics statement, which can be obtained from a financial professional, Capital or your relationship manager, and should be read carefully before investing. 

The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings. Lower rated bonds are subject to greater fluctuations in value and risk of loss of income and principal than higher rated bonds. 

Bond ratings, which typically range from AAA/Aaa (highest) to D (lowest), are assigned by credit rating agencies such as Standard & Poor's, Moody's and/or Fitch, as an indication of an issuer's creditworthiness.

Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility, as more fully described in the prospectus. These risks may be heightened in connection with investments in developing countries. 

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