Navigating Markets, Clients and Volatility

Resources, insights and support to guide you

Outlook 
Rob Lovelace

Results 
Jody Jonsson

Support 
Matt O'Connor

Approach 
Tim Armour

Outlook

Perspectives and insights on the current volatility

VIEW TRANSCRIPT

Opening disclosure:

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

 

What is your long-term prognosis for the global economy?

  • Rob Lovelace: Let me start by saying that our thoughts and our hearts are with those who have been personally impacted by the health and economic challenges we all face. Our lives have changed in ways we couldn’t imagine. I urge you to do everything you can to keep yourself and others safe through physical distancing, which will keep more people healthy and help the economy.
  • Everyone is thinking about the economic outlook right now. But unlike previous periods, I believe this one is really a matter of WHEN the economy is back on track, not if. I can already see a path to a strong recovery perhaps as early as 2021, and a changed but more normal world by 2022.
  • That is reassuring to me since it hasn’t always felt like that. For those who remember the financial crisis in 2008, the economic outlook then was much more uncertain, and many predicted a decade of dramatic change and slow recovery.
  • This time, we know the global economy and financial markets are going to be challenged for a period, but it’s possible to see the end of it as the health crisis passes and we get things back on track.

Major stock markets around the world have fallen more than 30% in a month, among the quickest declines of that magnitude on record. Where are markets headed from here?

  • While we could clearly see the dislocations in China and other parts of Asia as early as January, we were all expecting this could be contained like past episodes. Once it got to Europe, the markets realized it would be a challenge for the entire world to face, and they reacted accordingly.
  • What we learned from Asia is that we need to act quickly, decisively and with discipline. Chinese equity markets have been relatively stable since they got their situation under control. Through the end of March, Chinese stocks were down by about 12% since February 19 — which was the peak of the bull market — making it one of the better markets in the world. We’ve seen steeper declines in other major markets: about 23% down for the U.S. and a decline of approximately 24% for Europe over the same period because governments were initially slower to act.
  • In the U.S., we’re ramping up our response. Recently we’ve seen national, state and local leaders take more aggressive action, imposing greater restrictions on movement. And we also know increased testing is key to success.
  • I think volatility in the markets will be elevated for a while, and that could impact markets through 2020 and into 2021. The pace of the recovery will be different depending on the local response to the crisis. But overall, I feel we will get through this.
  • The world will look different when we get to and through the great recovery, and I really believe it will be a better place than we are in now. As long-term investors at Capital, we are looking for opportunities that are created by that recovery and the world that follows.

Which specific market sectors have been hit the hardest and which are holding up?

  • In terms of specific sectors, health care in general has been hard hit, but many pharmaceutical companies are obvious beneficiaries, especially if you are in the U.S. and other countries that are ramping up for testing or have promising vaccines. Other companies in the sector have available capacity in their manufacturing lines so they can produce these vaccines once successfully developed and approved.
  • As you also might expect, the consumer staples sector, like food and beverage makers, have been holding up well in this environment as have many consumer products companies.
  • With people staying home, the use of the internet is spiking, which helps internet-related and communications companies. Outside the U.S., utilities companies have also been very good places to ride out the storm.
  • Compared to what many were predicting, high-quality growth companies in the technology and internet space have also been holding up well. Many of these companies led the market expansion, and there were questions about how they would fare in a bear market. But in fact they’ve been relatively resilient because of their business models and strong cash flows.
  • On the negative side, the energy sector has been hit the hardest due to the economic shock and a disagreement between the Saudis and Russians. I’m confident the producers will strike a new agreement, which should help.
  • And most companies connected to travel and leisure have been very hard hit as well.

How are you thinking about all this in terms of the portfolios you manage?

  • In the portfolios where I personally manage, I’m looking at things company-by-company and stock-by-stock, and our analysts are helping me find a surprising number of opportunities. The key is to realize that some businesses have been permanently changed while others can thrive in this period or bounce back quickly.
  • A great example to start with are the market leading internet and related companies. For example, companies that provide cloud services have seen a spike in demand for their services based on increased internet usage. And working remotely – which we’re all doing now – will only accelerate these trends and probably lead to greater demand for online services even after the crisis dissipates.
  • Then there are those other companies for which the world has fundamentally changed, such as the cruise line operators and other travel-related companies. I think the strong should survive, but they will likely need additional financial or other support to make it.
  • In the “surprise” category, I think many of the luxury branded companies look poised to do well. We are already seeing a surge in demand as business starts to recover in Asia. Maybe people will splurge a bit once they get back into the stores!

U.S. lawmakers recently enacted a $2 trillion fiscal stimulus package. What is your view on how this will impact the economy?

  • I believe the package is a good start. The markets needed to be reassured that the government would intervene to keep them operating well. It is designed for broad support, which is needed right now. In addition, there are more targeted aspects to help the people and companies that need the the most.
  • The package includes a loan facility intended to help aerospace, airlines, hotels and other impacted industries. There are also direct one-time cash payments to individuals, loans for small businesses and some expansion of the social safety net in terms of expanded unemployment benefits. I view these kinds of actions as positive and necessary.
  • The more we can do to keep people in business and employed, the better. We need to avoid permanent impairment or changes in consumer behavior so we can recover more quickly.
  • We will have a recession. The only question now is how deep and for how long? These packages (and I believe there will be more) are important to help bridge the gap to when the economy starts moving again. And I expect their impact will extend into the recovery and beyond.

Turning to monetary policy, what are your thoughts on the U.S. Federal Reserve’s recent actions?

  • The Federal Reserve has taken aggressive action to help keep financial markets functioning. The Fed clearly signaled its concerns by cutting the fed funds rate to near zero and instituting several extraordinary liquidity programs that were similar to those used in the financial crisis.
  • Providing liquidity to the system is important and absolutely necessary. At Capital, we were hearing from our fixed income desks that liquidity has been challenging, even in U.S. Treasuries, typically the most liquid market in the world.
  • The Fed has been purchasing Treasury and mortgage-backed securities and restarted the Commercial Paper Funding Facility to help ensure access for companies to short-term liquidity.
  • Banks are much better positioned today than a decade ago, in part because of the changes made after the financial crisis. That fact, combined with the rapid Fed action, makes the situation very different than 2007 and 2008.

What impact has the crisis had on Capital’s research and investment process?

  • Capital was created in the 1930s, and because of that we are always thinking about and preparing for challenging periods such as this one. Our analysts and portfolio managers are more active than ever. With our people based around the world, and often on the road, we are very comfortable with working remotely. In fact, we have had some portion of our team working from home since June of last year (due to the unrest in Hong Kong), so we are also practiced in the current requirements.
  • One big change is that with travel at a standstill, we have more time to focus on analyzing companies, reshaping portfolios and reflecting on what’s happening in markets. Because of our size and long-term relationships, we have maintained our contacts and conversations with companies. In fact, many of them reach out to us for our perspectives on what we are seeing at the industry and market levels.
  • So, I would say our connections with management teams are as strong – or better – than ever.
  • The morale of our investment teams is high, and we are motivated to do our best to help our investors through this challenging period. As I said, we were designed for this market, and our mission statement to improve people’s lives through successful investing is more important now than ever.
  • The situation is still developing, and our global presence helps us to stay on top of the changes. We will continue to share our perspectives and invite you to return regularly to this page to get our latest insights.
  • Thank you for your trust during this very challenging time.

 

End disclosure:

Past results are not predictive of results in future periods.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.

Investing outside the U.S. 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. Small company stocks entail additional risks, and they can fluctuate in price more than larger company stocks.

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. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

American Funds Distributors, Inc. member FINRA.

Any reference to a company, product or service does not constitute endorsement or recommendation for purchase and should not be considered investment advice.

© 2020 Capital Group. All rights reserved.

Results

How our funds are doing right now and in past downturns

See our current results, commentaries and comparisons

INVESTING FOR THE LONG TERM

Experience matters

Throughout our history, we've weathered past storms. In fact, our equity-focused funds have outpaced their benchmark indexes during the biggest downturns of the last nine decades.

Across 17 bear markets, the equity-focused American Funds outpaced their benchmarks 77% of the time

Chart with headline that reads: Across seventeen bear markets, the equity-focused American Funds outpaced their benchmarks 77% of the time. Chart has legend of two squares. Blue square labeled: Fund outpaced benchmark. Raspberry square labeled: Fund lagged benchmark. Chart tracks performance of twenty American Funds through bear markets from their inception through May 31, 2020. Results of each fund are as follows: The Investment Company of America. Outpaced benchmark 1934-1935, 1937-1938, 1938-1939, 1939-1940, 1940-1942, 1956-1957, 1966, 1973-1974, 1980-1982, 1987, 2000-2002, 2007-2009, 2020. Lagged benchmark 1946-1947, 1948-1949, 1961-1962, 1968-1970. American Mutual Fund. Outpaced benchmark 1956-1957, 1961-1962, 1966, 1968-1970, 1973-1974, 1980-1982, 1987, 2000-2002, 2007-2009, 2020. Washington Mutual Investors Fund. Outpaced benchmark 1956-1957, 1961-1962, 1966, 1968-1970, 1973-1974, 1980-1982, 1987, 2000-2002, 2007-2009. Lagged benchmark 2020. AMCAP Fund. Lagged benchmark 1968-1970, 1973-1974. Outpaced benchmark 1980-1982, 1987, 2000-2002, 2007-2009, 2020. The Growth Fund of America. Outpaced benchmark 1980-1982, 1987, 2000-2002, 2007-2009, 2020. The Income Fund of America. Outpaced benchmark 1980-1982, 1987, 2000-2002. Lagged benchmark 2007-2009, 2020. New Perspective Fund. Outpaced benchmark 1980-1982, 2000-2002, 2007-2009, 2020. Lagged benchmark 1987. Fundamental Investors. Outpaced benchmark 1980-1982, 1987, 2000-2002, 2007-2009. Lagged benchmark 2020. American Balanced Fund. Outpaced benchmark 1980-1982, 1987, 2000-2002. Lagged benchmark 2007-2009, 2020. Capital Income Builder. Outpaced the index 1987, 2000-2002. Lagged benchmark 2007-2009, 2020. The New Economy Fund. Outpaced benchmark 1987, 2007-2009, 2020. Lagged benchmark 2000-2002. EuroPacific Growth Fund. Lagged benchmark 1987. Outpaced benchmark 2000-2002, 2007-2009, 2020. Capital World Growth & Income Fund. Outpaced benchmark 2000-2002, 2007-2009, 2020. SMALLCAP World Fund. Lagged benchmark 2000-2002, 2007-2009. Outpaced benchmark 2020. New World Fund. Outpaced benchmark 2000-2002, 2007-2009, 2020. International Growth and Income Fund. Lagged benchmark 2020. American Funds Global Balanced Fund. Lagged benchmark 2020. American Funds Developing World Growth and Income Fund. Lagged benchmark 2020. American Funds Global Insight Fund. Outpaced benchmark 2020. American Funds International Vantage Fund. Outpaced benchmark 2020.

Sources: Capital Group, Morningstar. Class R-6 shares with all distributions reinvested.

View fund expense ratios and returns.

Dates shown for bear markets are based on price declines of 20% or more (without dividends reinvested) in the unmanaged S&P 500 with at least 50% recovery between declines. Funds shown are the equity-focused American Funds in existence at the time of each decline. Fund and benchmark returns are based on total returns. 

Class R-6 shares were first offered on May 1, 2009. Class R-6 share results prior to the date of first sale are hypothetical based on Class A share results without a sales charge, adjusted for typical estimated expenses. Please see the fund’s prospectus for more information on specific expenses.

Benchmark indexes for the funds: S&P 500 (ICA, AMF, WMIF, AMCAP, GFA, FI); MSCI World (NPF, WGI, GIF); 60% S&P 500 / 40% Bloomberg Barclays U.S. Aggregate (AMBAL); 65% S&P 500 / 35% Bloomberg U.S. Aggregate (IFA); 70% MSCI ACWI / 30% Bloomberg Barclays U.S. Aggregate (CIB); S&P 500 through 2009, MSCI World through 1987, MSCI ACWI thereafter (NEF); MSCI EAFE through 1987, MSCI ACWI ex USA thereafter (EUPAC); MSCI ACWI Small Cap (SMALLCAP); MSCI ACWI (NWF); MSCI ACWI ex USA (IGI), 60% MSCI ACWI / 40% Bloomberg Barclays Global Aggregate (GBAL); MSCI Emerging Markets (DWGI); MSCI EAFE (IVE)

 

Support

Resources to guide client conversations and build your business

VIEW TRANSCRIPT

Opening disclosure:

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

 

  • First, let me say thanks for what you do. We all share the deep belief that investors will be better off with your help. In times, when emotions can understandably impact investment decision making, your steady hand matters and the people who depend on you are better for it.

  • We want to be efficient with your time today by highlighting a few resources that you may find particularly useful and relevant right now. Some of these resources are new altogether and I want to ensure you have some quick visibility to them. Others, on the other hand, are some of the more time-tested resources. These cover some of the fundamentals that we so often find ourselves coming back to in challenging periods. Our team has been working to update these by making them even more relevant to today’s challenging environment. And we want to bring these to your attention.

  • In the tiles directly below, we’ve selected a few resources that should be particularly helpful and relevant now. We’ve organized the material into two general categories:
  • First, on the left – we want to share what we see, what we think as related to the markets and the environment we find ourselves in.

  • Second, on the right – content here that we think will be particularly helpful for your internal teams as they look to have conversations with plan participants.
  • We will update these tiles, highlighting both new and existing material as the environment merits in the weeks ahead.
  • For now, a few I wanted to highlight below:
  • First, I’d strongly encourage you to consider joining us on Thursdays for a new weekly webinar series. In the weeks ahead, we will be covering a broad range of topics including—what recovery could look like, and the “Election Watch.”
  • Second, I’d call your attention to a few pieces that really have stood the test of time, and have particular application for the environment we’re facing today. As an example, in the piece titled ‘How to handle market declines’ we’re reminded once again how to keep investors focused on the long-term during short term volatility.
  • The resources below represent a small sample of the support we’re here to offer. We really do encourage you to use the full breadth of resources available digitally AND importantly through our field teams who are fully accessible to you during this time In addition, I’d ask you reach out and let us know how we can help. We want to help. We need your input on how best to do so in the weeks ahead.
  • With that, let me once again just simply say thank you for what you do – particularly right now. We will continue to keep you updated on what resources are available to you as we look to support you in any way possible. As always, thanks for your trust, for your partnership and I wish you good health in the weeks ahead.

 

End disclosure:

Past results are not predictive of results in future periods.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.

Investing outside the U.S. 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. Small-company stocks entail additional risks, and they can fluctuate in price more than larger company stocks.

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. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

American Funds Distributors, Inc. member FINRA.

Any reference to a company, product or service does not constitute endorsement or recommendation for purchase and should not be considered investment advice.

© 2020 Capital Group. All rights reserved.

We are here to help you

Resources to help guide your conversations

Questions from our clients

Webinars and podcasts

Register for our weekly webinar series and tune in to our podcasts.

WEBINAR SERIES

Volatility 2020: Weathering the storm: Join our investment team on Thursdays as we go deep on the forces roiling markets.




WEBINAR SERIES

Retirement Plan Tuesdays: Insights for crucial client conversations: Join our team as they dive into practice management, plan design, and investment insights for these unprecedented times.

 

PODCAST

What’s next for global equities?
Capital Group portfolio manager Carl Kawaja discusses the outlook for global equity markets in the COVID-19 era.

 

 

Approach

How our core beliefs keep us confident through market downturns

VIEW TRANSCRIPT

Opening disclosure:

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

 

How is Capital Group responding to the COVID-19 pandemic?

  • Tim Armour: Let me start by saying, on behalf of my colleagues at Capital Group, our hearts go out to anyone who has been impacted by this virus. Like most organizations we have instituted a work-from-home policy, which means I am sharing these remarks from my home in Los Angeles.
  • To those who are sick, or have loved ones who are, our thoughts and best wishes go out to you for a full and speedy recovery.
  • Today, we are all consumed by coronavirus news and fear. It is understandable. Yet, while this coronavirus is new to us, bear markets and volatility are not. Since 1900, there have been 21 market declines of 20% or more.
  • In fact, Capital Group was founded in 1931, in the midst of one of the worst down markets of all times. That period – and other market downturns over our nine decades – have informed how we invest. In short, we manage investment portfolios that seek to be less volatile, and to help you in down markets.
  • We take a long-term view on behalf of clients – and we manage our business the same way. As a private company, we’re able to do both. We are built to see through difficult market periods so we can stay focused on you. And you can count on us to stay true to our mission: to improve lives by delivering superior investment results over the long term.
  • As an organization, we have most of our associates in work-from-home mode and we are using social distancing practices in the few locations where associates need to come into the office. Despite these changes in our practices, we are operating well. Our focus remains on delivering for investors and those that work with them.

How is Capital managing money particularly suitable for these types of market periods?

  • Our history has shown that our distinct investment process – how we actually manage money — is built for times like these. The way we manage client assets, known as the Capital System, features managers with diverse perspectives and investment styles assigned to each fund or strategy. This approach seeks to provide investors with a smoother and less volatile experience than the broader markets. Our goal in every fund we manage is to keep you from experiencing the worst of these declines, and to do it better than the broader markets.
  • During market downturns like this, our 350 investment professionals around the world remain fully engaged – analyzing companies and bonds, and making real-time judgments about their potential long-term value. In-depth, fundamental research and a long-term view of markets are at the core of what Capital does – collaborating with one another and leveraging our collective thoughts and experience.

What are the learnings from your own investing career that you can apply today?

  • In my 37 years of experience, I’ve invested through eight bear markets. Whether caused by wars, recessions, the dot-com bubble or The Great Financial Crisis — each one is different in some way. With that said, there is one aspect that always remains the same: they feel terrible as you’re living through them, and they often feel like they will never end. Living through these experiences has taught me that markets – and great companies – do rebound, and life eventually returns to a more normal state.

What guidance would you give to our clients?

  • People are understandably worried – first and foremost, about the health of their families and friends. They are also worried about the impact on their investments and on their important goals, such as having a comfortable retirement, buying a home, or putting their children through college. These worries are natural – none of us know for certain how this pandemic will play out and what the economic fallout will be.
  • It is exactly in times like this that having a long-term horizon and a well thought through investment plan is critical. The best thing investors can do now is keep to their plan – fight through the urge to act. Stay invested. I know that doing nothing can be difficult, but I hope investors take comfort in knowing that we are acting for them. Through the Capital System, which is powered by our global research, we are changing portfolios in real time. That means repositioning portfolios to take advantage of attractive investment opportunities.

Closing thoughts?

  • The U.S. is very resilient. In the U.S., low interest rates and low energy prices are stimulative to the economy. And the monetary and fiscal stimulus we are seeing in markets around the world is essential too, all of which will help the economies to recover.
  • It’s as important as ever to have a long-term view, and to stay invested.
  • One thing we have seen over nearly nine decades is that fear and uncertainty are the enemy of successful investing, often causing clients to do the wrong thing at the wrong time. While difficult, the key is to look through the current situation and stay the course. Stick to your long-term plan and objectives. Ultimately, that strategy should be rewarded.
  • It’s the same strategy we employ at our company.
  • At Capital we are here to help in any way possible to see you through these difficult market conditions. We are committed to that simple mission, sprung from our founding 89 years ago: “Improving people’s lives through successful investing.”
  • Thank you for your time today. We wish you, your family and friends the best of health.

 

End disclosure:

Past results are not predictive of results in future periods.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.

Investing outside the U.S. 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. Small-company stocks entail additional risks, and they can fluctuate in price more than larger company stocks.

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. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

American Funds Distributors, Inc. member FINRA.

Any reference to a company, product or service does not constitute endorsement or recommendation for purchase and should not be considered investment advice.

© 2020 Capital Group. All rights reserved.

Our core beliefs are what guide us, especially through these volatile markets.

•  Power of partnership

•  Long-term view

•  Distinctive investment approach 

•  Fundamental research

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 mutual fund prospectuses and summary prospectuses, which can be obtained from a financial professional, and should be read carefully before investing. Similar information about collective investment trusts can be obtained from Capital Group or participants' plan provider or employer.

All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.

Use of this website is intended for U.S. residents only.

American Funds Distributors, Inc., member FINRA.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

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. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.

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. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.