Capital Group is one of the world’s oldest and largest investment managers, with US$2.1 trillion in assets under management1. Capital Group stands out not only because of its long-standing investment pedigree, but also due to its distinctive multi-manager structure, where each portfolio is managed by several portfolio managers who are each responsible for and accountable to their respective portfolio segment.
In the first edition of our new UT Q&A series, we take a deeper dive into one of Capital Group’s flagship funds – Capital Group New Perspective Fund (LUX). We are pleased to have Capital Group provide their insights on this flagship fund, for any investors looking for a global equity Unit Trust to add to their portfolio.
1) How does a multi-manager structure work, and what benefits does it have compared to a traditional fund with a single portfolio manager?
New Perspective’s total assets are split into ten sub-portfolios; nine managed by different global equity portfolio managers (PM) and one managed directly by the investment analysts (the Research Portfolio or ‘RP’). The nine portfolio managers independently construct their own high conviction sub-portfolios to meet the fund’s objective while the analysts, in the RP, invest in a very small number of their highest conviction ideas in the industry or sub-industry that they are responsible for.
We deliberately try to blend and construct a team of portfolio managers who have very different and therefore, complementary portfolios. This ensures the fund does not have any systematic or excessive concentrations, risks and exposures. The multi-manager structure also ensures that there is no key person risk - embedded within it is smooth generational change and succession planning, providing long-term continuity of the fund and its objective.
Meanwhile, the RP represents an excellent communication tool, since the analysts can express their views in actual commitments; they quantify and demonstrate the strength of their convictions through their holdings. Whilst at most investment firms analysts only recommend investments, at Capital Group they have the opportunity to actually invest in their highest conviction ideas.
The intended outcome of this approach is to provide superior decision-making, greater diversification and, ultimately, more consistent long-term results for our clients.
Figure 1: The Capital SystemTM in the New Perspective portfolio2
Segment sizes shown for illustrative purposes only.
2) What does your investment process look like for this fund - from the formation of a stock idea to the actual purchase of the stock?
Fundamental research is the core of our investment process and the starting point for all investment ideas. Capital Group’s global pool of in-house, career equity investment analysts are typically industry specialists for a given country, region, multi-region or occasionally, on a global basis. Our investment research efforts are organised on a global basis as we believe that in order to understand an industry in one country, we must understand that industry globally. Our research is used solely for the benefit of our clients and is not published externally. This, we believe, encourages deeper relationships with the companies we work with and invest in.
Once an investment analyst has conducted their due diligence on a company and developed an investment conviction, it will be shared and rigorously debated among the wider investment group. Macroeconomists, political analysts and bond and currency analysts also attend these investment meetings to provide input. Portfolio managers have complete discretion regarding if and when they want to act on analyst recommendations. Should a portfolio manager choose to invest alongside the investment analyst, they are responsible for the sizing of that position within their own portfolio, as well as the timing of the transaction. So, while there is always team discussion, there are no team decisions.
3) How would you describe your New Perspective Fund, and how is it positioned for the fast-changing world we live in?
Capital Group New Perspective Fund (LUX) is a Luxembourg-domiciled fund that was launched in 2015 for investors in Europe and Asia. The fund is based on one of our most well-known global equity strategies from the US, Capital Group New Perspective strategy, which was launched on 31 March 1973. It is managed by the same experienced team and follows the same investment approach.
When first launched 50 years ago, the New Perspective strategy was purposely designed to thrive on long-term change. Specifically, it was launched to pursue long-term investment opportunities, through fundamental company research, arising from changing patterns of global trade and changing economic and political relationships. Our observation at that time was that a select group of multinational companies were well positioned to benefit from various changing patterns of global trade and multi-generational shifts in the global economy. We felt that such companies could deal with an increasingly complex world due to their flexibility, adaptability and resilience.
Our founding beliefs remain the same today, even if the underlying companies we are investing in have changed. The New Perspective strategy is still selectively investing in a spectrum of multinational companies and seeks to build a portfolio of future and current global champions that we believe are driving, shaping and ultimately benefitting from multi-generational secular shifts in the global economy.
Taking a truly long-term investment horizon is an integral part of the strategy’s philosophy – we believe this is one of our biggest and most enduring competitive advantages in an industry that continues to shorten its outlook. The strategy has a rich and proven history of investing in early-stage multinational companies that have gone on to become future global champions. While some of these are well known now, they were not at the time New Perspective initially invested in them. For example, the New Perspective strategy’s first investment in TSMC – currently the world’s leading semiconductor foundry – was in 1999 and has been held continuously since then.
Figure 2: Half a century of identifying long-term investment opportunities arising from changing patterns of global trade and secular shifts in the global economy3
4) Are there any specific sectors / geographies / themes that feature prominently in this fund?
New Perspective is built on a truly company-by-company basis with no systematic sector, regional or style biases. Capital simply flows to the highest long-term convictions. This structural flexibility allows the portfolio managers to re-orientate the portfolio freely on a multi-year basis based on their own long-term outlook.
The current portfolio is well-balanced providing exposure to both long-term secular growth, as well as carefully selected cyclical growth, both of which are underpinned by a broad set of defensive businesses that could provide stable foundations. The portfolio also invests in companies across a variety of industries that we believe possess strong pricing power in the context of higher inflation. It is deliberately not positioned for a single outcome or ‘type’ of short-term market environment.
As a result of the balanced and diversified nature of the portfolio, it has exposure to a number of key long-term secular trends. One example of this is health care, an area in which a number of portfolio managers are expressing high conviction at the moment. We are in a ‘golden era’ of health care innovation and there are a lot of high-quality companies developing transformational treatments for massive end-markets, which has the potential to support durable and visible earnings growth. Importantly, the portfolio is invested across a broad range of pharmaceutical, biotech and medical technology companies that are tackling a variety of big global health problems such as cancer, diabetes and obesity.
5) Given that this strategy has been incepted for almost 50 years, what is its track record like, and how has it performed in recent years?
One of the New Perspective strategy’s most distinguishing and enduring features has been the consistency and resilience of return generation in a variety of different market environments over the longer term. The strategy has historically outpaced global equity markets through up and down markets, during prolonged style-driven cycles and in different inflationary environments.
Since its inception in March 1973, the strategy has returned 10.9% per annum (p.a.) vs 8.3% p.a. for the index (Figure 3), while Capital Group New Perspective Fund (LUX) has returned 7.7% p.a. vs 7.5% p.a. for the index since its inception in Oct 2015 (Figure 4). This has been achieved by a deliberately well-balanced portfolio, a long-term investment horizon and a structurally flexible approach.
More recently, over the last three years we have witnessed almost unprecedented levels of market twists and turns. From the sharp bear market at the onset of the COVID-19 pandemic in early 2020, the subsequent growth-led rally, the broad-based recovery in 2021, and then the significant sell-off and sharp value rotation in 2022, investors have had to deal with a lot. Over these three years, New Perspective demonstrated its resiliency by posting results that were broadly in line with the MSCI ACWI index, after fees.
Figure 3: The investment results shown are for the Capital Group New Perspective Composite (defined as a single group of discretionary portfolios that collectively represent a particular investment strategy or objective). This is intended to illustrate our experience and capability in managing this strategy over the long term. Capital Group New Perspective Fund (LUX) has been a member of this composite since November 2015.
Figure 4: Capital Group New Perspective Fund (LUX) results, Fund inception on 30 October 2015
Past results are not a guarantee of future results.
Data as at 31 December 2022 in US dollar terms. Sources: Capital Group, MSCI
- CGNP results are shown after Management and Administration Fee, also known as Total Expense Ratio (TER), for the B share class as a representative shareclass and is calculated as the increase or decrease in net asset value of the fund over the relevant period, please visit capitalgroup.com/asia for further details.
- Includes the maximum subscription charge of 5.25%. NAV to NAV results better reflect the pure investment results.
- Index is the MSCI ACWI (with net dividends reinvested).
6) What is the fund’s approach as we move into 2023?
There is a new reality taking shape in global markets. From falling interest rates to rising rates, from narrow to broad market leadership and from global to regional supply chains, these are just some of the seismic shifts that will likely define the next decade of investing. As a demonstration of New Perspective’s structural flexibility and long-term focus, portfolio managers have been making changes in order to set-up the fund for this new market environment.
For example, there has been an acceleration in the multi-year effort to reduce exposure to selected higher-valued, higher-growth companies that have served the strategy well over the past decade, as well as being more vigilant about those where valuations are not backed by near-term cashflows or that are reliant on growth far out in the future. Meanwhile, there has been a pivot towards firms with potentially more durable and visible earnings, such as within health care, as well as those producing physical goods or commodities, many of which have relatively low valuations and can benefit from long-term tailwinds such as the energy transition, structural supply/demand imbalances and global supply chain reconfigurations.
Importantly, we believe this is an exciting time to be a fundamental, bottom-up investor unrestricted by geographies, sectors or style boxes and therefore better equipped to adjust to this new reality of investing. The global economy appears to be going through a period of structural change, and change is specifically what New Perspective is designed to thrive on.
1Assets under management are preliminary for 30 September 2022. Source: Capital Group
2Reflects current investment team as at 31 December 2022.
3As at 31 December 2022. Based on equity holdings of the representative account of Capital Group New Perspective strategy. Source: Capital Group
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