This week’s interview, conducted by FundCalibre, focuses on the Capital Group New Perspective strategy, which has consistently outperformed global equity markets over its 50+ year history. Investment director, Steve Smith, explains how the strategy’s structural flexibility and focus on multinational companies have driven its success across various market environments.
Why you should listen to the interview: Gain a deeper understanding of one of the most successful global equity strategies of the past 50 years. Learn how its flexible, long-term approach positions it to navigate today’s complex market landscape, offering valuable insights for investors seeking stability and growth in an ever-changing environment.
This interview was recorded on 29 August 2024. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights:
An adaptive investment approach
“New Perspective does have a very good medium to long-term track records and a proven ability of outpacing global equity markets over a variety of different market environments and cycles. So whether they be up or down markets or prolonged growth or value driven cycles.
“And the way that we achieve this is by taking what I would define as a structurally flexible approach to investing in long-term investment opportunities arising from different types of transformational change. And just in terms of what we mean by transformational changes, the definition is deliberately broad. And of course the definition evolves and change over time, but today it could include things like changing patterns of global trade, changing economic and political relationships, and the various multi-generational secular shifts that are occurring in the global economy.
“So rather than be threatened by change, think of New Perspective as a strategy that is actively seeking to invest and thrive on long-term structural change.”
A new economic regime
“So just in terms of our views on equity market outlooks over the medium to long term, we think the world is in the early innings of a profound secular change, the scale of which we probably don’t see very often, maybe every 10 to 15 years. If you think about it, most of the last 40 years has been characterised by declining rates, low and stable inflation, rapid advancements in globalisation and relative geopolitical stability since the end of the Cold War. Things are now changing. We think we’ve entered a new era.
“We think we’ve entered a new economic regime characterised by rates and yields that are reverting to higher historic, but historically normal levels. Inflation is falling, but it is stalling. We think it is still uncomfortably high and will remain so for longer than markets are pricing in because some of the inflationary headwinds that we’re witnessing are more likely structural than transitory. There are clear signs of de-globalisation, for example, rising tariffs, rising protectionism and greater number of trade wars.
“And the geopolitical landscape now is clearly challenged. It’s on a knife edge and finally balanced. So we think this new economic reality will likely define the next decade of equity investing. And if that’s the case, there will be some implications on equity markets.
“And they would be, number one: there’ll be new equity market leadership formation over the next cycle. Secondly, we think there’ll be greater breadth of equity market leadership. So markets will be less binary, less one dimensional, not driven by a small number of stocks. Thirdly, we think that earnings growth will return to be the primary determinant and driver of total returns from equity markets and individual stocks going forward.
“So a welcome return to fundamentals, but the other point I just want to leave the audience with would be we think we are arguably in a unique period in history right now, and by that I mean we are witnessing a rare confluence of numerous structural changes that are all occurring at the same time.
“These structural changes include continued digital innovation and disruption. We’re in a golden era of healthcare innovation. There’s a requirement for an energy transition, energy security evolving globalisation and supply chain reconfigurations and just probably a more permanently higher spend on defence amid a more permanently higher geopolitical risk environment. And we think that these confluence of structural changes is another reason why we might see greater breadth of leadership and equity markets going forward.”
Future global champions
“Just sticking with this notion of investing in multinational companies, another contributor to the long-term success of New Perspective, I think, is a proven track record of identifying and investing in potential future global champions long before they become industry leading companies and household names. And then, and really importantly, having the courage, the conviction, the wisdom, the patience, to carry on owning these and investing them over the long term.
“If we just look at the top 20 holdings of New Perspective today, there are plenty of examples of us identifying these potential future global champions long before the markets. I’ll give you just a couple of examples. So we’ve consecutively owned TSMC today, the world’s leading semiconductor foundry since 1999. We’ve owned Novo Nordisk consecutively since 2003. Back then it was a $10 billion market cap company. Today it’s Europe’s largest company by market capitalisation.
“We’ve owned Broadcom in New Perspective consecutively since 2010. Back then, it was a $6 billion market cap company. Today it’s over $700 billion. New Perspective has also own Netflix and Tesla consecutively since 2014. So a proven track record of identifying these future global champions.”
Conclusion
This time-tested investment strategy has not only survived but thrived through decades of market changes. Whether you’re seeking stability or growth, this strategy offers a reliable core investment that’s built to last, evolving alongside the ever-changing global economy.
