During prosperous market conditions, when investors are keen to explore emerging industries or sectors, investment firms often seize the chance to introduce new funds while discontinuing underperforming ones.
There are still funds with decades-long track records that generate robust returns for investors, underpinned by strong fundamentals and strategies. One such fund is Capital Group’s New Perspective fund, launched in 1973.
As of July 31, the New Perspective fund is the largest global active equity strategy, managing US$151.6 billion ($203.4 billion) and boasting a 50-year track record. Capital Group vice chair and portfolio manager Jody Jonsson attributes the fund’s enduring relevance to its commitment to bottom-up research. The fund has navigated through decades of evolving economic and political landscapes by identifying multinational companies pivotal to and benefiting from transformative changes.
Jonsson says that a key contributor to the fund’s strategy’s long-term appeal is its ability to identify companies in the early stages of their development and invest in them for the long term. About 61% of the portfolio has been held for more than five years, while 43% has been held for more than eight.
“The strategy’s exposure to different geographies, sectors and styles has evolved as new long-term investment opportunities have presented themselves, from investing in home computing in the 1970s and 1980s, mobile communications in the 1990s, to energy transition and digital disruption in the 2020s.
“As a portfolio manager, I invest in many large, multinational companies. The most common question I get these days is whether I am worried about the impact of de-globalisation. Given the turbulence, multinationals are in many ways best positioned to navigate an uncertain environment and develop effective solutions to disruptions,” explains Jonsson.
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Photo: Capital Group vice chair and portfolio manager Jody Jonsson
Reflecting on the pandemic’s impact, Jonsson observes that Capital Group’s New Perspective fund has navigated a compressed market cycle since early 2020. The fund sustained investments through the Covid-19 bear market, the subsequent recovery driven by the shift from growth-oriented to value-oriented companies and another bear market in 2022.
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“This year, there is yet another extreme rotation into a narrowly focused set of growth-orientated artificial intelligence (AI) and tech-related stocks. Over this full market cycle, New Perspective has delivered strong results, up 33.2% gross of fees in US dollar terms, outpacing the index by a good margin,” says Jonsson.
Multi-decade trends
The portfolio construction of Capital Group’s New Perspective fund maintains a bottom-up approach while closely monitoring long-term, multi-decade trends. A notable trend under scrutiny is healthcare innovation, which is currently in a golden era as companies develop new drugs and platform technologies to target large and underserved markets.
New Perspective invests in a diverse array of companies in the healthcare sector, prioritising those with established franchises, robust pipelines and no imminent patent cliffs. Specifically in the pharma and biotech space, the fund directs its attention to companies leveraging technology to enhance their drug research and development processes.
“We’re seeing particular progress in pharma’s second and third waves. Think of the first wave as traditional chemistry; that was the drugs we saw in the 90s and the early 2000s. The second wave is proteins, potentially much more effective drugs with large, complex molecules that have always been difficult to research and manufacture. AI can help to start and dramatically accelerate the profiling process.
“The third wave is genetic-based medicines, and we’re seeing many more DNA-based drugs come through the clinical trial process. That’s for everything from critical diseases like cancer and cystic fibrosis all the way through to the GLP-1 (glucagon-like peptide-1) drugs for treating obesity. These drugs are incredibly effective. Some trials show patients reducing their weight by 20% and in countries like the US, we’re on a path to half of all adults being obese, so these could be very important drugs for human health globally,” adds Jonsson.
Danish drugmaker Novo Nordisk is one of the companies developing GLP-1 medications. According to the October fund fact sheet, the company is New Perspective fund’s second-largest holding at 3.4%. Owned since 2003, Novo Nordisk has performed well over the last couple of years, driven primarily by its obesity and diabetes franchises, says Jonsson. Novo Nordisk is behind the popular weight management-approved Wegovy and other semaglutide brands, Ozempic and Rybelsus.
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Jonsson continues: “The obesity drugs market is in its infancy and is one of the largest remaining untapped drug frontiers in the global healthcare sector, which presents a huge growth opportunity.”
Digital disruption
The second trend, says Jonsson, is digital disruption. The past decade saw the rise of cloud computing, software-as-a-service and internet platforms driving digital disruption. While Capital Group anticipates continued growth in these areas over the next decade, the widespread adoption and commercialisation of AI could fuel the next surge.
Jonsson also notes that AI is a technology the firm has been closely monitoring for years. Generative AI is now reaching a stage where it is entering the mainstream and poised for rapid acceleration.
Breaking down investments in the AI trend, she identifies three layers. Firstly, considering the extensive computing power required for AI, New Perspective invests in semiconductor companies and major cloud computing hyperscalers. Among its top 10 holdings, three are semiconductor leaders, including Broadcom (2.2%) and Taiwan Semiconductor Manufacturing Corp (1.9%), while two are prominent cloud computing entities, Microsoft (5%) and Alphabet (1.7%).
New Perspective has included Microsoft in its portfolio since 1997. Jonsson highlights Microsoft’s significance as an essential enterprise partner, offering crucial productivity and infrastructure software. With a considerable addressable market for its cloud business, Microsoft’s ongoing investments in areas like OpenAI (the company behind ChatGPT) and Azure position it for potential growth driven by increasing AI adoption.
“There is also opportunity for software companies and developers, but at the moment, we’re focusing on the big platform companies because they have some very important advantages. They own most of the AI intellectual property, have the data that AI needs to feed off of, and have the platforms to sell AI products to customers. And the third layer is the beneficiaries — these companies that use AI to make better products and become more productive,” she adds.
Beyond the long-term trends, Capital Group identifies opportunities in energy transition and the evolving landscape of globalisation. The ongoing global efforts to decarbonise the economy present potential multi-decade tailwinds for companies involved in various sectors, including raw materials, semiconductors, electric vehicles, energy management and storage, electrification equipment, air conditioning providers and alternative fuels.
The ever-changing global economy gives rise to heightened geopolitical tensions in the dynamic landscape of globalisation. Companies are now prioritising supply chain resiliency over efficiency. Jonsson says that transformation in globalisation — including the emergence of “nearshoring” (outsourcing to neighbouring markets) — can create opportunities in sectors like logistics, infrastructure machinery and medical equipment.
Back to basics
For 2024, Jonsson anticipates a crucial market phase marked by geopolitical shifts and the end of a 40-year trend of declining interest rates. Central banks are expected to focus on monetary policy to tackle sustained inflation amid slowing growth momentum.
As most central banks are at or close to the peak of a monetary policy tightening cycle, investors’ most important question is how long rates will remain elevated and a so-called “rolling recession” might ensue. She says: “A US recession over the next 12 months is still possible. We may instead see a series of desynchronised mini recessions in different industries at different times.”
Jonsson adds that dividends are crucial for investors, particularly in the current economic environment. Companies that pay dividends, especially those with a history of dividend growth, exhibit attractive fundamentals. They offer resilient growth, robust cash flows, solid balance sheets and management with effective capital allocation skills. Dividend growers also often deliver reasonable returns and enhanced protection against downside risks.
She also recommends that investors adopt a back-to-basics approach by embracing long-term investing and concentrating on secular trends. “Remember that equities are a long-term asset class, so we find companies that benefit from secular trends and have long growth runways, build positions and then use any weakness to keep adding to those positions. It’s one of the best pathways to outstanding long-term returns.”
