What is your role at Capital Group?

I see my role as a two-way bridge: on the one side, I present our portfolios to clients and help them to understand what’s going on in them. On the other side, I seek to understand client needs and work with the client team and the investment group to address those needs. Because we are building portfolios based on client needs, a dialogue and problem-solving exercise takes on a heightened role.  

What do you mean by solutions at Capital Group?

What we mean by solutions is an investment portfolio designed to achieve a specific goal. We translate those goals into an investment objective - a mix of growth, preservation and income. Any solution or investment need can be boiled down to one of those three things or some combination of them. In essence, it is a very simple proposition to articulate. Take a life goal and find the investment objective that is going to achieve that goal. A solution is a portfolio aligned to that life goal. It is easy to understand and see what it’s doing for you and therefore helps an investor to stay the course. That’s the benefit of having a solution: it makes things simple. In addition to the investors, the other important party is the financial advisor. Using a solution that’s aligned to an investor’s goal enables advisors to focus on the client relationship and long-term financial planning rather than spending all of their time on portfolio construction and then sourcing securities, and trying to explain those to the client.

What makes Capital Group different for multi-fund solutions?

Firstly, Capital Group has serious scale and resources to do it well, with about USD250 billion assets under management in solutions (out of the USD2,600 billion that Capital group manages globally as at the end of June 2021), a dedicated investment group and years of experience. There are not that many asset managers that can do solutions and you need to cover the range of asset classes to put a solution together. Secondly, we have a simple philosophy around building solutions and do not use lots of alternatives. We set a long-term strategic allocation to achieve our objective and don’t mess around with it too much so clients know what to expect. Thirdly, an important but more subtle differentiator is that our solutions are driven by bottom-up investing. We deliberately use broad and flexible funds in our solutions, so rather than a single country equity fund we’ll often use global equity funds. We use our own funds that we know extremely well. Our focus, as an investor, on bottom-up stock picking shines out through our solutions.

Why invest in solutions for the long term? 

The great thing about multi-asset solutions that are developed to achieve a long-term objective is that they help investors look past short-term market fluctuations. The focus is on achieving that long-term goal.

That said, it’s entirely natural for investors to want to know how multi-asset portfolios are faring in the current market environment. There are three major things that are driving markets now. Firstly, following the lockdowns, which triggered massive economic slowdowns, we expect the vaccination programmes and the monetary stimulus in many markets to provide a big jump in gross domestic product (GDP), driven by a recovery in consumer spending. Cyclical and value stocks should benefit in particular, and sectors such as travel and leisure, and industrials look set to come back quite strongly. 

Secondly, growth stocks have generally done better than value stocks and secular growth over the last decade. This accelerated in 2020 with technology and digitalisation impacting many sectors. Secular growth is here to stay but it will be more selective. Growth-focused funds all based on bottom-up stock picking are very well positioned to capture that secular growth. 

Finally, while bonds are out of fashion, they are the third big driver and play a very important role in a portfolio for diversification. The expectation of a strong recovery means people have been nervous about inflation and rising interest rates. However, we expect rate rises to be gradual and moderate, and core investment grade bonds have done well in that environment, historically. An unexpected, sharp hike in rates is typically when bonds really suffer. The recovery is going to be bumpy and the equity markets are going to be up and down. In these sharp dips, bonds will come into their own. 

These three big parts of the portfolio come into play at different points in the market cycle. Solutions provide that diversification, which means you always have something working for you. 

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