Fund in Focus: Capital Group Global Equity Fund (Canada)
Growth tilt could be near-term headwind
Launched in 1931 in Los Angeles, California, the low-key Capital Group has been around for a long time, today managing $1.7 trillion globally. Capital Group Global Equity Fund (Canada) is its FundGrade A+® Award-winning Canadian global equity offering. Like other Capital Group funds, it uses a multi-manager approach, sourcing different managers with distinct styles, overseen by the firm’s Portfolio Coordinating Group.
Capital Group also uses a performance-based compensation scheme placing great emphasis on the longer-term performance, reducing the incentive for managers to take unnecessary risks for short-term gains.
This approach has served investors well. The fund’s 10-year average annual compounded rate of return was 11.4% to Aug. 31, which is roughly in line with the MSCI World Index, but handily outpacing the peer group at 8.5%. And the fund has regularly posted above-average returns over the past 10 calendar years.
At the end of August, it had a growth tilt, with an overweight in information technology, consumer discretionary, and healthcare, and an underweight to energy, utilities, and real estate. Valuation numbers are a bit rich relative to the benchmark, but this is offset by higher growth rates, both on a historic and forward-looking basis.
The portfolio is very well diversified, with more than 230 positions, and the top 10 making up 14% of the portfolio. Top equity holdings at Aug. 31 included pan-Asian life insurer AIA Group Ltd. (HKG: 1299), Danish power company Oersted A/S (CPX: ORSTED), semiconductor foundry Taiwan Semiconductor Manufacturing Ltd. (TPE: 2330), Swiss financial services firm Temenos Group AG (SWX: TEMN), and U.S. software giant Microsoft Corp. (NSD: MSFT).
Portfolio turnover is modest, averaging around 30% annually, which reinforces the fund’s long-term outlook and approach.
About half the fund is invested in U.S. stocks, 18% in Europe ex-U.K., and 6% in the U.K. The fund can also invest in emerging markets, and at the end of October it held approximately 10% in emerging markets (EM). With the growth tilt and EM exposure, volatility has been slightly above average. The fund has also felt a lot of the market downside.
Looking ahead, the growth tilt may be a near-term headwind as the market leadership moves towards more value type names. However, given the long tenure of the management team combined with the consistency of the process, I expect that the longer-term numbers will continue to be above average.
This can be an excellent core global equity holding for most investors with a long-term time horizon. However, those worried about short-term mark-to-market losses in periods of uncertainty may want to look at alternatives that provide better downside protection.
Capital Group Global Equity Fund (Canada)
Fund company: Capital International Asset Management
Fund type: Global Equity
Style: Large-Cap Blend
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Good
Managers: Carl Kawaja since November 2002; Dina Perry since November 2002; Leo Hee since December 2016
Fund code: CIF843 (Front-end load)
Minimum Investment: $500
Dave Paterson, CFA, is a money manager and an expert on investment fund research and due diligence on a variety of investment products.
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Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.