Capital Group espouses a long-term approach as key to investment success

ON the issue of long-term investing, few are arguably as authoritative on the subject as the US-based asset manager Capital Group. Its track record of more than 90 years as an active manager means it has weathered both the best and the worst of times.

In Asia, however, it is better known among institutional investors than retail investors, despite having registered around 28 funds for sale here over the past few years, including 2 in the CPF Investment Scheme. The group is keen to raise its profile among individual investors, who are its core market in the US.

Guy Henriques, Capital Group president and head of client group (Europe and Asia), says: “We’re one of the best-known asset managers in the US, particularly our mutual fund range, American Funds. We aim to bring to same level of knowledge of the Capital Group to Asia. We know this will take time because we’re not as well known in Asia. But we’re doing this steadily and methodically, making long-term investments… We want to be the world’s asset manager of choice. This is a long-term strategy; we’re extremely patient and we want to do this correctly.’’

Henriques has spent more than a decade of his career in Asia, including Hong Kong and Tokyo. He observes that saving habits have evolved in the region. The group is committed to building partnerships with intermediaries here who can help cultivate a discipline of long-term investing. Capital Group’s distributors in Singapore include DBS Bank and robo advisers such as Endowus.

“When I first came to Asia just after the Asian financial crisis, there was more of a trading approach to savings. Now people are much more aware of the benefits of long-term savings, and not trying to get in and out of markets. Building our Asia and Europe intermediary business is one of the pillars of our long-term strategy globally, not a wavering commitment… Raising assets quickly is not what we’re here for.’’

The Capital Group was founded in 1931 and, as an active manager, it focuses on 40 to 50 diversified strategies. Its investment process sets it apart from other managers. It manages over US$2.6 trillion in assets. “The Capital System’’ is a multi-manager system, as opposed to a single star or lead manager. A core offering such as a global equity fund may be divided into 4 to 5 ‘sleeves’, each independently managed by a portfolio manager who deploys a high-conviction, concentrated basket of stocks. This allows a fund to benefit from a diversity of styles, approaches, backgrounds and convictions. 

Recently Capital Group was singled out by Morningstar as the Best Asset Manager in 12 markets across Europe and Asia, including Singapore. Morningstar head of manager research (Europe and Asia Pacific) Wing Chan said the multimanager system was key to its success. “Dividing each fund into independently run sleeves lets managers invest in line with their styles, enhancing diversification and reducing the overall portfolio's volatility.’’ Morningstar also said the group’s investment culture is “marked by lengthy tenures, strong manager fund ownership, and competitive long-term records’’. Recently in the US the group launched 6 active exchange-traded funds (ETFs).

Henriques said: “We have a long-term approach in the way we manage money and the way we compensate our managers. I think it’s an important differentiator and more unusual than you might think… We don’t believe in the single-star manager approach. The Capital System is the antithesis of the single-star manager.’’ Portfolio managers are compensated based on performance over 1 to 8 years, with the largest weighting given to 8-year results. They are not compensated for raising assets.

Jeik Sohn, Capital Group’s head of client group (Southeast Asia), says that while the macro environment poses numerous risks, the group itself is familiar with crises as it was founded shortly after the Great Depression. It has set out since then to cater to the savings of the mass retail market. Being founded in the wake of a crisis “really inculcated the fact that it is the savings of real people we’re entrusted with’’, says Sohn. “It’s the moms and pops of the US. And we believe in the power and value of financial advice. We’re a manufacturer, but people need someone to handhold clients to save them from themselves. What we try to do is to help people to appreciate the benefits of long-term investing because making money by trading and timing the markets is incredibly difficult.’’

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“I accept that there is a generation of savers and market participants who haven’t witnessed inflation and high interest rates. But is it unique in the history of savings? Not at all. The lesson we’ve always learnt is to invest for the right reasons, and to remain invested. It’s a scary time, but a long-term view with a diversified portfolio is still the best approach.’’