Capital Ideas^TM

Matt Reynolds: Hello, I'm Matt Reynolds and this is Capital Ideas, your connection with the minds and insights helping shape the world of investments. And today I'm joined by one of our equity portfolio managers, Barbara Burtin, who is a portfolio manager on New Perspective Fund. Hello, Barbara.

Barbara Burtin: Hello.

Matt Reynolds: Today we're going to step through a few of Barbara's history at Capital Group, as well as her experience as a portfolio manager and delve into her investment approach in terms of managing money for Capital Group on behalf of our clients. So, let's get started. Barbara, can you share with us when you joined Capital Group, what attracted you to Capital Group and how long have you been at the organization?

Barbara Burtin: Thank you, Matt. So, I joined Capital in 2008 after a summer internship between my two years of MBA at Wharton. I spent my summer looking at car rental companies at Capital, and there are a couple of things that made Capital very special to me already at the time. The first thing is the entrepreneurial nature of the job at Capital. You are given full independence to do your research and to make your decisions and to make your recommendations. The second thing is of course, the fact that it is a very respectful environment. So, I did my summer internship in the summer of 2007, and the global financial crisis was already starting at the time. And what I observed is how respectful people were with each other, how the discussions were really respectful, people listening to each other never having any accusations. So, I thought it was a perfect environment to invest. And so, these were some of the things that attracted me to Capital.

Matt Reynolds: Certainly, interesting times around the summer of 2007 and 2008, what was your first sector that you covered as an analyst at Capital Group?

Barbara Burtin: So, yes, it was an interesting time to start at Capital. October 2008, and I was asked to cover European banks. So, when I started, it was unclear whether we would still have a financial system. And I covered European banks throughout the eurozone crisis. So going through all the different recapitalizations and all the concerns about the sustainability of the Euro and the Eurozone and the EU.

Matt Reynolds: There must have been a few mornings where you wondered whether your coverage list would shrink overnight.

Barbara Burtin: And it did shrink quite a few times. I have quite a few stories of going and meeting banks that subsequently would just go under, would fail. Either banks in France, like Dexia, or banks in Portugal and other parts of Europe.

Matt Reynolds: Names we no longer have to look at as investors potentially. So, covering the European banks at such a volatile time in the market, how did that influence and shape your investment approach to managing global equities in the coming years after that?

Barbara Burtin: So, my process is very bottom up when it comes to investing. So, I focus on identifying companies that have created a mood for themselves, that have a competitive advantage that will enable them to deliver stronger revenue growth and margins, hence earnings growth for a long time. Some of the things I am very careful about, and it comes from my experience covering European banks, are things like leverage or very complex structures. I knew the pitfalls that go with having companies that have too much leverage, but also that are very difficult to understand. The other thing in my investment approach is that I pay attention to the macro and the geopolitics. I grew up as an investor in an environment where I needed to spend a lot of time understanding both macro and the politics. It's not the main drivers of my decisions, but I look for changes and how they might impact the companies I hold in my portfolio. In general, I tend to take a longer-term approach and I tend to avoid cyclical sectors. Because what I've learned with banks is that you really need to be right twice. You need to be right when you buy and when you sell and when a sector is very cyclical, the move can be very dramatic and happen very quickly. And you're often too late on one or both sides.

Matt Reynolds: Yeah, it's interesting, isn't it? The avoiding the leverage in the complex structures, avoiding the cyclical stocks certainly sound like good support structures for successful stock picking and clearly right now the macro and the geopolitics being quite volatile I would have thought will also be quite useful.

Barbara Burtin: It is useful, but I would also say what is very important is to remember to keep your long-term outlook and your long-term compass and not overly focus on the daily or weekly price moves of the other stocks. So, going back to the reasons why I hold a stock, why I have invested in a company, what is the most and is the most changing or not. If it's not changing, I will stay invested, but in spite of the volatility, now interest rates, for instance, can have an impact on valuation. So, you need to take that into account. Or post-COVID, you needed to understand that a lot of the growth had been accelerated during COVID and you couldn't just assume that the trajectory of revenue growth or margins will be the same for some companies. So, in that case, you need to make a change.

Matt Reynolds: Very true. Let's come to your outlook and where you're positioned in a moment. But just one last question on the investment management task. Your obviously part of what we call the capital system, the multiple portfolio manager approach. Can you describe in your own words how you are a participant in that system, how you interact with the analysts, with the other portfolio managers? How do we go about that fundamental research task?

Barbara Burtin: So, as I mentioned, my process is primarily bottom up and I rely on the work of our analysts and company visits to identify the companies that have the strong most these competitive advantages. And so how does it work with analysts? Our analysts spend a lot of time meeting companies and doing the research work. And typically, when they have a new investment idea, they're going to write a note. So that's really the first step and come on an investment call. We have regular investment calls every week, which all the portfolio managers and analysts on the call, and we have a discussion about the new investment ideas or updates about investing or companies we have already invested in. So, I pay very close attention to what our analysts tell us and read their research. I have one-on-one interactions with analysts after they have recommended a stock or if I have an investment with them. I will also go on trips with some analysts, or I will attend some company meetings when they come to the office. And those are really the primary ways we interact with analysts. Which my fellow portfolio managers on these investment calls, we have a lot of discussions about the investment idea that are brought forward. We also have a lot of interactions in the office. So, these are some of the ways. What is important to understand is that at Capital, each of us is going to make his, her own decision. So, I might be buying a stock that some portfolio managers are not interested in or might be selling as well. So, we all make our own decisions, but we always have very good, thoughtful, and respectful decisions. And we often agree to disagree.

Matt Reynolds: That sounds excellent. It sounds like you get to the heart of the investment matter very succinctly and with a great deal of bottom-up research. Let's finish up the call with just a few comments on what you like at the moment, how you have positioned your portfolio, what types of ideas you have invested in at the moment to help drive investment results going forward.

Barbara Burtin: So, when I look at my portfolio and it's really the result of individual decisions, but there are two big themes or big sectors that are represented in my portfolio. One being health care and especially GLP-1 drugs, companies like Novo Nordisk or Eli Lilly. The reason is that these companies have this drug that can help people lose over 20% of their weight based on various studies for injectable drugs. And when you look at the opportunity globally, you have 750 to 1 billion people who are obese. And just in the U.S., our analysts estimate that the opportunity could be 80 to 100 billion, depending on your assumptions, assuming, for instance, that 25 percent of severely obese adults and 10 percent of moderately obese adults would take these drugs at a $5,000 cost per year, you get to $80 billion. And when you compare to the current sales of Eli Lilly and Novo Nordisk of approximately $20 billion, you can see the massive opportunity just looking at the US market. But again, it's a global market. So, we are just at the beginning for these drugs.

The other theme that is very prevalent in any investment literature you're going to read is AI and you open the papers and every day you will have some sort of article about AI. And some of them might not be very positive, but the reality is that I believe AI is here to stay and we are just at the beginning of the use cases. Everyone thinks about Nvidia when talking about AI and investing in AI. But there are lots of different ways to invest. You can invest in some of the suppliers to the industry, like Broadcom, or you could think about TSMC as a foundry. You have also the company like ASML providing the machines to TSMC to make the chips. And then you have some companies that are using AI, like developing models like Alphabet or Meta. You have the companies that are designing chips like Cadence or Synopsys. So, you really have a lot of ways to invest in AI. And we just saw the announcements from Apple also regarding AI and how we are all going to be able to leverage AI better. So, really just the beginning of the use cases and tremendous opportunities.

Matt Reynolds: Yeah, it certainly sounds like a long-term opportunity for both investors and users of AI going forward and of course for the companies that can deploy it over time. So, Barbara, thank you very much. It's been really interesting to have you talk to us today, share a little bit about the capital system, your own approach in terms of being a portfolio manager and the bottom up focus that Capital has on generating investment results. Thank you.

Barbara Burtin: Thank you, Matt. It has been a pleasure.

Matt Reynolds: We're always trying to get better. So, if you have any feedback, including topics you'd like to see addressed in future episodes, send us an email at CapitalIdeasPodcastAustralia@capgroup.com. And if you like what you've heard today, please follow us on your favourite podcast platform for Capital Ideas. This is Matt Reynolds reminding you that the most valuable asset is a long-term perspective.

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