Capital IdeasTM
Investment insights from Capital Group
Long-Term Investing
Rob Lovelace
Over long periods of time, there are two different types of bear market, those that are associated with a recession and those that are not, and the former are much rarer. When recessionary bear markets do happen, they tend to be about twice as long and go much deeper than those not associated with a recession.
If you map the course of these recessionary bear markets, they're incredibly similar in both their duration and form and seem to match well with what's going on in the markets right now. The good news is that there are no systemically broad market risks with this bear market, compared to the risks posed by collateralised mortgage vehicles during the GFC (the last time we had a bear market associated with a recession). I believe we will come out the other side of this bear market stronger and better for it having cleared up those excesses in the global economy.
Looking forward: who will lead us out of the bear market?
A key message from the last few bear markets is the sectors that led into the bull market were almost never the ones that led us out. If we consider the FAANGs, which had been particularly strong, will they be the ones to lead us out of the market?
I don’t necessarily think they are going to be the worst sector, but it's very rare that the big leaders going in are the strongest coming out. So where should we be looking for that for that next leadership group?
Market leaders before and after bear markets are rarely the same
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Past results are not a guaranteed of future results.
Annualised returns shown are in the three years prior to and after the bear market period shown. Based on MSCI World index in US$ terms with net dividends reinvested.
Sources: Capital Group, MSCI
In this article, vice chair and president of Capital Group Rob Lovelace compares today’s bear market with those in the past and explores which companies could be the next equity market leaders.
Risk factors you should consider before investing:
- This material is not intended to provide investment advice or be considered a personal recommendation.
- The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment.
- Past results are not a guide to future results.
- If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease. Currency hedging seeks to limit this, but there is no guarantee that hedging will be totally successful.
- Depending on the strategy, risks may be associated with investing in fixed income derivatives, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.
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Long-Term Investing
Past results are not predictive of results in future periods. It is not possible to invest directly in an index, which is unmanaged. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.
Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.