Can you tell us a bit about your background? 

I have been at Capital Group for over 23 years. I started out as an analyst covering the insurance, real estate, transportation and software sectors. I also covered the asset management sector in the US. At Capital Group, the approach within our investment group is to have a diversity of assignments and a diversity of backgrounds. I evolved into a small-mid cap generalist. I’m predominantly a US investor, although I’ve lived in London (twice), Hong Kong and was involved in opening our Mumbai office. My orientation has been heavily shaped by those global experiences and being a small- and mid-cap generalist. 

 

Have your sector responsibilities as an analyst covered earlier in your career at Capital Group influenced the way you invest? 

Yes, I believe they have. My foundation was shaped by a broad range of sectors. I ended up taking away the best and the worst of those experiences, even covering airlines during September 11. I tend to lean on companies that have a persistently innovative culture; leaders, that can adapt, and gain market share. This is because a lot of the sectors I covered as an analyst included cyclical companies that were at times either highly out of favour or highly in favour. 

As a generalist I tended to look for companies in the small- and mid-cap area and gravitated towards high-quality, durable companies. That is something that has stayed with me today. Looking at examples of holdings in my portfolio, I am invested in companies such as MasterCard, Crown Castle and Microsoft. These are very durable businesses that have global revenues. They might be domiciled in the US, but have exposure around the world. These types of companies have the potential to benefit from growth outside the US to give diversity from an economic standpoint. 

 

We have just witnessed the fastest bear market on record  and an equally rapid recovery. Has there been anything about the market dynamics that surprised you over this period?

I think everything in this cycle has been exceptionally accelerated. The virus itself surprised us – and we are still living through that today – and we needed to quickly assess the vast economic impact. At Capital Group we quickly started to look to the other side and analyse the implications for various companies. 

The US Treasury and the Federal Reserve committed to unprecedented amounts of stimulus – US$4.5 trillion, plus the CARES programme, lending programme, and loan buying programmes. We are now seeing negotiations going on for an additional US$3 trillion of stimulus. This is, by proportion, unprecedented and all of this happened at the same time. 

What has been interesting and creates opportunities during this period is the divergent returns across various sectors in the equity markets.

 

In terms of sectors within the equity universe, how do you see things unfolding?

Within stock markets around the world such as the US, Europe and China, we are seeing a clear global theme of financials and energy having dramatic negative returns.   

Some of these trends have been in place for a while. For example, within the energy sector, stocks have been lagging since 2007. This is a classic supply and demand challenge. Costs have come down but not faster than the revenue, margins are under pressure. There is a lot of commodity supply right now. Lower demand and record inventory levels will take time to gain equilibrium. I do not think we have seen the end of the cycle because companies are still adjusting. There has been a number of companies that have taken unprecedented moves with their dividends and their capital structures. Companies are also considering capital expenditure reductions, which ultimately may lead back to a better balance of supply and demand, but it will take time. 

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