HEAD-TO-HEAD: Capital Group versus Fidelity

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Investment approach

The Capital Group strategy focuses on generating income without sacrificing total return. The firm has a multimanager approach, with each manager running a sleeve of the overall portfolio independently.

Apart from meeting an income target, they can apply their individual investment styles.

“The application of Capital Group’s traditional multimanager approach creates a diversified portfolio representing various investment styles and processes and reduces volatility,” said Poole.

Portfolio turnover typically stays below 40%, and the fund has held many equity positions for five years or more.

The fund holds a portfolio of about 300 stocks spread across market regions and sectors. The managers’ willingness to hold cash and bonds when equity opportunities can provide a cushion in down markets – although cash is typically 2%-7% of assets, it has risen above 15% during periods of market stress.

The fund’s weightings to US equities are below that of its the MSCI ACWI benchmark, and the managers have found opportunities in companies domiciled in emerging markets, such as South Korea and Taiwan.

However, sector weights compared with the benchmark usually stay quite close.

The Fidelity strategy aims to achieve a gross return of 4% a year ahead of the MSCI World Index over a rolling three-year period.

“The process and approach are very clear and consistent,” said Poole.

Lead manager Jeremy Podger identifies companies that fall into at least one of the three categories which he defines as special situations: exceptional value, unique business, or corporate change.

He defines exceptional value as stocks that should have at least a 50% upside over three years; unique businesses are those that dominate their industry and have a sustainable competitive advantage; and corporate change companies are those believed to have a likely catalyst over a 12- to 18-month horizon that can lead to a significant share price increase.

Quantitative screens are combined with Podger’s own qualitative analysis to reduce the universe of global stocks capitalised over $1bn to a more manageable size, which typically comprises about 150 names. Meeting management is considered key.

“Ideas are generated primarily from the bottom up, and the approach is therefore style-agnostic,” said Poole.

The portfolio contains 50-90 developed-markets global equities (emerging markets aren’t allowed), with similar allocations to the three categories.

“Portfolio construction is relatively unconstrained, so deviations from the index and peers can be sizable as a result, but have typically been relatively moderate,” said Poole

Fund characteristics

Sector allocation:

Source: Fund factsheets, 31 Mar 2021

Region /Country allocation:

Source: Fund factsheets, 31 Mar 2021

Top 10 holdings:

Source: Fund factsheets, 31 Mar 2021

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