HEAD-TO-HEAD: Capital Group versus Nomura

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Darius McDermott, Chelsea Financial Services

Introduction

Global equity markets face hurricane-force headwinds.

As Credit Suisse pointed out at its annual Asian Investment Conference this week, many structural factors will continue to depress investor sentiment. The list includes wage inflation in the US which is not matched by productivity gains, and indicates that the US economy is close to overheating, while the supply side shock to commodities, financial markets, Russia and corporate confidence is being underestimated in Europe.

Higher central bank interest rate hikes are expected, and there is the danger amid the worrying inflation backdrop of a central bank policy mistake.

Meanwhile, long term lead indicators signal the risk of hard landing in the US, the equity risk premium is only at fair value, earnings revisions are about to turn negative, credit has been behaving badly, bond yields remain low, and markets are falling despite benign funds flow in corporate net buying and, until recently, retail buying, according to the dire assessment by Credit Suisse.

Indeed, with the upheaval from Russia’s invasion of Ukraine, alongside worries over the impact of surging oil price on inflation and the Fed’s policy response, many clients are asking Singapore-based DBS if they should just liquidate their portfolio and hold cash.

Yet, although raising cash may mitigate the downside risk for a while, holding a substantial amount of cash is no antidote as rising inflation will only erode its purchasing power over time, DBS reassured its clients.

Against this background, FSA asked Darius McDermott, managing director, Chelsea Financial Services, to select two international equity products for comparison: the Capital Group New Perspective Fund and the Nomura Global High Conviction Fund.

Source: FE Fundinfo, Morningstar. (Data in US dollars, 25 March 2022)

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