HEAD-TO-HEAD: Capital Group versus Nomura

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Investment approach

The Capital Group New Perspective fund has a unique multiple-manager approach, looking to capture the companies that are leading change in global trends, according to McDermott.

“The team aims to identify companies in the early stages of their growth trajectory and will want to hold them as they become future winners. As such, the portfolio will consist of future and global champions, with the latter of these providing some defensiveness for the fund,” he said.

To build the portfolio, the fund has nine portfolio managers, each with their own sleeve; a further sleeve is then run by a team of research analysts. Each of these groups are given their own capital to invest I their way. They all have slightly different approaches, some preferring more concentrated portfolios while others take a more diversified approach.

“The work on the stock universe is supported by the vast analyst resource at Capital Group. Company meetings are an essential part of the analysis, with the managers meeting the corporate team of the companies they look to invest into and challenge them on their approach and outlook,” said McDermott.

Each manager will have an allocation – with their best ideas going into the portfolio – with a further 20% of the total fund assets given to the 80-strong research team. Here, each analyst, who is often a sector or subsector specialist, can invest a small amount of the fund into their highest conviction ideas if they see value in it. Each will put forward around four stocks and will try and balance them between cyclical and defensive ideas to ensure the portfolio doesn’t drift too far to one investment style. This creates around 180-190 small positions in this sleeve of the portfolio and this ‘tail’ has added around a quarter of the fund’s outperformance historically.

“At an individual level, the managers can have more conviction, but this is balanced in the final portfolio to ensure single stock risk does not dominate the portfolio. The result is a style agnostic vehicle, which has historically a large-cap bias,” said McDermott.

Turning to the Nomura fund, “as the name suggest, the strategy is incredibly high conviction,” McDermott said. Holding between 17-25 stocks with a 90%, the fund is completely unconstrained in terms of sectors and geographies, and it also has a quality and value bias.

“The process starts with a quant screen to define the investment universe, with a focus on dividend sustainability and yield and stock size and liquidity.”

From this a global quality universe of around 400 stocks is created, where detailed bottom-up analysis is undertaken – including discounted cash flow valuation, stock risks and ESG factors. “The result is a stock rating for quality, value and ESG,” said McDermott.

This list is then cut to about 40 names – all of which are deemed high quality with a significant valuation upside. Inclusion criteria here includes considering stocks with a 15% upside to their fair value.

“The final stage is analyst led stock selection with peer-to-peer discussions designed to set a high hurdle for inclusion. The portfolio managers construct the final portfolio with weightings based on conviction and upside potential,” said McDermott.

Fund characteristics

Sector allocation:

Source: Fund factsheets, 28 February 2022

Regional allocation:

Source: Fund factsheets, 28 February 2022

Top 10 holdings:

Source: Fund factsheets, 28 February 2022

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