It has been a tumultuous period for global equities these past several years as investors in the S&P 500 index have seen their returns seesaw from double-digit gains to double-digit losses.
After gaining 28.71% in 2021, the index fell 18.11% the following year as all asset classes were whacked by higher inflation. This reversed course again in 2023 following an AI-driven rally, which saw the index gain 24.24%.
For anyone concerned that the latest rally may have run its course as valuations have become stretched, there are reasons to be optimistic. Firstly, there are signs that after the Magnificent Seven’s hegemony last year, the rally is starting to broaden out.
Towards the end of the last quarter, 90% of the stocks in the S&P 500 index moved above their 50-day moving average, according to Morgan Stanley, a technical indicator of market breadth.
Secondly, with the US Federal Reserve likely to begin cutting interest rates towards the second half of the year, this is a positive signal as the interval after a series of rate rises and before the first cuts begin is typically a good time for stocks.
Thirdly, elections in the US are also a positive omen as historically an election year is the second best year during a four-year election cycle for US equities (the third year has historically been the best).
Moreover, there are also positive signs for stock markets outside the US. Both Japan and India have been on a tear in Asia the past six months to a year, while Europe, historically a much more cyclical market than the US, should fare well with an upturn in risk appetite.
Against this background, Darius McDermott, managing director at Chelsea Financial Services, chose the Capital Group New Perspective fund and the T Rowe Price Global Value Equity fund for this week’s head to head.
| Capital Group | T Rowe Price | |
| Size | $13.64bn | $573.1m |
| Inception | 2015 | 2012 |
| Managers | Barbara Burtin, Patrice Collette, Noriko Honda Chen, Brady L. Enright, Kohei Higashi, Joanna F. Jonsson, Jonathan Knowles, Robert W. Lovelace, Anne-Marie Peterson, Andraz Razen and Steven T. Watson | Sebastien Mallet |
| Three-year cumulative return | 9.60% | 16.98% |
| Three-year annualised return | 2.33% | 4.98% |
| Three-year annualised alpha | 1.32 | 3.63 |
| Three-year annualised volatility | 17.28% | 13.24% |
| Three-year information ratio | 0.21 | 0.49 |
| FE Crown fund rating | ** | ***** |
| OCF (retail share class) | 1.61% | 1.74% |
Investment approach
Although both funds are global in nature, stylistically they are very different. The New Perspective fund is the flagship global equities strategy of Capital Group, investing in some of the world’s largest multinational firms that are able to benefit from transformational changes in the global economy.
Meanwhile, the T Rowe Price fund invests in around 80-100 stocks across the value spectrum, ranging from deep value to higher quality/defensive names and aims to outperform regardless of whether value is in vogue or not.
The Capital Group fund has a large-cap, growth bias. The minimum market capitalisation for a stock to appear in the portfolio is $3bn and it must also generate at least a quarter of its revenues beyond its home market.
The portfolio comprises 10 sleeves, nine of which are managed by the different portfolio managers and the 10th is managed by a group of research analysts.
The highest conviction ideas make up the final portfolio with each manager having their own allocation and around a fifth given to the research team.
“The aim is to build a core portfolio of quality companies, but they will also target attractive risk/reward opportunities in out-of-favour cyclical companies and deep value turnaround situations.”
darius mcdermott, chelsea financial services
“Here, each analyst, often sector or subsector specialists, 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,” said McDermott.
Meanwhile, the T Rowe Price fund is more market cap agnostic as it searches out value.
“The aim is to build a core portfolio of quality companies, but they will also target attractive risk/reward opportunities in out-of-favour cyclical companies and deep value turnaround situations,” McDermott said.
The T Rowe Price strategy is also more concentrated than the Capital Group fund with less than 100 holdings compared with 200 for Capital Group. Both funds have around 20% of their exposure in their top 10 holdings though.
The T Rowe Price fund is overweight financials, energy and healthcare, while the Capital Group fund is overweight consumer discretionary and healthcare. The T Rowe Price fund also has greater exposure to US equities.
Country allocation:
| Capital Group | T Rowe Price | ||
| North America | 55.2% | USA | 59.7% |
| Europe | 27.6% | Japan | 6.4% |
| Emerging Markets | 5.9% | UK | 6.2% |
| Japan | 3.8% | Canada | 4.6% |
| Pacific ex-Japan | 2.1% | Germany | 3.8% |
| Cash & Equivalents | 5.4% | Netherlands | 3% |
| Vietnam | 2% | ||
| France | 1.6% | ||
| India | 1.6% | ||
| Switzerland | 1.4% | ||
| Korea | 1.1% | ||
| Italy | 1.1% | ||
| Austria | 1% | ||
| Taiwan | 1% | ||
| Portugal | 0.6% |
Sector allocation:
| Capital Group | T Rowe Price | ||
| Information Technology | 20.9% | Financials | 21% |
| Healthcare | 15.8% | Information Technology | 16.5% |
| Consumer Discretionary | 12.7% | Healthcare | 14.1% |
| Financials | 11.4% | Industrials & Business Services | 11.2% |
| Industrials | 11.2% | Communication Services | 8.3% |
| Communication Services | 9% | Energy | 7.4% |
| Consumer Staples | 5.1% | Materials | 5.6% |
| Materials | 4.5% | Consumer Staples | 5.1% |
| Energy | 2.9% | Consumer Discretionary | 3.5% |
| Utilities | 0.7% | Utilities | 3.1% |
| Real Estate | 0.5% | Real Estate | 1.1% |
| Cash & Equivalents | 5.4% |
Performance
Unsurprisingly, the T Rowe Price fund tends to perform better in a value market, whereas the Capital Group fund fares better in a growth market, but McDermott notes that both funds have been impressive.
McDermott describes the Capital Group fund as “rock solid”, producing positive returns in seven of the last nine years, the most positive of which was in 2020 during the post-Covid stimulus rally. It suffered during 2022 with the rotation from growth to value.
Meanwhile, McDermott notes that T Rowe Price’s performance has been impressive during periods when value has not been in vogue.
In terms of fees, both are similarly priced with an ongoing charge of 1.74% for T Rowe Price and 1.61% for Capital Group.
Manager review
“I could make an argument that these are the two strongest analyst-led teams in the market,” said McDermott.
The Capital Group portfolio manager team comprises Barbara Burtin, Patrice Collette, Noriko Honda Chen, Brady L. Enright, Kohei Higashi, Joanna F. Jonsson, Jonathan Knowles, Robert W. Lovelace, Anne-Marie Peterson, Andraz Razen and Steven T. Watson.
As mentioned, around a fifth of the portfolio is also run by a team of analysts.
“There is also a bench of undisclosed managers to step in if a named manager stands down and needs to be replaced. These managers contribute ideas into the portfolio too. This system removes concerns about any key person risk and keeps consistency and continuity for the strategy,” said McDermott.
Sebastien Mallet manages the T Rowe Price fund having joined the firm more than 18 years ago.
Conclusion
McDermott notes that despite some crossover in holdings their different styles mean the two funds complement each other well in a portfolio.
“Being forced to choose one would depend on your view on inflation and interest rates from here (style headwinds/tailwinds),” he said.
“I would argue the Capital Group fund has an excellent infrastructure behind it (the sleeve structure) that helps to maintain performance, with managers and analysts remunerated based on their stock selection. But the T Rowe Price fund has proven value funds can perform if the managers are willing to be flexible and patient.”
