The face of global companies has been changing from heavy industrials to idea-driven firms that are creative, nimble and networked, according to one of the world’s largest fund managers, Capital Group.
At a roundtable event in Sydney today, Capital Group Investment Director Andy Budden said: “Investors in global equity funds need to understand that the makeup of the underlying companies in the funds they’re investing is changing. The composition of the world’s most valuable companies by market capitalisation has changed rapidly over the past 15 years and is not showing signs of slowing down.”
“There has been a rapid shift in the makeup of global business, beyond the traditional giants such as ExxonMobil, Coca-Cola and McDonalds. A host of new global companies – such as the technology giants, Google, Apple and Amazon – is rapidly emerging, often with a unique solution to a global problem.”
“Global equity investors need to be mindful that the companies that are most likely to flourish going forward are those that have a high speed of product adoption while still retaining marketing muscle and global distribution networks. What we’ve observed is that the more idea-driven companies, especially in the technology and healthcare sectors, are showing greater profit margins. The opportunities for these companies to continue to grow rapidly are real and meaningful,” he said.
Often called multinationals, these companies play a vital role in the global economy. They account for 80% of trade, 75% of private sector research and development (R&D), and 40% of productivity growth worldwide [note 1].
Developing economies are becoming a formidable force in this fundamental shift in the make-up of global companies. Multinationals have found success developing products in emerging markets. Unilever’s Pureit water purifier was developed in India before being sold in Brazil, Mexico, Indonesia and Nigeria. Some companies in emerging markets, such as Tencent, are becoming big players on the global stage.
As Australian investors increasingly embrace global equities for their investment and retirement funds, like other investors around the world, they face the challenge of capturing the right opportunities as profits shift from heavy industry to new, idea-intensive sectors.
Capital Group, as one of the world’s oldest fund managers with more than A$1.8 trillion in assets under management, continues to introduce investment strategies and funds to Australia to capture these opportunities.
The group’s New Perspective Fund (NPF) was introduced to Australian investors in March 2016 and is focused on established and early-stage multinationals.
Capital Group’s Managing Director for Australia, Paul Hennessy said: “Capturing global investment opportunities and managing downside risks is something that NPF has a long track record in doing, generating an annualised return of 13.5% [note 2] versus an index return of 9.9% [note 3] over 43 years.”
“But it requires extensive resources and a commitment to deep, bottom-up research in multiple geographies if you’re going to be any good at it.”
“We have had a strong response from the Australian investment community to the NPF investment case.”
Notes:
[1]Dobbs, Richards; Koller, Tim; Ramaswamy, Sree; Woetsel, Jonathan; Manyika, James; Krishnan, Rohit; Andreula, Nicolo. “Playing To Win: The New Global Competition for Corporate Profits.” McKinsey & Company. September 2015.
[2]As at 31 August 2016. Past results are not a guarantee of future results. Results prior to the fund’s launch on 20 November 2015 are derived from the American Funds New Perspective Fund in A$ from 31 from 31 March 1973. The returns are after fees and are based on the total management cost of 1.05% p.a. that is currently applicable to Capital Group New Perspective Fund (AU). Source: Capital Group.
[3]MSCI ACWI ex Australia (with net dividends reinvested) from 20 November 2015; previously MSCI ACWI (with net dividends reinvested) from 30 September 2011 and MSCI World Index (with net dividends reinvested) prior to that. Source: MSCI.
