We caught up with Toby Chan, Head of Client Group, Hong Kong & Greater China and Jeik Sohn, Head of Client Group, Singapore & South East Asia, Capital Group
Morningstar: Your firm has been very successful with its range of funds—what are the key reasons behind this long-term accomplishment?
Toby Chan and Jeik Sohn: Our investment process, The Capital SystemTM, is the engine behind all the portfolios we offer and is a primary point of differentiation from our competitors. It is designed to enable individual investment professionals to act on their highest convictions, while limiting the risks associated with isolated decision-making. The Capital SystemTM for fixed income is designed to deliver multiple sources of research to portfolio managers, blending top-down “macro” and bottom-up “micro” decisions. This enables portfolio management teams to construct thematically consistent portfolios from many individual investment insights.
Risk management and disciplined portfolio construction are crucial components of our process. In addition, one member of the team acts as the mandate manager or principal investment officer, who has responsibility for monitoring the whole portfolio to ensure that it achieves its investment objectives. Besides qualitative controls, the mandate manager or principal investment officer guides risk management and is responsible for the distribution of assets among managers.
Beyond traditional research, the scale and scope of our proprietary research, built over 90 years, allows us to uncover what we believe to be compelling investment opportunities for our clients. We commit significant resources to global investment research in our efforts to determine a company’s true value.
At Capital Group, we believe research is about developing a high-conviction edge using multiple tools. Our system encourages analysts to go beyond traditional research and explore new avenues. We do not base investment decisions on broker research or outside opinions, although these can be useful in background discussions. We conduct our own first-hand research, which is never sold or made available to third parties. Our research efforts draw on the insights of experienced analysts, many of whom have observed companies and industries through multiple cycles, giving them unique insights into assessing a company’s prospects.
A key difference in our process is that our investment analysts not only provide investment ideas to portfolio managers but are also able to act on the courage of their convictions and invest. Our on-the-ground research is combined with comprehensive macro analysis, with our equity and fixed-income analysts working together to pool resources.*
Morningstar: What do you think sets your firm apart from a cultural standpoint?
Chan and Sohn: We believe our truly long-term investment approach is what sets us apart from our peers. We base our decisions on a long-term perspective, which we believe aligns our goals with the interests of our clients. Achieving superior, long-term returns is our only goal, so portfolio managers are rewarded for their results, not the level of assets they manage. We have a distinctive compensation structure based around one-, three-, five-, and eight-year cycles. Collectively, Capital Group associates are significant investors in the company's investment offerings.
In a single or ‘star manager’ system, transitions can be extremely disruptive. When a manager retires or leaves a firm or a fund, portfolios can undergo dramatic changes in approach, holdings, and risk characteristics under new leadership. This requires clients and their advisors to re-examine their original choice of investment – with inevitable implications in terms of risk, time, and cost.
The Capital SystemTM allows us to manage portfolio manager changes seamlessly in a carefully planned process designed to maintain long-term stability. Funds are managed on the belief that the independent ideas and convictions of several experienced portfolio managers and analysts are generally better than those of a committee or single manager. Clients needn’t worry about potential succession problems or unwanted surprises. Instead, they can have confidence in the longevity and durability of the strategy they have invested in. New managers typically come from the ranks of analysts within the same team. All of our analysts gain experience managing assets in client portfolios over an extended period, often more than a decade, before they take on full portfolio management responsibilities.
Having analysts who invest is an important part of our ability to conduct orderly succession planning in our funds and in the organization. Analysts develop a track record over time that helps us understand what type of investor they are, how they react in different market environments, and how they might fit as a portfolio manager.
Morningstar: What is the firm’s area of focus and investments for the year(s) to come?
Chan and Sohn: People are our most critical asset, and we continue to build on the strength and diversity of our global equity and fixed-income investment management teams. In the past few years, this has included the addition of analysts with varied backgrounds and nationalities, from countries that include India, the US, China, France, and Bulgaria. These new analysts have added capabilities to our teams across the world.
At Capital Group, we commit substantial resources every year to ensuring all our investment professionals receive ongoing training programs and educational resources when necessary. This means they remain capable of making educated investment choices. Our development opportunities include a wide range of in-house and external supplementary training classes and seminars, as well as invitations to industry conferences and subscriptions to trade journals. In addition, investment professionals receive the full support of experienced analysts and portfolio managers whenever they need it.
Finally, our associates accept the responsibility to develop their own knowledge and capabilities in order to grow their own skillsets. For example, our analysts always begin new assignments by reviewing the sector, geographical region, or industry they intend to cover. The overriding principle behind our training programs is growing the potential of our people, which, in turn, will contribute to our business stability and competitive advantage.
* Capital Group manages equity assets through three investment groups. These groups make investment and proxy-voting decisions independently. Fixed-income investment professionals provide fixed-income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.
