Market Intelligence November 2017
American Funds Global Equity Portfolio Manager Viewpoints (Emphasis by Madison)
Brady L. Enright, Portfolio Manager, Capital Group
While we have always found compelling investment opportunities outside of the United States, I think we have been finding more of them recently for two reasons: 1) there are some attractive valuation stories outside of the U.S., and 2) non-U.S. companies and non-U.S. economies appear to be earlier in their economic cycles than their U.S. counterparts. In my view, these opportunities are apparent in a number of sectors, although each one must be judged on a bottom-up, fundamental, stock-by-stock basis. As always, we seek to invest in great multinational companies regardless of where they are headquartered, but we also pay close attention to valuations. Broadly speaking, if you compare like-for-like companies based in different countries, you will find that many non-U.S. companies are trading at lower valuations with similar growth prospects compared with U.S. companies. What makes them even more interesting is that they are arguably coming off a trough in their earnings cycle, which is something you can’t say generally about U.S. companies.
Jonathan Knowles, Portfolio Manager, Capital Group
There are many areas of geopolitical uncertainty around the globe – from war in Syria and potential conflict with North Korea to European elections and the United Kingdom’s exit from the European Union. Domestically, uncertainty around the current administration’s agenda and ability to implement it may weigh on markets over the short term. With all that said, our analysts continue to find potential investments around the world – disruptive companies with the potential to change industries and benefit our shareholders.
Mark E. Denning, Portfolio Manager
U.S. companies continue to report strong earnings led by overseas demand. The U.S. economy also continues to demonstrate modest growth, and the economic impact of hurricanes remains to be seen. On the policy front, we remain cautious about whether the U.S. administration can deliver on fiscal stimulus, health care and tax reforms. Geopolitical tension between the U.S. and North Korea also persists and that may contribute to spikes in volatility in the coming months. This may present us with long-term investment opportunities. Interest rate normalization is underway and, in September, the Federal Reserve announced the start of its balance sheet reduction initiative. Coupled with higher interest rates, some industries – such as the banking industry – are likely to benefit as earnings increase from higher net interest margins. Consumer discretionary companies with global revenue sources are also likely to benefit, particularly from a weaker dollar. On the other hand, a slower than anticipated increase in U.S. interest rates is likely to be somewhat of a headwind for bond-like equities, such as consumer staples and utilities. I am monitoring valuations of individual companies and am ready to trim our positions when valuations get too high. We continue to stay the course of focusing on our strengths of global research and bottom-up analysis, while maintaining our long-term perspective on investing.