Capital Group's portfolio manager aims to entice investors with new, strategically prudent world bond fund
The new “cautious and conservative” Capital Group World Bond Fund provides the ideal opportunity to anchor an investor’s portfolio.
That’s the view of Thomas Høgh, Capital Group’s portfolio manager and principal investment officer of the mandate, who highlighted the globally diversified fixed-income portfolio’s negative correlation to stock markets as key to ensuring an offsetting effect.
He said: “If you think about Canada, it’s exporting a lot of things but it is a net exporter of commodities, so there’s a nice correlation between commodity prices, the Canadian dollar and the stock market.
“So essentially when the economy is doing well, commodity prices tend to go up and stock prices go up and vice versa. What that means is that a fund like this, which is mostly priced in other currencies other than Canadian dollars (they are typically 1% or 2% Canadian dollar), really benefits from a negative stock market period because the Canadian investor will see the value go up because the Canadian dollar goes down.
“That gives a really nice return profile for this fund for a Canadian investor because, of course, in a larger portfolio a Canadian investor may have 50% stocks and maybe 50% bonds to offset it, to give it stability. And what this fund is for is that stability because you get that offsetting effect.”
Høgh said that the appeal of this fund lies in it being the polar opposite to other companies' high-risk strategies and added that, while not the reason for its launch, the fund will be of particular benefit during more volatile stock market periods.
He said: “This correlation is better the safer the fund is and the higher quality the fund is. What we’re doing is a little bit different to a lot of other people and a lot of other funds in this global category.
“We are running the fund as an investment grade plus strategy so we mostly invest in invest grade bonds and can invest up to 25% high yield. But we run this fund very conservatively and cautiously, so what it means is that we don’t have slippage in terms of this correlation.
“The universe is risk unconstrained so there is no qualification to participate in the global bond universe and what that means is that many competitors have developed funds that really take a lot of risk - we are not really at that end of that spectrum. That’s why you get this really nice feature for this fund that it’s negatively correlated.”
Related stories:
Capital Group unveils new global fixed-income fund
Why objective-based investing is set to return
That’s the view of Thomas Høgh, Capital Group’s portfolio manager and principal investment officer of the mandate, who highlighted the globally diversified fixed-income portfolio’s negative correlation to stock markets as key to ensuring an offsetting effect.
He said: “If you think about Canada, it’s exporting a lot of things but it is a net exporter of commodities, so there’s a nice correlation between commodity prices, the Canadian dollar and the stock market.
“So essentially when the economy is doing well, commodity prices tend to go up and stock prices go up and vice versa. What that means is that a fund like this, which is mostly priced in other currencies other than Canadian dollars (they are typically 1% or 2% Canadian dollar), really benefits from a negative stock market period because the Canadian investor will see the value go up because the Canadian dollar goes down.
“That gives a really nice return profile for this fund for a Canadian investor because, of course, in a larger portfolio a Canadian investor may have 50% stocks and maybe 50% bonds to offset it, to give it stability. And what this fund is for is that stability because you get that offsetting effect.”
Høgh said that the appeal of this fund lies in it being the polar opposite to other companies' high-risk strategies and added that, while not the reason for its launch, the fund will be of particular benefit during more volatile stock market periods.
He said: “This correlation is better the safer the fund is and the higher quality the fund is. What we’re doing is a little bit different to a lot of other people and a lot of other funds in this global category.
“We are running the fund as an investment grade plus strategy so we mostly invest in invest grade bonds and can invest up to 25% high yield. But we run this fund very conservatively and cautiously, so what it means is that we don’t have slippage in terms of this correlation.
“The universe is risk unconstrained so there is no qualification to participate in the global bond universe and what that means is that many competitors have developed funds that really take a lot of risk - we are not really at that end of that spectrum. That’s why you get this really nice feature for this fund that it’s negatively correlated.”
Related stories:
Capital Group unveils new global fixed-income fund
Why objective-based investing is set to return
