Best HK Fixed-Income Fund House: Winner

What is your outlook for 2021 specific to the markets you cover, and how are you positioned to take advantage of opportunities and/or mitigate potential risks?

Answer: We do not support a house view but build our global macroeconomic framework based on shared perspectives. Our portfolio managers and investment analysts can hold independent opinions and act on their strongest convictions.

In the current environment, the most important variables for the economic outlook are the virus itself and the vaccine. While vaccine approvals and early inoculation are encouraging, it could still be six to nine months before it is widely distributed enough to allow for a broad-based “return to normal”. 

However, the emergence of new variants that reduce vaccine efficacy and/or introduce the possibility of reinfection is a downside risk that could delay a return to “normal”, require more monetary/fiscal accommodation, delay labour market healing and induce a longer structural realignment of industries.

The US Federal Reserve (Fed) recently affirmed its commitment to low interest rates for a prolonged period of time under its new monetary policy framework. With its renewed focus on “broad-based and inclusive” maximum employment and a goal of achieving inflation that averages 2% over time, the Fed arguably has made the conditions for the tightening of monetary policy more stringent.

The COVID-19 shock provided our investment team with ample opportunity to add to positions at relatively attractive valuations. One of our core strengths at Capital Group, and where we add value, is in our credit research, which enables us to identify some of the best opportunities out there. We have been able to leverage the deep knowledge of our experienced and large research team to take advantage of price dislocations created by the recent period of volatility.

What do you think are the success factors in your corporate culture that enables your firm to consistently deliver for investors?

Answer: Our investment process, The Capital SystemSM, 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 System allows us to manage portfolio manager changes seamlessly, in a carefully planned process that is 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 organisation. 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.

What are your future business plans, such as the launch of new products or geographical expansion?

Answer: Over the last five years, we have been focusing on building up our investment services foundation with a strategic focus on fixed income. Consequently, five fixed income funds were launched during this period of time, which doubled our Luxembourg-domiciled fixed income fund offering.

Moving forward, we will be focusing on executing our long-term strategy to drive the evolution of our product suite and capabilities. This includes bringing the best of our American offerings to Asian clients such as a Multi-Sector Income strategy, Strategic Bond and Short-Term Bond strategy. We are also exploring the possibility of launching a dedicated Asian retirement income solution to satisfy the region’s growing appetite for retirement solutions, and will be looking to hire key fixed income roles in the region, including a senior investment director.

What is the firm’s approach towards sustainable investing? How has this been incorporated in the product range and/or investment process?

Answer: At Capital Group, we don’t treat ESG as a standalone product. ESG factors are deeply woven into our investment process — The Capital System. In fact, these considerations are so crucial that we’ve developed a three-pillar system to integrate ESG into our investment process.

Deep research is the foundation of our process. Our experienced investment analysts identify the ESG factors they believe are most material to the sectors they cover to create our proprietary ESG research frameworks.

Our ESG integration process also enables us to assess holdings against third-party views and data through our monitoring process. This information has value, but its scope can be limited by its backward-looking approach. Our systematic process enables us to understand how the market may view ESG risks and more clearly identify where and why we have a different perspective.

Through our active engagement, we develop longstanding relationships with management teams who appreciate our knowledge of specific industries and our commitment to ESG issues. We believe engaging with companies is more effective for improving long-term results as we work to positively influence ESG practices.

We continue to refine and evolve our ESG investing approach. It’s a journey that will grow to include associates from across our organisation, as we back up our commitment with dedicated resources..

What are some of the firm’s diversity and inclusion initiatives?

Answer: Diversity and inclusion (D&I) are key priorities for us and are integral to Capital Group’s long-term strategy. We’re committed to creating an environment of belonging, where associates can bring their true, best selves to work. We’re also committed to being self-aware and more transparent by reflecting on and sharing where we’ve made progress and where we need to do better.

In June 2020, we announced that we’re accelerating our D&I efforts with a focus on equity, specifically to advance racial equity. We’re working to build an organization that better reflects our communities, with underrepresented groups succeeding at all levels. Diversity fosters diversity in a virtuous cycle in an equitable and inclusive environment.

Our commitment to provide a long-term and consistent focus to advance DE&I can be reflected in the four key goals of our DE&I strategy:

- Culture of belonging: An inclusive culture to ensure that every associate can confidently say “I belong here.” Welcoming the perspectives and experiences of all associates is part of our core values.
- Leadership commitment and accountability: Leaders are accountable for driving change as they should set the tone and be as fluent in the language, issues and data surrounding DE&I as they are for any other business priority.
- Diverse team of associates: Greater representation of underrepresented groups across Capital and at all levels. We believe that diverse teams generate better ideas and make better decisions.
- Impacting our communities: Impact our local communities with our business practices and suppliers, by partnering with key industry bodies and organizations, and empowering associates to support philanthropies of their choice.

Over the next two years, we will also be building reporting capabilities to help us understand the representation of lesbian, gay, bisexual, transgender and questioning (LGBTQ)+ associates, veterans, and associates with disabilities in select countries. This reflects our commitment to better understanding and advancing the many dimensions of DE&I within our organization.