A different take on growth vs. value
September 12, 2019
American Funds video transcript: “Focusing on value while growth stocks dominate”
Apu Sikri: Jim, growth stocks have outpaced dividend-oriented stocks by a wide margin in the bull market that we've seen since the financial crisis. As the principal investment officer of Capital Income Builder, how do you think about that?
Jim Lovelace: The way I think about it is to try not to be drawn into a horse race with growth stocks. Certainly for Capital Income Builder, that was never the goal. The goal was to provide an investment program that provided stable investment returns over a long period of time, equity-like returns.
So, we've had a fairly extended period of time when growth strategies have been very successful. We were talking earlier about the business cycle. The business cycle used to be pretty consistently over four years. It's been eight, nine years now since the financial crisis, and growth stocks have been pretty much dominating in that entire time.
In a fund like Capital Income Builder, we need to be very careful not to be distracted by that. More power to the growth strategies — provided fantastic returns — but there is risk and there is volatility, and who knows when that will come back. Our goal is more to provide a stable equity- like return over long periods of time. And we need to remember not to forget that.
Apu Sikri: So, when the fund lags the broader market benchmark for a period of time, as it has recently, does that worry you? Or do you say, “That's not the objective of the fund, and therefore I shouldn't get distracted"? How do you think about —
Jim Lovelace: That’s exactly right. The goal of a fund like Capital Income Builder — which mixes stocks and bonds to create a stable program over long periods of time — the goal is not to "beat the S&P 500." We do look at how the equity markets are doing, but that's not what we do. That's what a growth fund or a total-return fund or a growth-and-income fund is trying to do. We're trying to provide a more stable return that will hold up well whenever times get tough.
So, in a way, what we need to pay more attention to is the absolute return. Are we generating that? And that means when times get tough and the market goes down, are we holding onto the value and not going down with the markets?
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