Focusing on value while growth stocks dominate
- 02 mins 36 secs
Has the broad success of growth stocks during a multiyear bull market been a distraction to Jim Lovelace, a portfolio manager on equity-income fund Capital Income Builder®?
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?
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.
Content contained herein is not intended to serve as impartial investment or fiduciary advice. The content has been developed by the distributor of the American Funds mutual funds, which receives fees for distributing and servicing the funds.
The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.
Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility, as more fully described in the prospectus. These risks may be heightened in connection with investments in developing countries.
Information provided on this website is intended for use by financial advisors with persons who are eligible to purchase U.S.-registered mutual funds.
Securities offered through American Funds Distributors, Inc.
Any reference to a company, product or service does not constitute endorsement or recommendation for purchase and should not be considered investment advice.
© 2018 Capital Group. All rights reserved.