Par Martyn Hole, Equity Investment Director at Capital Group on the equity market sell-off
“Fears of persistent inflation, tightening monetary policy and rising bond yields have caused nervous investors to exit growth stocks since the start of the year. More richly valued sectors like tech have suffered the brunt of the sell-off, as their valuations come under closer scrutiny with the expectation of higher interest rates. The Nasdaq Composite fell 7.6% last week, suffering its biggest decline since the start of the pandemic and extending its year-to-date loss to -12.5%.
“It is warranted for investors to be cautious of valuation levels, especially at market peaks, however, they should not be afraid of highly valued companies and completely avoid them, as history has shown that many high multiple companies could continue to appreciate as long as fundamentals come in above expectations over time.
“Starting valuations seem to matter less over the long term, and some companies are expensive for good reasons. We focus on deep fundamental research to find long-term winners with underappreciated potential, even if they have higher valuations, because we understand that often the valuation becomes much more justified over longer time horizons. This is especially true for secular growth companies that have large and expanding total addressable markets combined with low penetration rates, giving rise to potentially very long revenue and earnings growth runways. Therefore, focussing on company fundamentals will bring clarity amidst short-term volatility and help identify long-term winners”
Celebrating its 90th anniversary in 2021, Capital Group is one of the oldest and largest asset management companies in the world, managing multi-asset, equity, and fixed income investment strategies for different types of investors. Since 1931, Capital Group has been singularly focused on delivering superior, consistent results for long-term investors using high-conviction portfolios, rigorous research, and individual accountability. Today Capital Group works with financial intermediaries and institutions to manage US$2.6 trillion in long-term assets for investors around the world. Capital Group has an integrated global research network of more than 400 investment professionals and its portfolio managers have an average of 26 years of investment experience.
Founded in 1931, Capital Group established the first office outside of the US in Geneva in 1962 and opened an office in Zurich in 2015. Capital Group provides a wide range of investment services to institutional clients, financial intermediaries, banks, family offices and external asset managers in the Swiss market. Capital Group has more than 130 associates in Switzerland across the two offices.
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This communication is issued by Capital International Sàrl (authorised and regulated by the Swiss Financial Market Supervisory Authority (FINMA)), a subsidiary of the Capital Group Companies, Inc. (Capital Group). While Capital Group uses reasonable efforts to obtain information from third-party sources which it believes to be reliable, Capital Group makes no representation or warranty as to the accuracy, reliability or completeness of the information. This communication is not intended to be comprehensive or to provide investment, tax or other advice. © 2021 Capital Group. All rights reserved.
Statements attributed to an individual represent the opinions of that individual as of the date published and may not necessarily reflect the view of Capital Group or its affiliates.
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