Capital Group US Corporate Bond Fund (LUX): offering opportunity in the current macro environment

Faced with low-to-negative yields at home, the US investment grade corporate bond market represents an attractive long-term opportunity for many European investors. With abundant liquidity in the market, US exposure provides both diversification benefits as well as the attraction of higher yields, even after hedging costs, without taking on the risk levels associated with investing in sub-investment grade bonds.

However, investors should maintain a prudent, risk-aware approach in the current market. The potential implementation of President Trump’s intended policies give cause for optimism, but much of the positivity is already priced in. Investors should also consider the implications of higher rates, relatively tight spreads as well as the risks to global markets. This is why we believe it is as important as ever to own bond funds that can take advantage of higher yields and maintain a low correlation to equity to provide protection from market shocks. In our view, Capital Group US Corporate Bond Fund (LUX), which was made available to European investors on 21 March 2017, has these attributes. The fund takes a bottom-up approach through fundamental research. It seeks to provide, over the long term, a high level of total return consistent with capital preservation and prudent risk management by primarily investing in US dollar-denominated corporate investment grade bonds.

A BOND FUND THAT ACTS LIKE A BOND FUND

We believe that bond funds should behave as bond investors expect. Capital Group US Corporate Bond Fund (LUX) is exclusively investment grade – with no ‘scope creep’ into sub-investment grade securities to boost yield or short-term returns. The fund has the ability to invest up to 20% in non-corporate credit, but this is 100% dollar-denominated and all investment grade. Every investment decision is ultimately judged by whether the investor is adequately compensated for the risk taken.

MAKING MARKETS EFFICIENT THROUGH RESEARCH

We believe that markets only become very efficient when many people are analysing them. Given the global nature of business, especially for the large corporations that make up the corporate bond universe, in-depth research is integral to investing in the asset class, which is under-researched compared with equities. That’s why Capital Group’s research driven approach may have an advantage. We have a team of experienced analysts who are focused on knowing the industries and companies, their businesses and capital structures.

GLOBAL COVERAGE

While many bond managers will encourage their analysts to focus only on riskier fixed-income markets, our research also covers the higher credit-quality markets such as investment grade bonds.

The size and scale of our global research network gives us significant insight into potential opportunities in this market. In fact, we currently manage more than US$260 billion in fixed income assets globally, including over $50.1bn of US investment-grade corporate bonds. In addition to fundamental credit research, we also utilise top-down macroeconomic sector-level perspectives, which directly affect our view on US interest rates and can influence the quality profile of the portfolio. Beyond just thinking about the company in which we’re investing, we take other elements into account in the security selection process to determine a bond’s total return.

If we see increases in economic growth and yields at the global level, the US investment-grade corporate bond market could benefit in terms of improving fundamentals and the potential for attractive returns. Through its disciplined focus on both risk and return, Capital Group US Corporate Bond Fund (LUX) could offer investors added diversification and be used as a durable portfolio building block. To find out more about Capital Group US Corporate Bond Fund (LUX), please visit thecapitalgroup.com/europe.

 

David Lee is a portfolio manager at Capital Group

The Capital Group companies manage equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed-income investment professionals provide fixed-income research and investment management across the Capital organisation; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.All data as at 31 December 2016 unless otherwise stated. Source: Capital Group
FOR PROFESSIONAL INVESTORS ONLY
This material, issued by Capital International Management Company Sàrl (“CIMC”), 37A avenue J.F. Kennedy, L-1855  uxembourg, is distributed for information purposes only. CIMC is regulated by the Commission de Surveillance du Secteur Financier (“CSSF” – Financial Regulator of Luxembourg) and manages the fund(s) which is a (are) sub-fund(s) of Capital International Fund (CIF), organised as an investment company with variable capital (SICAV) under the laws of the Grand Duchy of Luxembourg
and authorised by the CSSF as a UCITS. All information is as at the date indicated unless otherwise stated and subject to change.
For Germany: A full list of Paying Agents and Distributors is located on the website stated. All legal documentation mentioned in this disclaimer are available in hard-copy and free of charge from the Paying Agent.
For Italy: A full list of Paying Agents and Distributors is located on the website stated. The source of data, statistics or graphs in the factsheets is Capital Group, unless otherwise stated.
For Spain: To obtain a list of distributors of the fund please visit CNMV.es. Capital International Fund (CIF) is registered with the Comisión Nacional del Mercado de Valores (‘CNMV’) under the number 983.
For Switzerland: The Representative in Switzerland: Capital International Sàrl, 3 place des Bergues, 1201 Genève. Paying agent in Switzerland for CIF, CIEMF, CIP: JPMorgan (Suisse) SA, 8 rue de la Confédération, 1204 Genève.
Risk factors you should consider before investing:
• The value of shares and income from them can go down as well as up and you may lose some or all of your initial investment.
• Past results are not a guide to future results.
• If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease.
• The Prospectus and Key Investor Information Document set out risks, which, depending on the fund, may include risks associated with investing in emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.
Other important information. The fund(s) is (are) offered only by Prospectus, together with the Key Investor Information Document. These documents, together with the latest Annual and Semi-Annual Reports and any documents relevant to local legislation, contain more complete information about the fund(s), including relevant risks, charges and expenses, and should be read carefully before investing. However, these documents and other information relating to the fund(s) will not be distributed to persons in any country where such distribution would be contrary to law or regulation. They can be accessed online at www.thecapitalgroup.com/europe, where latest daily prices are also available. The tax treatment depends on individual circumstances and may be subject to change in future. Investors should seek their own tax advice. This information is neither an offer nor a solicitation to buy or sell any securities or to provide any investment service.
ABOUT THE AUTHOR
Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 16 years he has been based in London writing about funds and investments . From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope.

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