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Fall 2015 Investment Commentary Stocks pull back as slowing growth in China and a patient Fed rattle global markets Analyst Perspectives Increasing affluence around the world is creating demand for high-end beverages Wealth Strategies Steps every entrepreneur should take before deciding to sell a business Author Interview Proven ways to find a great doctor and navigate today’s complex medical maze FALL 2015 OPENING THOUGHTS Putting Market Volatility in the Proper Perspective After years of relative calm in the financial markets, the past few months have demonstrated two important points: volatility is a normal part of the investment process, and to make money in the market, you must have a long-term perspective. As one of our equity portfolio managers, Ted Samuels, pointed out at our spring client luncheon, the best way to get through turbulent periods like those we’ve experienced of late is to turn off the TV. After all, financial channels fill their time with competing opinions about what will happen in the next few days, hours or even seconds — all of which should be pretty meaningless to long-term investors. I always remind clients that they don’t own “the market” but rather shares of real companies with what our research suggests are growing earnings and favorable prospects. Sure, stocks will fluctuate from day to day, but if our analysis proves right, shareholders of these businesses should be rewarded over time. In each issue of Quarterly Insights, we give you our perspectives on some of these companies and our investment theses for holding them. For instance, Capital Group analysts favor a number of spirits manufacturers, which are enjoying growing I always remind demand from the increasing number of affluent consumers around the world. You’ll read more about this trend on page 10. In addition, recent innovations in the medical clients that they device industry are improving patient outcomes in ways thought unimaginable only a handful of years ago. The article on page 12 discusses some of the areas in which don’t own “the our clients are invested. And the growing adoption of robotics around the world is a market” but rather theme Capital Group analysts were early to identify that continues to gain steam, as explained on page 8. shares of real Incidentally, despite all the negative talk about the Federal Reserve raising rates this companies with year, history suggests this may not be such a bad thing for either stocks or bonds. We outline some of the reasons why on page 6. what our research Finally, Ralph Waldo Emerson once said that in life, “the first wealth is health.” Good suggests are health is also one thing money can’t buy. But getting the right medical care has never been more difficult, even for those of ample means. For insider strategies on how to growing earnings find a good doctor and be your own best patient advocate, I encourage you to read our exclusive interview with Leslie Michelson, author of the new book The Patient’s and favorable Playbook, on page 18. prospects. Enjoy the fall season ahead, and don’t hesitate to contact us with any feedback on this publication at [email protected]. With best regards, John S. Armour President Capital Group Private Client Services On the Cover Fall 2015 Editor-in-Chief Kirk Kazanjian Writer Walter Hamilton Copy Editor 10 Ruth Hamel Designer Zachary Self Marketing Associate Brendan Heisler Publication Coordinator Kathleen Park 14 Contact Information 12 | Advances in Capital Group Private Client Services Medical Devices 333 South Hope Street Promising innovations Los Angeles, CA 90071 are making the future brighter for many Website types of patients thecapitalgroup.com/pcs 18 In This Issue 2 | Investment Commentary 5 | Q&A with Gerald Du Manoir 6 | Impact of Higher Rates Slowing growth in China and Assessing current stock What a move by the Fed an indecisive Fed rattle global valuations and the outlook for might mean for both stocks markets developing economies and bonds 8 | Efficiencies in China 10 | Affluent Tastes Lift Spirits 14 | Advice for Entrepreneurs How a rise in factory Rising demand for mixed What you need to know — automation may boost the drinks bodes well for premium and do — before selling a country’s fortunes beverage makers business 16 | Collecting Classic Cars 18 | Author Interview 20 | Notes from the Field A Capital Group analyst A leading expert reveals Observations and insights shares his thoughts on this how to find the best doctor from Capital Group analysts popular passion for you around the world The thoughts expressed herein are current as of the publication date, are based upon sources believed to be reliable and are subject to change at any time. There is no guarantee that any projection, forecast or opinion in this publication will be realized. Past results are no guarantee of future results. The information provided herein is for informational purposes only and does not take into account your particular investment objectives, financial situation or needs. You should discuss your individual circumstances with an Investment Counselor. Any reproduction, modification, distribution, transmission or republication of the content, in part or in full, is prohibited. © 2015 Capital Group Private Client Services. FALL 2015 Q3 INVESTMENT COMMENTARY For most of the past decade, China has been a financial Of course, it’s too soon to tell how U.S. stocks will fare in the final shock absorber for the rest of the world. The Asian giant months of 2015. Among investor concerns, weak global growth helped lift the global economy out of the financial crisis, and a strong dollar are pressuring the manufacturing sector and and its brisk expansion since then compensated for denting U.S. exports. The energy complex has been battered by listlessness elsewhere. The third quarter was a different sagging prices as high crude oil production overseas has offset story, as concern about China’s economic deceleration declining output in the U.S. However, far more is going right nipped stocks around the globe. It even gave pause than wrong for the country, including vibrant job growth, cheap to the Federal Reserve, which once again put off a imports and falling gas prices. Those forces have fed impressive move to raise interest rates. The U.S. was a distinct consumer spending and consistent gains in the housing market. bright spot, with steady job growth and energetic Overall, Capital Group economists believe the U.S. will continue consumer spending. But no major market was able to growing at a pace similar to its 2% to 2.5% level of the past few dodge China’s shadow, and volatility is likely to remain years. The weakness in exports could be counterbalanced by elevated until the extent of the nation’s slowdown further improvement in incomes and spending. In fact, if spending becomes clear. growth matches recent income gains, as has often occurred historically, consumer activity could reach its highest level in a After going more than four years without a significant setback, decade. U.S. stocks fell into a correction, with the S&P 500 index tumbling more than 12% before rebounding slightly to finish the quarter off A Fed rate hike might actually calm the equity markets. roughly 10% from its peak in May. That erased the slender gains from the first half of 2015 and left the index negative year-to-date. Given that backdrop, the Federal Reserve is still expected to Corrections — defined as a drop between 10% and 20% — have raise interest rates this year. The central bank delayed action been fairly infrequent in recent years. But while they can be in September because of the upheaval in China, turbulence in unsettling, they are a natural occurrence in the market. Although financial markets and the absence of inflation. However, Fed chair some selloffs give way to full-blown bear markets, they are usually Janet Yellen stressed afterward that policymakers expect to move temporary, with stocks ultimately regaining their lost ground. before the year is out. Ironically, that could ease some market 2 Capital Group Private Client Services jitters because the delay stoked concerns that the Fed may view the world economy Q3 Stock Market Index Returns Q3 as more troubled than previously thought. Year-to-Date But Yellen reiterated that policymakers simply opted to proceed cautiously and still intend to act before any worrisome signs of overheating take hold. -5.3% -5.3% -6.0% -6.4% -8.5% A lot will depend on China as investors -10.2% try to gauge the extent of its economic deceleration. It is widely recognized -14.7% that China’s growth rate is easing as the country attempts the ungainly transition -17.7% from an export-driven economy to one Global Stocks U.S. Stocks Non-U.S. Stocks Emerging Markets paced by domestic consumption. Still, the surprise devaluation of China’s currency Sources: MSCI via Rimes. MSCI World (Net) Index (Global Stocks); S&P 500 Index (U.S. Stocks); MSCI EAFE (Net) Index (Non-U.S. Stocks); MSCI Emerging Markets IMI (Net) Index (Emerging Markets). Index results are presented in US$ unless otherwise noted. — the yuan — seemed to underscore the magnitude of the slowdown. The devaluation followed a stream of from those countries and further straining accelerated. But such demand is expected dispiriting economic reports and came the demand for commodities, which are to lighten as the upgrade cycle turns, after other moves, including repeated priced in dollars. Conditions are more especially for the higher-end models often interest rate cuts, had limited effect. favorable in the developed world. Japan’s favored by Chinese buyers. economy contracted in the second quarter, Companies that export goods to China At the same time, our team has sought to but that stemmed partly from temporary face the prospect of a falloff in demand.