Carl Kawaja currently looks for winning reactions to industry disruption from established players. And he's able to look at innovation from a few angles.
Kawaja credits the multi-manager approach for the performance of the Gold-rated Capital Group Global Equity fund. Kawaja is chairman and portfolio manager at Capital Research and Management Company, part of Capital Group, and portfolio manager, based in the San Francisco office.
“With this mix of investment styles,” says Kawaja, “when I’m out of favour another manager is in favour, and we’re both informed of what we do. I think that approach is unique to Capital, it’s part of the secret sauce here.”
The four portfolio managers on the mandate, including Kawaja, independently invest in their highest-conviction ideas in the portfolio. As well, the research analysts also manage a share of assets in the fund, differing from many other firms. This individual active management, along with the firm’s holistic approach to compensation, “is rewarding and empowering,” says Kawaja.
The overall portfolio strategy is based on rigorous bottom-up fundamentals. The objective is long-term growth of capital on a global basis, using the All Country World Index as a benchmark.
Empires Strike Back
Currently, Kawaja says he’s on the lookout for traditional industries, perceived to have been under threat of being disrupted, but are actually doing the disrupting now themselves.
“The traditional auto companies,” says Kawaja, “are interesting examples of this. I think everyone agrees that Tesla Inc. (TSLA) makes one of the best electric cars but other auto companies are really pivoting to produce more electric cars.”
The tobacco industry is another example. “Most people would think,” says Kawaja, “that tobacco is a dying industry; the number of smokers shrinks every year. But now some companies are trying to come up with the technology for a less toxic smoking device. So that’s an area that we’re looking at.”
In the healthcare area, Pfizer Inc. (PFE) and other big pharma drug companies succeeded in coming up with a vaccine for Covid-19. “That’s another example,” says Kawaja,” of big, established companies coming up with something really incredible and innovative.”
In terms of businesses pivoting last year, e-commerce companies that delivered goods online or food-delivery services were examples of Covid-19 beneficiaries, says Kawaja.
Tech Believers
The approximate 20% weighting in the IT sector remains favoured in the fund. “Yes,” says Kawaja, “we’ve been believers in information technology companies for a while. Although they’ve done quite well over time, they still have significant room to do well from here. What they provide is so powerful.”
ESG factors are something the managers also consider in the research process. In terms of industries, wind-power companies are favoured for opportunities, such as Danish Orsted (ORSTED) among the top holdings.
Sustainable Works
“Offshore wind,” says Kawaja, “is very economic, its scale and the mass of it really works. In terms of ESG, I believe that demand for renewable energy sources is a very powerful growth trend that we all need to be thinking about right now.” But the decision to buy a company is based on the fundamentals and the prospects of the individual company, he adds.
Approximately 40 large-cap holdings, greater than $3 billion in market cap, among approximately 200 holdings, represent more than half of the fund. There is “a long tail of names” in the fund because the research analysts also invest in their high-conviction ideas. “We try to give people a lot of flexibility,” says Kawaja, “so we err on the side of that.”
In terms of the holdings, north of $3 billion in market cap, the firm is very idiosyncratic, says Kawaja. Some managers might be more value oriented, others more growth oriented, so they bring different points of view. “We feel that we have enough scale and scope,” says Kawaja, “and feel we should be better informed than other people.” The firm draws on global research teams around the world and have several joint meetings every week to discuss ideas.
The average tenure of the managers is also seen as a strength. “This is my 30th year at Capital,” says Kawaja, “I’ll be 57 this summer.” The average tenure among the managers is about 30 years on average, adding to the repeatable discipline and philosophy.
Focused on sustainable, long-term results, the average portfolio turnover is approximate 37%. “We’re trying to make five to 10 years decisions,” says Kawaja, “and we may change our minds each year. But our best investments, certainly my best investments, are all companies that I’ve owned for a decade or more.”
