Page 18 - Investment Advisor April/May 2023

PORTFOLIO PERSPECTIVES

By Dina Wisenberg Brin

Capital Group's 10 Investment Predictions for 2023

The world is undergoing significant changes and investors will need to
reset expectations, the investment giant says.

inancial markets’ unusual behav- 1 ‘Steady Eddies’ Will Draw
ior in 2022 signaled a regime Dividend-Seekers
Fchange that includes expanding Investors should look for dividends to
investment opportunities, companies account for a larger portion of total returns,
changing the way they do business and according to Capital Group, which notes
dubious business models coming into that from 1926 through 2022, dividends
question, Capital Group portfolio man- contributed 38% to S&P 500 returns, far
agers suggested recently. more than in the recent few decades.
“Many investors are expecting a return Investors get trapped in thinking
to normal after inflation subsides and cen- about the market in terms of growth and
tral banks discontinue their rate hikes. But value, while growth and dividends are
we believe the world is undergoing signifi- Markets are moving from a long peri- complementary, Romo said. Income is
cant changes and that investors will need od with very low interest rates and “free foundational to meeting long-term sav-
to reset their expectations in this new envi- money,” he said, adding, “You could ings goals, he added.
ronment,” equity portfolio managers Jody ignore a lot and benefit from high equity Some high-quality companies, “steady
Jonsson and Martin Romo said in a report. returns in that period.” They’re also Eddies,” are immune from cyclical trends
“One change that has already begun is moving away from a pandemic era that and have excess capital they can return
the shift from narrow to broad market lead- structurally changed many industries in to shareholders, Romo said. Companies
ership. A handful of tech stocks dominated a “winner take all” environment, he said. that maintain wide moats and can return
markets for years, but a much wider range Last year marked the first time since good, solid earnings growth and divi-
of investments is expected to drive portfo- 1969 that stocks and bonds were both dends warrant attention, he said. Some
lio returns going forward,” they wrote. negative, and it was the worst year for businesses, like tobacco companies,
“While growth investing isn’t going the 60% stock-40% bond portfolio since don’t grow fast but return big dividends.
away, it may broaden into sectors like 1947, said Jonsson, Capital Research and Another portfolio manager, Caroline
health care, where we are seeing a golden Management Co. president, noting that Randall, noted in the report that she looks
age in drug development. Opportunities it also was the best year for value stocks for companies with pricing power and the
could also arise as dividend stocks return since the Y2K era. ability to sustainably grow earnings and
to prominence. These opportunities Companies, meanwhile, are focusing dividends. She finds opportunities across
would be global, as many of the highest on resiliency and redundancy, not just sectors, including industrials, utilities and
dividend payers are outside the U.S.,” maximizing efficiency, as they move away health care. Drug companies can be attrac-
they added. “Likewise, bond markets from single-supply sources, she said. “I for tive when inflation is high and several
are offering some of the highest income one am encouraged about a lot of themes have dividend yields above 3%, she said.
in years, which means traditional 60/40 playing out in the market,” Jonsson said.
portfolios may make a comeback.” “There’s always opportunity out 2 An Improving Economy
Romo, Capital Research Co. presi- there. We’ve had a lot of dislocation over Won’t Lift All Ships
dent, encouraged investors to embrace the last year or so,” and disruption is the While growth stocks have come under
short-term discomfort for long-term opportunity, she explained, adding that pressure, “where the market has thrown
results and focus less on when things the longer an investor’s extended hori- the baby out with the bathwater, we’re
will happen, while taking a global view zon, the greater the opportunity. “You continuing to focus,” Romo said. “As
and seeking both risk and returns. “We and your clients will be better off for it.” a growth investor, it’s essential to dif-
are moving through a huge transition in Capital Group, which owns American ferentiate between companies that have
the market and in economies and sec- Funds, has outlined these predictions reached the end of their runway or are Adobe Stock
tors,” Romo said on the webcast. for 2023 and beyond: facing stiffer competition with those that

16 INVESTMENT ADVISOR APRIL/MAY 2023 | ThinkAdvisor.com