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When it comes to running a successful fund management business, Capital International remains the benchmark by which the rest of the industry judges itself. But Capital is, first and foremost, a first rate money manager across a broad range of markets and asset classes. In global equities, it emerges as a clear favourite among industry consultants. As one says in its favour: "It continues to be up at the top of the pile and looks set to stay there."
When asked to explain the firm's success, Michael Ericksen, director and portfolio manager responsible for North American equities, says it stands apart from many of its peers for having avoided the huge underweighting of the US market in recent years. "We are slightly underweight," he says. "But too many houses made decisions to be grossly underweight and the assets they had in the US they put in cash, Asia and Europe. They thought the US was overvalued but it has turned out to be a very good market in the last few years so that topdown decision has been wrong."
The size of the benchmark deviation has surprised Ericksen. "It seems almost as if people got into a race to see who could most underweight the market. They have gone down to about 10% against the MSCI's 56% and they have been wrong for at least three years."
However Ericksen has sympathy for those managers. "If four years ago I had been forced from the top down to make that call, I can understand why they made the decision. Looking at the top down statistics I would have agreed." This is where Capital's style has given it the edge. "We won't buy the market, we'll buy individual companies, great businesses run by good people," says Ericksen.
"My feelings on the valuation of US companies I own frankly has very little to do with what the aggregate statistics are for the S&P500. I don't buy the S&P500, I don't buy countries, markets or currencies, I look for individual companies."
The bottom-up appraoch has also enabled Capital to avoid the pitfalls in Asia which hit...