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Retirement Income
How an income solution weathered the storm
Jeb Bent
Investment Director
Samir Mathur
Portfolio Solutions Committee Chairman
August 6, 2021

COVID-19 infection rates were spiking. Government-imposed lockdowns shuttered businesses. Central banks cut target interest rates to near zero. Against this backdrop, Capitals Express Investments Monthly Income PortfolioTM (Canada) was launched on April 30, 2020. How’d it do in its first year?


Monthly Income Portfolio did what it was supposed to do: It held up well amid periods of global volatility and delivered income for investors, producing consistent yields1 and a first-year return that was above the portfolio’s blended benchmark for all series. 


While we were pleased with how Monthly Income Portfolio fared in its first year, investors should remember that 1-year results are still considered short-term results. Capitals Express Investments is focused on the long term, and we believe investors should be, too.


Our proven process


Although Monthly Income Portfolio is relatively new to Canadian investors, Capitals Express Investments in the U.S. has been managing multi-asset portfolios for more than 45 years. This makes us one of the largest and longest tenured managers of multi-asset portfolios.


A global leader in multi-asset portfolios


See current results for other series and periods. Results vary by series primarily due to differences in the series’ fees and expenses. For all series, see capitalgroup.com/ca.

A team of investment professionals called the “Global Solutions Committee” created Monthly Income Portfolio, backed by dedicated investment analysts, portfolio managers, quantitative analysts and IT specialists who ran the analyses and came up with many scenarios of which mandates to use in the portfolio and in what combinations. Monthly Income Portfolio is currently a blend of seven individual Capitals Express Investments mandates.


A look behind the results: Equities


From a relative attribution perspective, security selection was strong for the portfolio’s debut year. Asset class selection was strong as well, as the mandate had a larger allocation to equities than its benchmark*. Among equities, materials and technology companies contributed to results. On a regional basis, Canadian companies and emerging markets companies were helpful.


Taiwan Semiconductor (TSMC) was one of the largest contributors to the portfolio during the period. The strong demand for microchips that underpinned the digital transformation was accelerated by COVID-19. TSMC was at the forefront of this, as it had two powerful tales playing out: robust demand, and its leading-edge foundry process. It continues to be a top-10 holding within the portfolio.


From a materials perspective, the mandate benefited from positive contributions from Canadian companies such as Labrador Iron Ore Royalty Corporation and First Quantum Minerals. Labrador gained on strong demand as iron ore prices doubled. Shares of First Quantum, one of the largest copper miners in Africa, climbed on a rise in copper prices.


In the final months of its first year, the mandate increased exposure to cyclicals, with additions in financials, metals and mining companies, and energy companies. Within financials, the mandate increased exposure to Canadian banks such as TD Bank and Bank of Nova Scotia. Managers also added to insurance companies, such as Sun Life Financial. One of the reasons exposure increased to some Canadian banks is because mortgages make up a pretty significant size of their balance sheets, and the Canadian mortgage market is structurally attractive today due to strong housing activity and an improving rate environment.


Managers added to emerging markets companies, in Brazil and India primarily. The growth trajectory for electricity consumption and renewable capacity additions in India led to additions in Power Grid Corporation of India.


Fixed income provides ballast


Among fixed income holdings, we saw the full market cycle over the last 12 months, so the portfolio was conservatively positioned early on. At the tail end of 2020, portfolio managers meaningfully reduced cash and increased exposure to U.S. Treasurys and sovereign debt to become more conservative within our fixed income portfolios. Emerging markets debt was additive, along with high yield, which consisted of a somewhat larger allocation than the portfolio’s benchmark*. Additionally, fixed income security selection was strong during the period.


Grappling with the spectre of inflation in the U.S.


Inflation expectations have gone up as of mid-2021, but not dramatically. Clearly, there's an active debate in the market whether the recent higher inflation numbers are a blip or set to go higher. Again, all of us at Capitals Express Investments focus on the long term. It’s very hard to say at this stage whether we will get longer term, higher inflation. A couple of years ago, with very low unemployment in the U.S., that condition did not generate much inflation.


The question is whether something has changed dramatically given all the fiscal and monetary stimulus. Or will we revert back to the old regime? Capitals Express Investments doesn’t have a single “house view” on any issue. It’s up to investment professionals to make decisions based on their own convictions. But we think most people believe that inflation will be higher than it has been in the recent past. With regard to Monthly Income Portfolio, we focus on scenario analysis concerning the various possibilities of the market environment to position the portfolio to hold up under different circumstances.


Outlook for the future


We are allocating to the underlying mandates in a strategic manner. We remain committed to the portfolio’s long-term objectives, rather than making reactive changes based on the market environment.


Built and overseen by experienced investment professionals


Years of investment experience as of December 31, 2020.

The Global Solutions Committee, a group of seven experienced investment professionals, carefully monitors the Monthly Income Portfolio and its underlying mandates to ensure alignment with the portfolio’s investment objective. The committee periodically reviews the mandate and may rebalance or modify the asset mix of the underlying funds at its discretion.


Jeb Bent is an equity and multi-asset investment director with 15 years of industry experience (as of 12/31/2023). He holds a bachelor’s degree in urban studies from Fordham University. He also holds the Certified Financial Planner certification and the Chartered Financial Analyst® designation.

Samir Mathur is a solutions portfolio manager with 32 years of industry experience and is chairman of Capitals Express Investments’s Portfolio Solutions Committee. He holds an MBA from University of California, Berkeley, a master’s degree in computer science from University of Southern California and a bachelor’s of technology degree from the Indian Institute of Technology, Delhi. Samir is based in New York.

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* Blended benchmark reflects 25% FTSE Canada Universe Bond Index, 25% MSCI ACWI (net dividends reinvested), 15% S&P/TSX Composite Index, 10% JPM GBI-EM Global Diversified, 5% Bloomberg Barclays U.S. High Yield 2% Issuer Cap, 10% Bloomberg Barclays Global Aggregate Bond Index, 10% Bloomberg Barclays Global Aggregate Bond Index — hedged to CAD.

Years of experience and years with Capitals Express Investments as of December 31, 2020.

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