Advisor Website Home | Contact Us | Site Map | Help | Career Opportunities

Pent-up demand and its potential for U.S.

Chris Buchbinder
Portfolio manager/investment analyst
Based in:
San Francisco office
Investment experience:

CHRIS BUCHBINDER: While I do think we’re going to have a recovery in housing and autos over time, and there are attractive opportunities there, I don’t think it’ll be a straight line. I think there will be periods when it won’t look like that’s going to happen — when it looks like it won’t happen.

And so I think it’s prudent as a portfolio counselor to find some less-cyclical opportunities as well, and one of the areas that I’ve really gravitated toward over the last year, year and a half, is health care. Health care had gotten pretty beaten up in the wake of the passing of what some people call “Obamacare,” and I think there’s a perception that there’s going to be pricing pressure on health care — that there’s structural change, and it’s going to be negative.

I guess I come back to the view that there clearly needs to be change in the U.S. health care industry — there’s no question — but the reason that it needs to be changed is [that] the demographics of our country suggest that spending as a share of GDP will become unsustainably high over the next 20 years. So what we’re trying to do is constrain the rate of growth of that industry, but that’s very different from shrinking the industry.

What we know for demographic reasons — and because older people consume more health care — is [that] we’re going to consume a lot more health care in the future. And I think there are companies that used to trade at very high multiples, that have high returns, that have attractive technology positions that are now trading at very reasonable multiples — discounts to the market — based on the fear over the imminent or impending restructuring of the health care system.

And while I think there will be some winners and losers here, it seems pretty clear to me that if health care spending as a percent of GDP is going to increase a lot over the next 10 or 20 years, there are probably going to be some winners in there. So that’s, I think, a pretty fertile ground to shop in as well. And it happens to also help that it’s not particularly cyclical.

So as I wait for the recoveries in some of the areas where I’ve got cyclical investments, health care is a big part of my portfolio that carries me through with less volatility.

The statements included in this section are the opinions and beliefs of the speakers expressed at the time the commentary was written and are not intended to represent those persons’ opinions and beliefs at any other time.

Past results are not predictive of results in future periods.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value. Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.

Investing outside the U.S. involves risks such as currency fluctuations, periods of illiquidity and price volatility. These risks may be heightened in connection with investments in developing countries. Small-company stocks also entail additional risks, and they can fluctuate in price more than larger company stocks. See the most recent shareholder report or prospectus for more information on these and other risks associated with investing in the fund.

The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings. Bond prices and a bond fund’s share price will generally move in the opposite direction of interest rates. Lower rated bonds are subject to greater fluctuations in value and risk of loss of income and principal than higher rated bonds. Bond ratings, which typically range from AAA/Aaa (highest) to D (lowest), are assigned by credit rating agencies such as Standard & Poor’s, Moody’s and/or Fitch, as an indication of an issuer’s creditworthiness. For tax-exempt bond funds, income may be subject to state or local income taxes and/or federal alternative minimum taxes. (The Tax-Exempt Bond Fund of America® is not subject to alternative minimum taxes.) Certain other income, as well as capital gains distributions, may be taxable. Unlike mutual fund shares, investments in U.S Treasuries are guaranteed by the U.S. government as to the payment of principal and interest. Regular investing neither ensures a profit nor protects against loss in a declining market. Investors should consider their willingness to keep investing when share prices are declining. An investment in the money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed-income investment professionals provide fixed-income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.