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

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

Speaker:
Chris Buchbinder
Title:
Portfolio manager/investment analyst
Based in:
San Francisco office
Investment experience:
16

CHRIS BUCHBINDER: The U.S. auto industry, in particular, I think, is interesting because for many years the U.S. auto industry was burdened with huge post-retirement obligations to their union members, to retired employees — and really, they were uncompetitive. Through the course of the Great Recession, as we know, Chrysler and General Motors went bankrupt; Ford was able to accomplish many of the same things that Chrysler and GM did without going into bankruptcy; but all three companies emerged much stronger, as did much of the supply base.

And I think that’s a really fundamental transformation that makes me sort of interested in the companies, independent of what’s happening with the cycle. But then I overlay the cycle on top of it, and we are now at the point where the U.S. auto fleet is as old as it has ever been. That’s a good starting point, because cars do wear out and they do need to be replaced. Even though sales have recovered significantly off the lows in the 2009 time frame, we’re well below the average level of sales for the prior 10 or 15 years. So we’re certainly not at an extreme in terms of current sales, and I’d say there’s substantial opportunity to improve.

And then when you bring it down to the company level, some of these companies that either went through bankruptcy or came close to it really dramatically revised their cost structure and also revised other business processes, [which] haven’t all been demonstrated yet to the market but, I think, will over the next couple of years.

So I think you’re left with the situation where you had these companies that were globally uncompetitive, that now have great cost structures in what’s now actually quite a good manufacturing environment in the United States, where their home market has depressed demand that’s likely to improve and they’ve got some internal things that haven’t yet manifested — big product cycles, for instance — that are going to come through over the next couple of years, that historically can be big drivers of the stocks.

And so I think it all lines up that there are some really interesting opportunities in the U.S. auto industry. And I think partially because of the experience of 2008 — when we had a crisis, and many companies went bankrupt — the market is shying away from them and views them as riskier than they, in fact, are. So I think that just creates an opportunity.


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.