There is one theme that is as true today as it was when Capital Group began investing globally back in 1953: the economies of the world are integrating. This ultimately led many at Capital to believe that it was increasingly more important to view companies from a global perspective. In the early 1960s, Capital's global approach led to a pioneering idea: the creation of worldwide sector indices.
"Back then, the global integration of economies was a relatively new phenomenon and local indices were simply not consistent across markets or industries," says Nilly Sikorsky, a portfolio manager who was involved in the creation of what would become the MSCI World and EAFE indices. "Back then, many local markets were small and highly specialised. It was common to find many sectors not represented in a local market, or to have only one national champion. Because of this, we needed a way to compare companies globally. We felt it would be more important on a long-term basis to compare Italian Fiat to French Peugeot than it was to compare Fiat to Italian bank Assicurazioni Generali."
"We had a vision that our clients would benefit on a long-term basis from comparing companies to their global, rather than simply national, competitors." To prove this thesis, and to measure where such an approach could add value, the Capital International World Indices were created. Initially used as an in-house resource, it was made available to the public starting in 1969. These indices would later be sold to Morgan Stanley, becoming the Morgan Stanley Capital International (MSCI) indices.
If you look at it today, the concept is not very different. There aren't a lot of single markets that offer an investor the whole possible areas of investments. It's critical that investors look at companies on a global rather than a local or regional basis.
The philosophy of looking at companies in a global context is even more applicable today, and it is one of the cornerstones of Capital's investment philosophy. "Our investment professionals make thousands of research visits around the world each year so they can get as complete a picture as they possibly can," explains Nilly. "They focus on bottom-up stock picking in an attempt to find the best opportunities, not just the nearest. It is with that spirit that we created the world indices, and it's how we manage all of our portfolios today."