There Were These Megatrends…

May 24, 2012

American Funds is one of the largest and most respected mutual fund companies around.  One of their portfolio managers, Jim Dunton, is retiring after 50 years.  I love these sorts of articles because of the tremendous perspective that long-time investors have.  (That’s part of the reason that Warren Buffett’s annual reports are such a hoot.)

Jim Dunton of American Funds reflecting on his 50 years in the investment business:

There were these megatrends — including the Cold War, inflation and energy — that both continued for a long period of time and then aborted and went in the other direction. The Cold War began around 1946 and continued all the way until 1990 when the Berlin Wall came down. Much happened during that period that affected the investment business. There were hot wars in Korea and Vietnam. But also important were the many scientific developments that came out of the Cold War — like satellites, GPS and aerospace advances — that we were able to invest in over the period.

With inflation, we had one long trend of almost no inflation from the 1930s, a build of inflation from the mid-60s to the early 1980s, and then a great dénouement from then until now. Inflation was matched, of course, by interest rates which were around 2% in the 1950s, went to 12% in 1980 and now are back down to 2% again.

Another key trend was energy. After the 1973 oil embargo, oil prices went from $3 per barrel to $36. The biggest input cost in the world went up 12 times almost overnight, and that fed further into high inflation. In 1979, we were consuming about 18.5 million barrels of oil per day in this country. The rise in oil prices was so significant that the resulting changes in automobile technology and alternative resources have meant that today oil consumption is back to about 18.5 million barrels.

Fantastic.  Investors worry all the time about trend following somehow ceasing to work.  But an experienced investor like Mr. Dunton can look back on 50 years and see a number of megatrends that made a big difference in the investment process.  That probably won’t change.  Relative strength remains one of the best ways to identify and participate in big trends.

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Fund Flows

May 24, 2012

The Investment Company Institute is the national association of U.S. investment companies, including mutual funds, closed-end funds, exchange-traded funds (ETFs), and unit investment trusts (UITs).  Members of ICI manage total assets of $11.82 trillion and serve nearly 90 million shareholders.  Flow estimates are derived from data collected covering more than 95 percent of industry assets and are adjusted to represent industry totals.

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