JANUARY 2018

Time for
balance and
flexibility.

There is mounting evidence
that near-term momentum is
building in the global economy
and the cycle appears to be
self-sustaining, particularly
with respect to Europe. The
synchronization of global growth
has raised the possibility that the
cycle can be stronger for longer.
robert lind
europe economist
sources :Capital Group, FactSet. GDP
data as of 6/30/17. Country position
within the business cycle are estimates
by Capital Group economists.
1 OUTLOOK 2018
Global economies continue to gain ground
Among the first to experience recovery, U.S. edges toward late-cycle territory
Most major economies are experiencing early- to mid-cycle characteristics
Euro Zone
Germany
Canada
Japan U.S.
China
U.K.
GDP (US$T)
20
10
India
5
Brazil
EARLY MID LATE
Economic activity accelerates Full employment Prot margins contract
Housing activity increases Wages accelerate Credit moderates
Easier central bank policy Prot margins peak Tighter central bank policy
Investors can see blue skies just about relatively tame. That said, with wages Overall, the IMF expects global gross
anywhere they look heading into 2018, rising, look for inflation to pick up later domestic product (GDP) to increase
as the synchronized global economic in the year. 3.7% in 2018, up from 3.6% in 2017, with
recovery gathers a head of steam. After each of the worlds major economies
For most of the rest of the world, it is
eight years of expansion in the U.S., firmly in the growth column.
still early in the cycle. Europe appears
investors may be concerned that the
to have entered a prolonged period of
American economy is nearing the end
strength and the euro-zone economy
of the cycle. But dont cue the closing
is expected to grow nearly 2% in 2018,
credits yet. Corporate profit growth
according to the International Monetary
remains healthy and inflation has been
Fund (IMF).

I am concerned that people
are getting very complacent,
expecting this low-growth,
low-volatility environment to
last. In my view the tail risks
are increasing the longer it
continues. So I am getting
more cautious, focusing on
unloved investment ideas:
anti-momentum stocks
with good cash flows and
compelling valuations.
lisa thompson
portfolio manager
sources : Capital Group, FactSet, MSCI,
RIMES, Thomson Reuters. As of 9/30/17.
Market capitalization is each country
or regions weight within MSCI All
Country World Index (ACWI). GDP is
each country or regions percentage
of total world nominal GDP. Price-
to-earnings ratios as of 9/30/17.
Market levels suggest better opportunities abroad
Valuations point to relatively attractive opportunities outside the U.S.
Percentages of total world market capitalization and global GDP
MARKET
CAPITALIZATION 52.1% U.S. market cap near all-time high
GROSS
35.2% DOMESTIC
PRODUCT
25.3%
21.5% 21.4%
11.6%
3.5% 2.1% 7.6% 6.4%
12-Month Forward
P/E Ratios U.S. CANADA EUROPE JAPAN EMERGING MARKETS
9/30/17 17.9 15.4 14.9 14.3 12.4
10-Year Average 14.4 14.0 12.3 14.8 11.0
Most of the worlds equity market In fact, market levels suggest that these Standard & Poors 500 Composite Index
indices achieved or neared multiyear better investment opportunities may company earnings come from overseas.
highs in 2017, as investors set aside continue in non-U.S. markets. Consider
Also consider that the forward P/E ratio
concerns about politics and focused on that the U.S. accounts for 52% of global
for the U.S. market, at 17.9, is nota-
the broadening expansion. European market capitalization, near a historic
bly higher than other major markets.
stocks went on a tear in 2017, rising 23% high, and its market cap is 106% of its
Conversely, the emerging markets share
and outpacing U.S. shares for the first GDP. Granted, a number of factors justify
of global market cap appears relatively
time since 2012. Emerging markets equi- a relatively higher share of market cap
modest compared with its contribution
ties also outpaced the U.S., soaring 32%. for U.S. companies, as it is the home
to GDP. And, emerging economies are
(Results in U.S. dollars.) market for many of the worlds domi-
expected to contribute half of global
nant companies, and roughly 40% of
GDP by 2021.
OUTLOOK 2018 2
 U.S. economic engine reaches higher gear
Consumer strength, modest inflation point to an extended expansion

The U.S. economy seems to The American economy is drawing from numerous sources of strength
be chugging along nicely,
and I dont see much on the
58.7
LATEST DATA
horizon to be concerned LAST YEAR
about other than higher
equity valuations. We have 261K 52.0
had market appreciation for
nearly a decade now, so I
4.4%
think it will increasingly be a
stock-pickers market.
3.1%
hilda applbaum
portfolio manager , capital group
global balanced fund SM ( canada )
2.3% 2.2% 124K
1.5% 1.5%
GDP INFLATION RETAIL SALES JOBS ADDED MANUFACTURING
GROWTH GROWTH ACTIVITY (PMI)

sources : U.S. Bureau of Economic Analysis,
U.S. Bureau of Labor Statistics, Thomson
Reuters. GDP growth is the year-over-
year growth in 3Q16 and 3Q17. Inflation
and retail sales growth are year-over-
year changes on 9/30/17, and 9/30/16.
Inflation uses the change in the consumer
price index. Jobs added is the monthly
change in the payroll survey as of
10/31/17, and 10/31/16. Manufacturing
activity is the manufacturing component
of the 9/30/17, and 9/30/16, Institute of
Supply Management (ISM) Purchasing
Managers Index (PMI) reports.
After more than 100 months of
expansion, the U.S. economy appears
to be in a period of self-sustaining
equilibrium. The jobs market is solid,
consumer confidence is soaring and
retail sales growth is picking up. The
U.S. unemployment rate fell to 4.1%
in October, a 17-year low. As a result,
wages have been strengthening, rising
2.4% in October. Thus far, wage growth
has been subdued, helping keep a lid on
inflation. But given the improving jobs
market and strengthening economy, wage
inflation is likely to rise later in the year.
Consumer spending on durable goods
rose at an 8.3% annual rate in the third
quarter, and capital expenditures rose
7.4%, providing an additional tailwind
to the economy. In addition, corporate
profits rose 5.8% in the third quarter. On
the policy front, the prospect of corpo-
rate and personal income tax cuts could
propel the expansion further.
With consumer spending healthy
and wages rising, consumer-facing
businesses have the potential to
do well in the next phase of the
economic expansion. Companies
across a wide variety of industries
are exposed to rising consumption,
including home improvement
retailers such as The Home Depot,
online retailer Amazon and shopping
mall developer Simon Properties,
which could benefit from higher traffic
at traditional retailers.

3 OUTLOOK 2018
 But U.S. assets have gotten expensive
Research is critical to uncover value in soaring equity market

In my view the U.S. is priced U.S. stock and bond markets have But a look beneath market averages reveals differentiation
for perfection, so I am taking a reached all-time highs
Consumer
more cautious approach, gravi- 400% Cumulative Total Returns Since Recession Trough 200% Cumulative Total Returns Since Pre-Recession Peak Discretionary
tating to areas that I believe (Returns in U.S. dollars) (Returns in U.S. dollars) Information
Technology
can hold up better in choppier All-time high
300 Current
markets, like select financial
companies. Financials have 100 S&P 500 Index
substantially increased their 200
capital base, they have been
conservative in their lending
100 PRE-RECESSION
and the interest rate cycle is PEAK
Financials
0 Energy
favourable to them.
0
greg johnson
Large-Cap Small-Cap Corporate High-Yield
portfolio manager Equity Equity Bonds Bonds
12-Month Forward P/E Ratios Spread to Treasuries
9/30/17 17.9 27.0 101 347 (100)
2007 2009 2011 2013 2015 2017
10-Year 14.4 21.2 188 611
Average

sources : Bloomberg Index Services Ltd.,
MSCI, RIMES, Standard & Poors, Thomson
Reuters as of 9/30/17. Large-cap and small-
cap equity valuations provided by IBES,
for the S&P 500 Index and Russell 2000
Index, respectively. Investment-grade and
high-yield corporate bond valuations are
option-adjusted spread to U.S. Treasuries
provided by Bloomberg Index Services
Ltd. for the Bloomberg Barclays Corporate
Bond Index and Bloomberg Barclays High
Yield Corporate Index, respectively.
The U.S. stock market has soared since boats forever. At this stage of the cycle,
the end of the global financial crisis, caution and selectivity are essential. The potential for credit growth driven
reaching its prior peak in 2012 and by solid consumer fundamentals,
Indeed, not all areas of the market have and the prospect of rising interest
more than doubling since, pushing up
reached elevated heights together. rates, could help drive profit growth
equity valuations. But stocks arent the
Financials recently reached its pre- for banks. U.S. regional bank PNC
only expensive asset class. High-yield
recession peak after 10 years and energy Financial Services and conglomerates
and corporate bond returns too have
has returned to 2007 levels. These JPMorgan Chase and Wells Fargo
been robust, leaving credit spreads at
sectors may have room to run, but select are examples of companies that have
their tightest levels in years. Conditions
companies are likely to fare better than strong credit card and commercial
remain favourable and markets tend to
others. Fundamental research will be key banking divisions.
climb a wall of worry, so the rally could
to identifying the potential winners.
continue. But the rising tide cant lift all

OUTLOOK 2018 4

Among developed econo-
mies, Europe looks like the
best place to invest right
now. We are seeing a broad-
based recovery across the
continent, particularly in
countries that have engaged
in fiscal reform over the past
few years.
mark denning
portfolio manager
sources :Capital Group, Haver as of
9/30/17. The Purchasing Managers Index
is an indication of whether business
conditions for a number of variables
in the manufacturing sector have
improved, deteriorated or stayed the
same compared to the previous month.
An index reading above 50 indicates
an expansion, whereas a reading below
50 indicates a contraction. The PMI
tracks 32 countries. Each dot in the
chart represents one of the 31 tracked
countries with a PMI over 50. The only
tracked country not included is South
Africa, which had a PMI of 44.9.
5 OUTLOOK 2018
Europe and its factories are back in business
Resurgent Europe leads a global manufacturing recovery as demand picks up
31 of 32 countries tracked are in expansion territory
Manufacturing Purchasing Managers Index
62
Europe
Germany
60
58
The Americas France
56 United Kingdom
Asia-Pacic
Canada
54
United States Japan
52
India China
EXPANSION
50
CONTRACTION
Europe has enjoyed a remarkable lined up in support of the European
recovery in recent months, driven by a Unions governing authority. Thanks to improving global growth,
powerful combination of central bank select European companies are
Europes manufacturing activity thriving particularly those that
stimulus, ultra-low interest rates and
previously a weak point on the regions operate on a global stage. Dutch
improving growth. Third-quarter GDP in
path to recovery has increased semiconductor equipment-maker
the 19-member euro zone grew at an an-
dramatically, supported by rising orders ASML, for instance, has continued
nualized rate of 2.5%, and the unemploy-
for everything from new aircraft to highly to exceed earnings expectations,
ment rate has fallen to 8.9%, its lowest
sophisticated technology components. benefiting from soaring demand
level since 2009. Moreover, corporate
Many euro-zone factories have reported for computer chips used in mobile
earnings are up across the board, led by
labour shortages amid the surging devices. The so-called internet of
a strong rebound in the energy, mining
demand. Factory activity has expanded things investment theme is alive and
and banking sectors, thanks in part to
in all major European nations, led by well in Europe, powered in part by
the strengthening global economy.
manufacturing powerhouse Germany Dutch technological innovation.
The political picture has also stabilized,
and the neighbouring Netherlands.
as continental Europe has essentially
 Weaker U.S. dollar could boost international equities
Longer term, look for extended strength in non-U.S. currencies to further fuel overseas returns

While we may see short- A weaker U.S. dollar helped boost non-U.S. returns in 2017
term periods of U.S. dollar
strength now and then, my 150 J.P. Morgan U.S. Dollar Real Trade Weighted Index
YTD Total Returns Through 10/31/17
view is that the U.S. dollar
Local Currency USD
will continue its downward 140 Europe 14.0% 23.4%
trajectory over the course Emerging Markets 28.3% 32.3%
of 2018 and into 2019, 130
providing a further boost to
international investing. 120

jens sondergaard
currencies analyst 110

100

90

1973 1978 1983 1988 1993 1998 2003 2008 2013 10/31/17

sources :RIMES, Thomson Reuters
as of 10/31/17.
Currency trends have formed a nice
tailwind for U.S. dollar-based investors
in international equities. After the U.S.
dollar peaked in early 2017, the currency
effect on overseas investments reversed
from previous years, when a strong U.S.
dollar hurt returns. With the U.S. dollar
slipping in 2017, European equities have
far outpaced U.S. stocks in U.S. dollar
terms. The U.S. dollar also has declined
against many other currencies, including
the yen, producing a similar tailwind for
Japanese equities.
Improving U.S. economic growth and
other factors pushed the U.S. dollar
higher in September and October.
Capital Group currencies analyst
Jens Sondergaard believes this U.S.
dollar strength will fade, and continue its
decline through 2018 and into 2019.
Whats the impact for Canadian dollar-
based investors? As the Canadian dollar
strengthened in the latter half of 2017,
it hampered international equity returns
in Canadian dollar terms. However,
over longer periods of time, currency
fluctuations generally have had less of
an impact, and holding assets in various
currencies can provide diversification.
In the financials and industrials
sectors, a valuation gap has emerged
between some European and U.S.
companies. Airbus and Barclays,
for example, have recently traded
at significant valuation discounts to
comparable companies in the United
States. The gap has started to close
in other sectors as European equities
have rallied, but these two sectors
remain areas of potential opportunity
for value-oriented investors.
OUTLOOK 2018 6
 Emerging markets have only just begun making up ground
Rising middle classes, more stable China suggest developing world has room to run

The stability and reform we are Until recently, emerging markets equities had trailed developed markets for several years
seeing in places like China and
India are resulting in greater 200% Emerging Markets vs. Developed Markets: Rolling 3-Year Returns
investment opportunities. Its
not just obvious areas like Indian 150
banks and Chinese internet
companies, but I am also
100
interested in domestic industries Emerging markets
like cement and power, as well as HIGHER
50 returns than developed markets
retail companies and consumer-
orientated businesses.
0
chris thomsen
Emerging markets
portfolio manager
50 LOWER
returns than developed markets

100
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Returns in U.S. dollars

sources :
Capital Group, MSCI, RIMES.
Data represents cumulative rolling
three-year total returns of MSCI
Emerging Markets Index versus the
MSCI World Index through 9/30/17.
The rally in emerging markets equities
is more than 20 months old, with stocks
up 70% since a trough in early 2016. Is
the rebound getting long in the tooth? It
really could just be getting started.
An expanding global economy,
strengthening currencies and robust
demand for technology-related
components all bode well for emerging
markets. A synchronized global recovery
is an ideal environment for emerging
markets, similar to the period that lasted
from 2003 to 2007.
Amid the ongoing rebound, overall
valuations are still attractive from An improving global economy
a historical basis and compared to and U.S. dollar weakness can be
tailwinds for companies in a broad
developed markets. For instance, China,
Taiwan and Brazil all trade around 13 range of industries, from information
times projected earnings over the next technology to consumer goods to
financials and commodities exporters.
year, compared with 17 times estimated
For example, Chinese internet
earnings for the MSCI World Index.
giants Tencent and Alibaba could
Company cash flows are also increasing,
benefit from rapid growth in mobile
which could lead to higher earnings
commerce and financial services.
revisions. Corporate profits are forecast to
Banks with solid consumer lending
climb 13% in 2018, and historically rising
businesses may benefit from stronger
profits have been good for share prices.
global growth.

7 OUTLOOK 2018
 Signs of maturity emerge in China and emerging markets
As the market has shifted from commodities to tech, volatility has declined

In todays emerging markets, An increasing number of world-class technology companies are domiciled in emerging markets
there are some very strong
technology companies that 50% WEIGHT 25.5%
deliver e-commerce services in
45
a very efficient fashion and the
40 25.0
adoption rate is high. Chinese
internet businesses are now 35 TECHNOLOGY
leading innovation in financial 30
(Left axis)
24.5
services and other areas, a STANDARD
25
divergence from the past. DEVIATION
(Right axis)
20 24.0
shaw wagener
portfolio manager , capital group 15 COMMODITIES
emerging markets total opportunities SM (Left axis)
fund ( canada ) 10 23.5

0 23.0
2009 2010 2011 2012 2013 2014 2015 2016 2017

sources :
Morningstar, MSCI, RIMES as of
9/30/17. Commodities includes energy
and materials sectors. Technology
includes information technology sector.
Emerging markets have shifted from
smokestacks to smartphones. Back in
2008, energy and materials companies
dominated the MSCI Emerging Markets
Index with a 38% weighting, and many
of these firms were state-owned enter-
prises that were more susceptible to
infrastructure-driven booms and busts.
Chinese technology-related firms are
now the biggest companies by market
value in emerging markets as mobile
phone usage is accelerating and
internet penetration rates are rising.
Along with middle class growth, these
developments are changing consump-
tion patterns and delivery methods for
financial services.
This tech-tonic shift over the past
decade (information technology now
accounts for 28% of index weight) has
also come with a decrease in volatility as
cyclical, commodity-oriented companies
are no longer index heavyweights.
Look for growth in the technology
sector to be driven further by de-
mand for handheld electronic devices
and mobile-focused services among
the large populace of China and
India. Some Asian companies, includ-
ing Taiwan Semiconductor and
Samsung Electronics, have also devel-
oped specialized knowledge in areas
of semiconductors and are key cogs
in the global technology supply chain.

OUTLOOK 2018 8

Long-term U.S. interest
rates should remain range
bound unless you get a
geopolitical event in places
like North Korea or inflation
breaks out unexpectedly.
pramod atluri
portfolio manager
source : Thomson Reuters as of 10/31/17.
9 OUTLOOK 2018
Global rates should stay low despite improving economies
Higher relative yields should continue to support demand for U.S. bonds
U.S. interest rates remain higher than those of other developed markets
3.5 10-Year Government Bond Yields
3.0
2.5
2.0
1.5
1.0
0.5
0
-0.5
12/2011 12/2012
A number of factors have kept yields low,
such as modest economic growth in the
U.S., persistently low inflation and strong
demand from global investors for U.S.
bonds. Long-term rates could rise mod-
estly as U.S. economic growth remains
robust and the U.S. Federal Reserve has
started to trim its balance sheet, which
means it will no longer be the largest buy-
er of bonds. Capital Groups fixed income
team expects the benchmark U.S. 10-Year
Treasury yield to remain in a 2.25% to 3%
range despite a higher policy-driven rate.
Despite these relatively low levels, U.S.
interest rates remain higher than many
UNITED
KINGDOM
UNITED STATES
CANADA
GERMANY
JAPAN
12/2013 12/2014
other developed markets, partly because
the U.S. economy has sustained a sig-
nificantly higher growth rate. The higher
yields in the U.S. relative to other devel-
oped markets should continue to support
demand for U.S. Treasuries. Meanwhile,
against the backdrop of low interest rates
in developed economies, demand for
higher yielding emerging markets debt
has risen substantially. The fixed income
team expects this demand to continue.
Many emerging markets economies are
growing at a steady clip and do not have
any significant economic imbalances.
12/2015 12/2016 10/2017
Consider holding broadly diversi-
fied fixed income portfolios without
tilting too heavily in favour of credit
or interest rate exposure. Although at
tight valuations, credit and mortgage-
backed securities provide a yield
spread over U.S. Treasuries that can
add to meaningful additional income
over time. On the other hand, U.S.
Treasuries provide valuable diver-
sification from equities and credit.
Meanwhile, emerging markets bonds
continue to offer value, supported by
improving fundamentals.
 Central banks take gradual approach to tapering
Financial conditions should not tighten dramatically

The U.S. Fed started reducing After expanding balance sheets for years, the U.S. Fed has begun reducing its holdings
the size of its balance sheet in
October and I would expect 18 Central bank assets (USD trillions)
Projection
U.S. financial conditions to
16
tighten as a result. With global
central bank balance sheets set 14
to decline in late 2019, for me ECB
12
it is a question of when markets
will start to get concerned. 10

ritchie tuazon 8
BOJ
portfolio manager
6

4 BOE

2 U.S. Fed
0
03 05 07 09 11 13 15 17 19

sources :Capital Group, Thomson Reuters
as of 9/30/17. European Central Bank
(ECB), Bank of Japan (BOJ), Bank of
England (BOE), U.S. Federal Reserve (Fed).
Since the financial crisis, central banks
have expanded their balance sheets
to unprecedented levels. These banks
became the largest buyers of bonds
and other securities as a way of increas-
ing money supply to boost struggling
economies. The four major central banks
increased securities held on their books
from around US$4 trillion in 2007 to
about US$15 trillion in 2017. Now, as
the global economy improves, some of
them are beginning to move in the other
direction. The U.S. Fed began shrinking
its balance sheet in October. The Euro-
pean Central Bank signaled it will begin
to trim its purchases of securities starting
in January. With the Fed stepping away
from its role as the largest buyer of secu-
rities, the risk of a modest rise in yields
cannot be ruled out.
As financial conditions tighten, credit
assets and mortgage-backed secu-
rities remain vulnerable. Investors
should maintain a balance between
interest rate and credit exposure.
Within credit, consider moving up in
credit quality so that portfolios can
withstand a period of potential
market volatility.

OUTLOOK 2018 10
 U.S. Fed rate hikes dont have to translate to bond losses
In periods of rising rates, higher income can help to keep returns positive

With inflation running below Core bond returns have been positive in five of the last seven prior periods of U.S. Fed hikes
the U.S. Feds target and the
economy growing at a modest 10
pace, I think the Fed will take a 10.18
8
gradualist approach to raising
7.76
rates. 6
6.06 5.90
4 Average return: +3.73%
john queen
portfolio manager 2
2.02
0
2.04
2 2.89
4/1/837/31/84 1/1/879/30/87 4/1/885/31/89 2/4/942/1/95 6/30/995/16/00 6/30/046/29/06 12/16/159/30/17

+3.00% +1.44% +3.31% +3.00% +1.75% +4.25% +1.00%

Increase in the U.S. federal funds rate

Returns in U.S. dollars

sources : Bloomberg Index Services
Ltd., U.S. Federal Reserve. Data through
9/30/17. Daily results for the index are
not available prior to 1994. For those
earlier periods, returns were calculated
from the beginning of the month
containing the first hike through the end
of the month containing the final hike.
As the U.S. Fed continues on a path of
gradually raising interest rates, many
investors are moving to cash, short-term
bonds and floating-rate securities. But
the view that bonds have to suffer
losses when short-term rates rise is a
misconception. Looking at the past
seven periods of interest rate hikes,
including the current period, invest-
ment-grade (BBB/Baa and above)
bonds have generally delivered positive
returns, as can be seen from results for
the Bloomberg Barclays U.S. Aggregate
Index.
If rate hikes are gradual, interest earned
by bonds can overcome the price impact
to deliver a positive return. Indeed, since
the U.S. Fed began on its current course
of rate hikes, the index has gained nearly
6%, even as the U.S. Fed funds target has
risen by 100 basis points. The Fed has
signaled that it will maintain a gradual
pace in raising rates and tightening
monetary policy. Against this backdrop,
interest rates will likely remain range
bound.
Investment-grade and high-yield
credit valuations continue to hover
near historically tight levels not
seen since the period before the
2007 financial crisis. In this market
environment of range-bound long-
term rates and tight credit spreads,
investors should consider holding
well-diversified core fixed income
portfolios that do not take excessive
credit risk. Credit-heavy strategies
have performed well as stocks have
soared, but they could suffer losses
should stock markets reverse.

11 OUTLOOK 2018

What is PSG?
Capital Groups fixed income
team convenes a Portfolio
Strategy Group (PSG) that
meets regularly for an in-
depth discussion on the
macroeconomic environment
and fixed income markets.
This fixed income groups latest
insights are reflected in the
dials shown, which represent
guidance to our portfolio
managers when building our
core fixed income portfolios.
Position core bond portfolios for higher volatility
Global growth is improving, but markets may underestimate uncertainties and possible shocks
Caution is warranted, given current macroeconomic and market conditions
U.S. Rates Curve
SHORT LONG FLAT STEEP
Credit MBS Non-U.S. Bond
UNDER OVER UNDER OVER UNDER
Duration: Capitals Portfolio Strategy Yield Curve: Although the U.S. Fed is
Group (PSG) continues to believe in a tightening monetary policy, the bias
lower for longer thesis regarding the of central banks remains supportive of
future level of interest rates. Modest economic growth. In this environment,
global growth and inflation, as well as the fixed income group thinks the yield
the attractiveness of U.S. interest rates curve could steepen and long-term
in a global context, are a few factors interest rates may rise somewhat more
contributing to this view. However, than intermediate rates.
current consensus expectations for the
Inflation: In light of the fixed income
path of short-term interest rates are
groups view that inflation will continue to
more conservative than the PSG view.
rise modestly, particularly in the U.S., the
group suggests considering an allocation
to U.S. Treasury Inflation-Protected Secu-
rities (TIPS). Further, TIPS valuations are
attractive relative to prospective inflation.
U.S. TIPS
SHORT LONG
Non-U.S. FX
OVER UNDER OVER
Credit: High credit valuations suggest
caution, given stable to declining
fundamentals. Although Capitals PSG
does not expect a material rise in
defaults for high-yield corporations,
minimal allocations are appropriate to
high-yield in core bond portfolios.
Mortgages: The fixed income group
continues to recommend a less-
than-index weighting in agency
mortgage-backed securities on
expectations of future spread widening
as the U.S. Feds balance sheet reduction
ramps up.
OUTLOOK 2018 12
 Put these insights to work in portfolios
Flexible mandates can improve returns

Skillful investors could potentially Flexibility helps: Both growth and value can lift returns
benefit by combining looser
Percentage of top-returning U.S. large-cap equities by style (value or growth)
constraints on the investment
100% Share of the
universe with a disciplined focus top 50% of
on investment objectives. 80
equities
(by returns)
that were
sunder ramkumar
Growth stocks
capital group client analytics 60

40 Value stocks

20

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Index Return (%)
Growth 33.15 30.65 0.19 3.43 5.68 12.34 41.87 44.37 12.91 1.56 17.98 32.46 14.38 7.71 1.79
Value 15.05 26.26 14.05 7.05 25.78 0.43 36.11 11.38 14.69 2.23 12.89 28.92 9.24 1.43 18.91
Returns in U.S. dollars

source : Capital Group, based on
Morningstar data, as of 12/31/16. Indices
are Morningstar U.S. Large Growth
Total Return Index and Morningstar
U.S. Large Value Total Return Index.
Universe drawn from stocks that were
classified as large-cap growth and large-
cap value by Morningstar (excluding
blend). Stocks from both categories were
combined and ranked by total return,
and the top 50% of stocks in that list were
apportioned to growth and value based
on their Morningstar classifications.
13 OUTLOOK 2018
Flexible mandates can allow investment
professionals to access their best ideas,
helping skillful portfolio managers
deliver better results.
Several institutions, including Harvard
Universitys endowment, have
transitioned to broader investment
mandates, based on the concern that
style-based portfolios over-emphasize
asset-class benchmarks at the expense
of investor outcomes.
As an example of the potential benefits
of flexibility, the chart above shows the
universe of all U.S. large-cap value and
growth stocks. Companies from both
categories were combined and ranked
by total return, and the top 50% of stocks
in that list were apportioned to growth
and value based on their Morningstar
classifications. The data illustrate two
key insights:
First, while there are good companies in
both value and growth styles every year,
their proportion can vary significantly.
Value companies made up 54% of the
best performers in 2002, but only 19%
in 2013.
Second, the stock selection opportunity
was not just driven by macro regimes
favouring value or growth. Value on
average outpaced growth by 18%
in 2002, yet almost half the best-
performing stocks were growth.
Similarly, in 2009, growth outpaced
value by 33 percentage points, yet value
stocks made up almost one-third of the
best-performing companies.
An investor who simply invests in
the winning style every year and
ignores all the stocks in the losing
style can miss great opportunities.
2018 Outlook: Time for balance and flexibility
Themes Big Picture North American Equity Global/International Equity Emerging Markets Fixed Income
Market levels call for balance The U.S. economy is strong, There is room to run in markets The developing world has Its time to de-risk core bond
and flexibility. but markets are relatively outside the U.S. room to run. portfolios.
expensive.

Key The global expansion is
takeaways gaining momentum as
the U.S. forges ahead and
conditions improve in
Europe. Low rates and mild
inflation across the globe
further contribute to a benign
economic environment. But
with volatility at multiyear lows,
complacency has spread.
Investment At this stage of the cycle,
implications make sure portfolios are well-
diversified, with the flexibility
to pivot to select areas of
opportunity.
Select Capital Group Global Equity
investments FundSM (Canada)
to consider A CIF 843; E CIF 873
F CIF 823
Capital Group Global
Balanced FundSM (Canada)
A CIF 840; E CIF 870
F CIF 820
Consumer optimism and
rising wages have provided
a further boost to a strength-
ening U.S. economy. U.S.
equity valuations are near
multiyear highs across a
number of asset classes. But
a deeper look beyond market
averages reveals opportunity
for selective investors.
Maintain a core allocation of
U.S. equities but be selective
and consider rebalancing
toward international and
emerging market equities.
Capital Group Canadian
Focused Equity FundSM
(Canada)
A CIF 849; E CIF 879
F CIF 829
Capital Group U.S. Equity
FundSM (Canada)
A CIF 847; E CIF 877
F CIF 827
After outpacing U.S. equity
markets in 2017, European and
emerging markets continue
to offer relatively attractive
valuations in select areas.
Improving economic conditions,
a weaker U.S. dollar and rising
profit growth all contribute to
an encouraging outlook for
investing in non-U.S. markets.
Seek meaningful exposure to
Europes improving health and
rising consumer purchasing
power in emerging markets.
Capital Group Global Equity
FundSM (Canada)
A CIF 843; E CIF 873
F CIF 823
Capital Group International
Equity FundSM (Canada)
A CIF 846; E CIF 876
F CIF 826
Capital Group Global
Balanced FundSM (Canada)
A CIF 840; E CIF 870
F CIF 820
After broad gains in 2017,
an expanding global
economy, strengthening
currencies and robust
demand for technology-
related components all
bode well for emerging
markets.
Consider a broadly
diversified portfolio of
emerging markets equities,
plus fixed income to
dampen volatility.
Capital Group Emerging
Markets Total
OpportunitiesSM Fund
(Canada)
A CIF 842; E CIF 872
F CIF 822
Fixed income assets are relatively
expensive across sectors, reflecting
expectations that financial condi-
tions will remain supportive. Even
as they tighten monetary policy, the
bias of central banks remains sup-
portive of economic growth. With
inflation muted and growth rates
modest, we expect the U.S. Fed will
take a gradualist approach.
Ensure your bond portfolio is broadly
diversified and does not have exces-
sive high-yield exposure. Invest selec-
tively in credit. Dont be afraid to have
some duration. Consider small alloca-
tions to emerging markets bonds.
Capital Group Canadian Core Plus
Fixed Income FundSM (Canada)
A CIF 841; E CIF 871
F CIF 821
Capital Group World Bond
FundSM (Canada)
A CIF 140; E CIF 170; F CIF 120;
AH CIF 8240; EH CIF 8270;
FH CIF 8220

MSCI has not approved, reviewed or produced this report, makes no express or implied warranties or representations and is not liable whatsoever for any data in the report. You may not redistribute the MSCI
data or use it as a basis for other indices or investment products.
The S&P 500 is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright 2017 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its
affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC.
2017 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; (3) does not constitute
investment advice offered by Morningstar; and (4) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from
this information. Past performance is no guarantee of future results.
Bloomberg is a trademark of Bloomberg Finance L.P. (collectively with its affiliates, Bloomberg). Barclays is a trademark of Barclays Bank Plc (collectively with its affiliates, Barclays), used under licence.
Neither Bloomberg nor Barclays approves or endorses this material, guarantees the accuracy or completeness of any information herein and, to the maximum extent allowed by law, neither shall have any
liability or responsibility for injury or damages arising in connection therewith.
FundSERV codes shown are for Series A, E, F, AH, EH and FH units. FundSERV codes for Series B, D, T4 and F4 units can be found on our website: capitalgroup.com/ca.
OUTLOOK 2018 14
Investment Professional Biographies
Hilda L. Applbaum is a portfolio manager at Capital Group and a portfolio
manager of Capital Group Global Balanced FundSM (Canada). She has
30 years of investment experience and has been with Capital Group for
22 years. Earlier in her career, as an equity investment analyst at Capital,
Hilda covered global convertible securities. Before joining Capital, she was
a principal investment officer and director of research for the California Public Employees
Retirement System, and a research analyst and economist at Federal Farm Credit Banks
Funding Corp. in New York. Hilda holds a masters degree in economics from New York
University and a bachelors degree in economics from Barnard College of Columbia
University graduating magna cum laude. She also holds the Chartered Financial Analyst
designation. Hilda is based in San Francisco.
Pramod Atluri is a fixed income portfolio manager at Capital Group. He has
18 years of investment industry experience and has been with Capital Group
for one year. Prior to joining Capital, Pramod was a fixed income portfolio
manager at Fidelity Investments where he also worked as a fixed income
strategist and corporate bond analyst. Before that he was a management
consultant at McKinsey & Company. He holds an MBA from Harvard Business School and
a bachelors degree in biological chemistry from the University of Chicago where he also
completed the requirements for bachelors degrees in economics and chemistry. He holds
the Chartered Financial Analyst designation. Pramod is based in Los Angeles.
Mark E. Denning is an equity portfolio manager at Capital Group.
He has 34 years of investment experience, all with Capital Group.
Earlier in his career at Capital, Mark had equity investment analyst
responsibilities for companies based in Southeast Asia. He holds an MBA
in finance and international business from Columbia Business School and a
bachelors degree in economics from the London School of Economics. Mark is based in
Los Angeles.
Gregory D. Johnson is an equity portfolio manager at Capital Group.
He has 23 years of investment experience, all with Capital Group. Earlier
in his career, as an equity investment analyst at Capital, he covered U.S.
merchandising, retail, restaurant and footwear companies. He holds an MBA
from Columbia Business School and a bachelors degree in political science
from the University of California, Los Angeles. Greg is based in Los Angeles.
15 OUTLOOK 2018
Robert Lind is an economist at Capital Group. He has 29 years of industry
experience and joined Capital Group in 2016. Prior to joining Capital,
Robert worked as group chief economist at Anglo American. Before that,
he was head of macro research at ABN AMRO. He holds a bachelors
degree in philosophy, politics and economics from Oxford University.
Robert is based in London.
John R. Queen is a fixed income portfolio manager at Capital Group.
He serves on the Capital Group Private Client Services Management
Committee. He has 27 years of investment experience and has been with
Capital Group for 15 years. Earlier in his career at Capital, John was a trader
and dealer service representative. Prior to joining Capital, he was chief
operating officer and chief compliance officer overseeing bond portfolios at Roxbury
Capital Management, an affiliate of Wilmington Trust. Before that, he was managing
director at Hotchkis and Wiley. John holds a bachelors degree in industrial management
from Purdue University and attended the U.S. Military Academy at West Point, where
he majored in mechanical engineering. He also holds the Chartered Financial Analyst
designation. John is based in Los Angeles.
Sunder Ramkumar is a senior manager, client analytics at Capital Group.
He has 13 years of investment industry experience and has been with
Capital Group for two years. Prior to joining Capital, Sunder was a
managing director and portfolio manager on the Multi-Asset Portfolio
Strategies team at BlackRock. Sunders research on asset allocation and
optimal investment strategies has been published in several financial journals including,
The Financial Analysts Journal, The Journal of Portfolio Management and The Journal of
Fixed Income. He holds a masters degree in management science and engineering from
Stanford University and a bachelors degree in mechanical engineering from Mangalore
University, India. He also holds the Chartered Financial Analyst designation. Sunder is
based in Los Angeles.
Jens Sndergaard is a currency analyst at Capital Group. He has 11 years
of investment industry experience and has been with Capital Group for four
years. Earlier in his career at Capital, he worked as an economist covering
the Euro area and the UK. Prior to joining Capital, he was a senior European
economist at Nomura, a senior economist at the Bank of England and an
assistant professor at The Johns Hopkins University. He holds a PhD in economics and a
masters degree in foreign service from Georgetown University. Jens is based in London.
 Lisa Thompson is an equity portfolio manager at Capital Group. She has
28 years of investment experience and has been with Capital Group for
22 years. Earlier in her career, as an equity investment analyst at Capital,
Lisa covered companies in Latin America, emerging Europe, West Asia
and Africa. Before joining Capital, Lisa was a securities analyst at Goldman,
Sachs & Co. She was also a securities analyst and quantitative analyst at the Nomura
Research Institute in New York. She holds a bachelors degree in mathematics from the
University of Pennsylvania and the Chartered Financial Analyst designation. Lisa is based
in New York.

Christopher Thomsen is an equity portfolio manager at Capital Group. He

has 19 years of investment experience, all with Capital Group. Earlier in his
career at Capital, as an equity investment analyst, he covered European and
Asian media companies, Hong Kong-based utilities, property companies,
conglomerates, and small-cap companies along with generalist coverage
of other companies domiciled in Hong Kong and the Philippines. Prior to joining Capital,
Chris worked as a corporate finance analyst for Citibank NA. He holds an MBA from
Columbia Business School and a bachelors degree in international economics from the
School of Foreign Service at Georgetown University. Chris is based in London.

Ritchie Tuazon is a fixed income portfolio manager at Capital Group. He

has 16 years of investment experience and has been with Capital Group
for six years. Earlier in his career at Capital, as a fixed income investment
analyst, he had analytical responsibilities for U.S. Treasuries and TIPS. Prior
to joining Capital, Ritchie was a trader at Goldman Sachs with experience
trading TIPS, Treasuries and interest rate swaps. He holds an MBA from MIT Sloan School
of Management, a masters degree in public administration from Harvards Kennedy
School of Government and a bachelors degree from the University of California,
Berkeley. Ritchie is based in Los Angeles.

Shaw B. Wagener is a portfolio manager at Capital Group and a portfolio

manager of Capital Group Emerging Markets Total OpportunitiesSM Fund
(Canada). He is chairman of Capital Group International, Inc. He has
35 years of investment experience, all with Capital Group. Earlier in his
career, Shaw was an equity trader at Capital and then head of equity
trading. He holds a bachelors degree in international relations from Claremont
McKenna College graduating cum laude. He also holds the Chartered Financial Analyst
designation. Shaw is based in Los Angeles.

Years of experience as of December 31, 2016.

OUTLOOK 2018 16
The Capital Advantage
Since 1931, Capital Group has been singularly focused on delivering superior, consistent results for long-term investors using
high-conviction portfolios, rigorous research and individual accountability.

Aligned With Investor Success The Capital SystemSM Built to Last

We base our decisions on a long-term perspective,
which we believe aligns our goals with the interests
of our clients. Achieving superior, long-term returns is
our only goal, so managers are rewarded for their
results, not the level of assets they manage.
Collectively, Capital Group associates are significant
investors in the companys investment offerings.
Our investment process, The Capital System, is
designed to enable individual investment
professionals to act on their highest convictions,
while limiting the risk associated with isolated
decision-making. Portfolios using The Capital System
are divided into portions that are managed
independently by investment professionals with
diverse backgrounds, ages and investment
approaches. A disciplined, multi-layered governance
structure oversees the systems operation.
As a private firm with an independent charter and
robust balance sheet, we invest in improving our
capabilities through good markets and bad.
We have some of the most experienced investment
professionals, a deep bench and a commitment to
sustaining our investment process over generations.

Lit. No. EN-00236-EL 12/2017 2017 The Capital Group Companies, Inc.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before
investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
References to particular companies or securities are included for informational or illustrative purposes only and should not be considered as an endorsement by Capital Group. Views expressed regarding
a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds, investment advice nor as a recommendation to buy or sell.
The statements expressed herein are informed opinions, speak only to the stated period, and are subject to change at any time based on market or other conditions. Additionally, in The Capital System,
differences of opinion are common, and the opinions expressed by an individual do not necessarily reflect the views of other investment professionals.
Forward-looking statements are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied in any forward-looking statements made herein.
We encourage you to consider these and other factors carefully before making any investment decisions and we urge you to avoid placing undue reliance on forward-looking statements.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is
intended to highlight issues and not to be comprehensive or to provide advice.
Unless otherwise indicated, the investment professionals featured do not manage Capital Groups Canadian mutual funds.
For informational purposes only; not intended to provide tax, legal or financial advice. We assume no liability for any inaccurate, delayed or incomplete information, nor for any actions taken in reliance
thereon. The information contained herein has been supplied without verification and may be subject to change. Capital Group funds are available in Canada through registered dealers. For your individual
situation, please consult your financial and tax advisors.
Capital Group funds and Capital International Asset Management (Canada), Inc. are part of Capital Group, a global investment management firm originating in Los Angeles, California in 1931. The
Capital Group companies manage 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.