That said, it’s important to keep those results in context. First, Frikkee uses the same disciplined, yield-oriented process that has guided this fund since long before her arrival, so the drop-off in performance is not attributable to changes in strategy. Second, that strategy has delivered superior long-term results– t
he fund boasts top quartile returns over the five- and ten-year periods with annualized returns of 13.8% and 11.5% respectively. Moreover, the conservative nature of the strategy has helped the fund exhibit resilience in down markets. During 2001 the fund returned 0.5% while its average category peer lost 6.5%; in 2002 the fund lost 13.2% versus the category average loss of 18.2%.
Part of the problem is down to execution—Frikkee has made some stock-picking mis-steps. She bought Trinity Mirror for the portfolio in mid-2005 and the stock has since lost around 20 %. However, we believe the larger issue is one of timing. When Clive Beagles ran the fund from mid-2001 to March 2004, for example, mid-caps were much less richly valued, and more attractive within the context of the fund’s yield-oriented style. Now, with mid-cap valuations up, and yields down, Frikkee has generally been more focused on larger-cap issues than was Beagles. That’s hurt the fund in what has continued to be a mid-cap-led market. That diagnosis is borne out in part by the fund’s performance relative to those offerings run by her predecessors. Since 1 December 2004, Newton Higher Income has beaten both New Star Higher Income (run by Toby Thompson, who managed the Newton fund from 1994 to 2001), and JOHCM UK Equity Income (run by Beagles). It should also be noted that Frikkee has run the fund with less volatility than either of her predecessors’ new charges.
We believe Frikkee is better than the fund’s current three-year numbers would suggest at first glance, and we also like the fund’s clear, consistent strategy. Moreover, the fund’s style should help insulate it from market downturns. Finally, Frikkee deserves credit for maintaining one of the highest 12-month distributed yields in the category: Unlike some of her rivals, she has not cut her yield discipline to chase growth. This fund should not be expected to run with the bulls when pricey fare leads the way, but for investors seeking core UK equity exposure with a bit less risk than the norm, we believe it’s a sound choice.
