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Fund Research & Insights

Newton Global Higher Income

We think this fund is a solid offering for investors looking for global equity exposure.

Chetan Modi 7 August, 2008 | 9:29AM
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This offering’s primary strengths lie in the calibre of staff that supports the fund. The managers in the global equity team at Newton each have an average of 11 years investment experience, and an average of eight years plying their trade at Newton. Furthermore, we think highly of the 20-strong career analyst bench at Newton. The analysts, whose research combines macro themes and bottom-up fundamental analysis, have often worked in their respective industries prior to analysing stocks, and we believe their industry experience can add value to the research output. Their work culminates in a recommended list of global stocks, which also measures the analysts’ level of conviction.

Manager James Harries is no slouch either. We would usually be more skeptical given this is Harries’ first

charge at a retail fund. However, Harries has a total of 13 years investment experience, most of which has been at Newton and in the global equity space. During his time at Newton, Harries has shown he has the ability to make the most of the firm’s analyst research. He established a strong track record during his first—albeit short—managerial stint at Newton while at the helm of Newton Falcon, a global stock fund managed for Newton’s private clients.

We think the straight-forward process used by Harries should work well over time. By looking for stocks with an attractive return on equity and healthy free cash flow yields, Harries gravitates to companies that generate consistent profits, which can help underpin future dividend payments. This strategy should help Harries avoid speculative stocks with questionable earnings. Harries only considers a stock if its prospective yield is 50% higher than that of the FTSE World Index. Once a stock fails to yield 25% more than the index, it is earmarked for sale.

In addition to Harries' fundamental analysis, Newton’s thematic approach also plays an important role here. The firm’s views materialise in the portfolio through significant sector and country biases. Although top-down calls can be difficult to get right consistently, the team’s macro analysis has positively influenced performance here and at other firm offerings. Most recently, Newton’s thematic work identified the risks in the financial system early in 2007 and managers began cutting their exposure to the sector across all firm portfolios. That turned out to be a prescient call that helped this fund weather the recent downturn better than much of the competition. However, this should not be thought of as a low-risk offering. The fund has had large weights in emerging Asia and Latin America, and these make it considerably more volatile than the category norm.

In light of the above, cautious investors or those who already have significant emerging-markets exposure may find this fund poorly suited to their needs. For those who can tolerate the extra risk, we believe Harries' experience and Newton's strong analyst staff make it a solid offering.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BNY Mellon Global Income GBP Inc2.69 GBP-0.44Rating

About Author

Chetan Modi  is a fund analyst at Morningstar OBSR.

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