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.
