Newton Global Higher Income Income

One way to understand the problems facing the Western world is to imagine savings as consumption postponed, and debt as consumption brought forward. In other words, saving money to buy a car could delay its purchase by months or years, whereas borrowing the money means it can be bought now. Over the past few decades the West brought too much consumption forward using huge amounts of debt. The party is now over and the only way to manage the problem is by 'deleveraging' - slowly paying the debt back.

In this environment stepping back and taking the wider economic picture into consideration can be a benefit. This is exactly where James Harries, manager of the Newton Global Higher Income Fund, starts. He uses Newton's trademark thematic process to identify themes set to drive long-term growth, and then looks for companies set to benefit. Presently he is avoiding businesses which benefited from excessive debt and those servicing a level of consumption which is unlikely to be sustained.

James Harries is therefore avoiding many consumer-related companies in the developed world; companies exporting to the developed world; and banks. Despite the efforts of Western governments many banks remain too big; posing a risk to the global economy if they get into further difficulties. His limited exposure to banks is focused on the likes of Norway's DnB Nor, because he believes Norway's banking sector and wider economy are both healthy.

Elsewhere, James Harries favours large, well-financed companies, which have strong balance sheets and geographically diversified sales. He looks for those which have fallen out of favour with investors despite these qualities, but which he feels could be reappraised. He is focusing on pharmaceutical and tobacco companies, such as GlaxoSmithKline and Philip Morris, which supply goods for which demand should remain robust even in tough economic times.

The 'Networked World' is another theme. Smart phones, computer networks and data services are being used more frequently across the world, including in higher-risk emerging markets. James Harries believes one company set to benefit is Advanced Info Service, Thailand's largest mobile phone operator. James Harries also has the ability to invest in higher risk smaller companies.

This fund currently yields 5.1% (net, variable and not guaranteed) and there is no further income tax to pay if it is held in an ISA or SIPP. However, the fund can take charges from capital which reduces the potential for capital growth. Please remember any investment can fall in value as well as rise. This portfolio can also be concentrated at times meaning each holding has the potential to contribute significantly to performance, although this approach can increase risk.

We hold James Harries in high regard and are impressed with how his fund has fared during a particularly volatile year for financial markets. We are positive on the long-term prospects for this fund and accordingly it remains on the Wealth 150 list of our favourite funds in each sector.