- Nick Clay invests in companies around the world paying higher than average dividends
- He’s finding fewer companies with shares he thinks are sensibly priced
- Investments in technology companies have helped the fund beat its benchmark over the past 12 months
Many income investors have traditionally focused on UK companies. But while the UK is a great place to invest for income, it only makes up around 5% of the global stock market. There are bags of income opportunities waiting to be found overseas. And Nick Clay is seeking them out.
As manager of Newton Global Income, Clay invests in companies paying higher dividends than the global average. He thinks by paying dividends, companies are more likely to be financially stronger and higher quality than non-dividend payers. Over the long-term more than half the fund’s total return has come from dividends.
Clay likes to invest in companies when their shares are falling so he can buy them at a more attractive price. That takes courage and commitment though. Falling share prices often signal something’s gone wrong. That’s why he thoroughly researches companies before investing so he can be confident the setback is temporary.
The manager invests mostly in developed markets such as the US, the UK and Switzerland, but a small amount of the fund's invested in higher-risk emerging markets such as India. He also has the flexibility to use derivatives which, if used, adds risk.
We think Clay’s a disciplined and sensible manager who’s not afraid to go against the herd. We like the fund because it offers something different. We think it could provide diversification for a portfolio, and some stability when markets are volatile, although nothing’s guaranteed. That’s why it features on the Wealth 50 list of our favourite funds.
How’s the fund performed?
The fund’s grown 59%* since Clay took control in December 2015. That’s slightly behind the benchmark’s 63.5% gain. A big part of the reason the benchmark has done better is the strong performance of many large US companies, particularly the so-called FAANGS that include Facebook, Amazon and Alphabet (Google). Many of them pay low to no dividends, so Clay didn’t invest in them and missed out on their growth.
The fund currently yields 3.2%. That doesn’t indicate future yields as income is variable. The fund’s charges are taken from capital, which can increase the yield but reduce the potential for capital growth.
|Annual percentage growth|
| Mar 14 -
| Mar 15 -
| Mar 16 -
| Mar 17 -
| Mar 18 -
|Newton Global Income||15.9%||12.7%||25.9%||-2.1%||15.1%|
|FTSE All World||19.2%||-0.5%||33.1%||2.9%||10.7%|
Past performance is not a guide to the future. Source: Lipper IM *to 31/03/2019
The fund's had a good 12 months, gaining 15.1% compared with 10.7% for the broader global stock market. A large part of the fund’s positive performance was down to technology companies. American multinational CA Technologies did well after it was bought by competitor Broadcom at the end of 2018. American giant Cisco Systems, currently the fund’s largest investment, also performed strongly.
Ralph Lauren’s share price has doubled since Clay invested in June 2017. He took profits and sold the company as he doesn’t think it’s got much more room to grow. He also made a new investment in PepsiCo after their shares fell around 30% at the beginning of 2018. Clay thinks investors focused too much on the fizzy drinks part of the business, which is being criticised for the high sugar content. That makes up less than 10% of the business though, with the bulk of it making snack foods. So far the shares have performed well. Remember past performance isn’t a guide to future performance.
What’s been happening in the fund?
Clay only invests in companies he thinks are sensibly priced. He thinks many share prices are unsustainably high, so he's invested in relatively few companies.
The manager’s currently finding the best opportunities in companies whose fortunes are tied to the ebb and flow of the economy. He’s recently made new investments in motorbike manufacturer Harley Davidson and luxury goods company Richemont.
Clay is strict about only staying invested in companies whose dividend yield is as high as the global average. If a company’s yield dips below the global average, he’ll sell it. Microsoft was recently sold from the portfolio for this reason.
While Clay aims for long-term growth and income, he thinks it’s just as important to try and limit losses during the bad times. He thinks we’re in for more volatility in 2019, which will remind investors to consider risk as well as return.