- Nick Clay and Ian Clark, the fund’s managers, retain a preference for less fashionable companies they believe can endure through thick and thin
- Performance has been positive, but lacklustre relative to the benchmark, mainly because of the more conservative approach
- The fund yields 3.1%, although this is variable and not an indication of future income
We continue to believe the managers have the ability to navigate potentially choppy waters ahead. They have invested in a selection of businesses across the world they believe have the potential to endure through thick and thin. This is because they sell products people rely on, or buy again and again, regardless of what is happening in the wider economy.
These businesses have largely been out of favour as investors have focused on disruptive companies perceived to have more exciting growth potential, such as Amazon, Facebook or Alphabet (Google). As a result the fund’s performance has been subdued.
All fund managers go through periods when their approach is out of favour and the managers have been altogether too cautious in recent years. However, we continue to believe their emphasis on financially robust companies with high dividends, that can hopefully be sustained and grown, will pay off over the long term. The fund remains on the Wealth 150+.
Performance and positioning
The chart below shows the performance of Newton Global Income relative to its benchmark, the FTSE World Index. When the line is rising the fund is performing better than the index, and when it falls the fund is performing worse. It should be remembered past performance is not a guide to future returns.
The fund has lagged its benchmark over the past five years as the managers’ more conservative approach has not paid off in an environment of strong stock market growth. Performance was better in 2015 and early 2016 when stock markets struggled in the face of slower growth in China, but the fund underperformed again when these concerns dissipated and growth resumed.
Newton Global Income relative to FTSE World Index
Past performance is not a guide to the future. Source: Lipper IM to 31/01/2018
|Annual percentage growth|
| Jan 2013 -
| Jan 2014 -
| Jan 2015 -
| Jan 2016 -
| Jan 2017 -
|Newton Global Income||2.8%||17.1%||4.8%||28.4%||6.4%|
Towards the end of 2017 the fund benefited from investments in technology companies, including Cisco and Microsoft, as the sector remained in vogue. However, this was not enough to offset the negative effect of investments in more defensive sectors, such as healthcare and utilities. Centrica’s share price fell following a weak trading update, for example.
Elsewhere, the fund’s investment in Hennes & Mauritz (H&M) fell after the company reported disappointing sales numbers. In contrast, luxury goods retailer Ralph Lauren reported strong earnings and its shares performed well, as did the American beauty-products retailer Coty following the release of good results.
Overall, the managers retain less exposure to many of the more popular areas of the global stock market, including the US, disruptive technology companies, and highly-valued areas that don’t offer attractive dividends. While they remain cautious, with a bias to less popular and defensive areas, such as the UK, healthcare, and utilities we expect the fund to lag a strongly rising market, but offer some relative shelter when they fall. It is a relatively concentrated portfolio so each stock can contribute significantly to performance, but it is higher risk. The managers also have the flexibility to invest in higher-risk smaller companies.
Why go global for income?
UK companies have always been good at balancing the need to invest for growth and paying attractive dividends to investors. This is why UK equity income funds are so popular. But UK companies only account for around 10% of dividends paid globally, so there is a world of opportunity beyond our shores.
Furthermore, in the UK over a third of all dividends are paid by just five companies: Royal Dutch Shell, Vodafone, HSBC, BP and British American Tobacco. The top 15 dividend-paying companies account for a whopping 64% of all dividends paid.
On a global basis there is less concentration. The top 20 global dividend payers account for just over a quarter of dividends paid.
With this in mind we believe it makes sense to also have investments in dividend-paying companies across Europe, the US and higher-risk Asian and emerging markets. This extends the number of opportunities in traditionally high-yielding sectors such as healthcare, oil & gas, utilities and telecoms. It broadens the range of financial companies available; gives you access to sectors less well represented in the UK, such as technology; and there are more businesses with wonderful track records of growing their profits and dividends year in year out from which to choose.
Please note charges can be taken from capital which can increase the yield but reduces the potential for capital growth.