Newton Global Higher Income Income

We have decided to add the Newton Global Higher Income Fund to the Wealth 150, our list of favourite funds in each sector.

The fund, managed by James Harries and Alex Stanic, makes full use of Newton’s in-house process. This involves analysts looking for thematic ideas wherever they can be found around the world. On top of this is a buy discipline, whereby the new company must have a prospective yield 50% greater than the FTSE World Index before it can be purchased for the portfolio.

The fund aims to increase the dividend significantly over time, and what is interesting is that Mr Harries and his team believe that dividends are growing more strongly internationally and are likely to outstrip the UK market.

At present the themes revolve around such things as energy supply, developing economies, reconstruction, demographics and medical technology to name but a few. This I suspect is one of the reasons why the fund has done so much better than many others, because while it has sought income it has also sought growth. It has therefore been underweight in the financial sector that is being so badly hit by the credit crunch and demonstrated that markets really can fall as well as rise.

A global remit has also enabled the fund to get exposure to the mining sector and, crucially, get a good yield at the same time. Those funds limited to investing in the UK have not had this option. One other important point at the moment is that in currency terms the fund is largely unhedged. This increases the risk should sterling appreciate, however given the present state of the UK economy I believe exposure to overseas currencies will be a big advantage. I am convinced that (at least in the short term) sterling will weaken further and, despite the cries of some economists and politicians, I think the next move in interest rates will be downwards. That is likely to put more pressure on sterling.

So in conclusion, for those seeking to diversify out of the UK the Newton Global Higher Income Fund looks to be an excellent long term choice. Even if you are not seeking income remember that the dividends can be rolled up to increase the total return, but it is easy enough to start receiving the dividends at a later date.

Even in a relatively flat or declining market there will be themes that are coming through strongly. It is therefore important to seek out fund managers who can exploit them to the full and hopefully make money for you. I think Newton is one of them.