Investors with sufficient risk appetite can supplement the income being generated by their UK stocks and shares by gaining exposure to the earnings potential of quality companies from around the globe by using collective investments such as the Newton Global Higher Income Fund.
Fund manager James Harries said: “Investors want to see a physical return from their money and, with bank interest rates at virtually zero, high-quality companies delivering security of income are increasingly attractive today.”
Newton invests on a “thematic” basis, with one of its current themes being “all change”.
This refers to the transition from credit-fuelled growth to a more austere environment.
Mr Harries said: “The credit crunch is more of a process than an event. In the west, governments and consumers are over-indebted.
“This isn’t true in the more dynamic economies around the world.”
Although negative on banks in general, Mr Harries does like DBS, a Singapore bank, and also held Standard Chartered. The latter was sold in the fourth quarter of 2009 and is a good example of the strong “sell” discipline adhered to by the manager.
For a stock to be considered for inclusion, it must yield 25% more than the underlying benchmark index and, if the yield falls below that of the index, the stock is sold.
The fund sits within the IMA Global Growth sector, although it has a different objective from most of its peer group.
The thematic approach and yield objective mean the geographic asset allocation will often be significantly different to the FTSE World index to which it is benchmarked.
Mr Harries said: “Historically, yield has not been as prevalent in the US and Japan, so we have been underweight both.
“More recently, our US weighting has increased and we’ve reduced exposure to emerging markets partly because of concerns about China and the mis-allocation of capital to property.”
The fund has lagged the sector slightly over the past year because of the relatively defensive position taken by its manager. However, it has returned 15.5% over the three years to April 14, 2010, compared with 4.8% from the average fund in the sector.
For more information about the Newton Global Higher Income Fund, call 0800 614 330 or visit www.newton.co.uk
Barry O’Neill is a chartered financial planner with Thomson Shepherd and can be contacted on 01224 619215