The Newton Higher Income fund has picked up its short-term performance while still producing 169% of...
The Newton Higher Income fund has picked up its short-term performance while still producing 169% of the All-Share yield.
The frAAA rated UK equity income fund run by Toby Thompson is now 16 out of 92 funds on a bid to bid basis over three months to 26 April. Over one year it is 25 out of 89 on an offer to bid basis.
Thompson said the fund is managed with the strict discipline of only holding shares that yield more than the FTSE All-Share, meaning he has been unable to hold high growth companies like telecoms and technology.
Against the FTSE All-Share, the fund is 18% underweight telecoms, 9.5% underweight pharmaceuticals and 5% underweight information technology.
Thompson said: "That has been detrimental to performance over the fourth quarter of last year and in the first part of this year when there was a strong rally in these stocks."
He said the fact that the market has ignored all stocks other than technology, media and telecoms amid the rally, has enabled him to capitalise on attractive valuations in other areas. He added: "More and more good companies were ignored amid the tech-mania and this provided opportunities to buy good companies that I really like, with decent yields, at cheap valuations."
One example has been the hotels and betting chain, Hilton Group, where the share price was lingering around £1.65 to £2 earlier this year. It was considered that its betting shops would face tough competition from internet-based betting companies, which led to poor share price performance.
Thompson built up exposure to this company so that it represents the largest overweight position in the fund, at 4% of the total portfolio. Hilton Group announced its strategy of incorporating online betting and the share price rose to £3. Thompson has since taken profits on the stock.
In other companies, low share prices stimulated a flurry of corporate activity, leading to both successful and unsuccessful takeover bids, which also to the Higher Income Fund's performance.
These bids included Blue Circle, which escaped being taken over by LaFarge, and Thomson Travel, which was bid for by the German Travel Group C&N.
Thompson runs a stock driven portfolio, based on identifying opportunities to pick up oversold companies which are undervalued but will benefit the fund in terms of both share price and dividend performance.
The most overweight sectors in the fund are building materials, through Hanson, leisure and hotels, through Hilton Group, Millennium Corporation and Thomson Travel, and transport, which is a play on P&O restructuring.
A sub-fund of Newton's Oeic, the fund is available as an Isa. Minimum investment is £1,000 lump sum or £50 monthly. Initial charges are 4.25% front end and 1.25% annual. IFA commission is 3%, with 0.5% renewal.
Top holdings in the fund include Shell Transport & Trading, HSBC Holdings, Hilton Group, Lloyds TSB, National Grid Group, CGU, FKI, Next, Legal & General and Hanson.
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