Our philosophy and process
Our investment philosophy acknowledges that investing is inherently probabilistic in nature. We believe a focus on sustainable dividends leans the statistics to our advantage, reflecting the powerful evidence that dividends, and the reinvestment of dividends, represent the dominant sources of long-term real returns in markets across the world. Compelling evidence also suggests those companies with the discipline of paying a dividend tend to allocate capital more efficiently and maintain better earnings growth.
The disciplines of our investment process aim to capture and enhance the statistical tailwind of dividends in three ways. First, our strict yield discipline seeks to ensure that every stock and the portfolio as a whole always compound at a higher yield than that of the market. This provides an objective discipline which prevents stock ‘love affairs’ and other behavioral impediments. Second, we look to enhance this tailwind by ensuring underlying cash flows are sustainable and have the ability to suffer without threatening the dividend. Third, we aim to enhance this further still by capturing a valuation margin of safety.
Individually, these three features of yield, sustainability and valuation are statistically attractive and easy to find. However, in combination they are rare and typically require some element of controversy. Our process therefore focuses on identifying key ‘buckets’ of controversy where we believe the market repeatedly offers up such opportunities.
- Environmental, social and governance (ESG) considerations are integrated throughout the research process and via proprietary quality reviews, to ensure that any material issues are captured.
- A constantly evolving and forward-looking approach seeks to anticipate change, manage risk, and identify opportunities. Every time we consider a security or look at an industry or country, it’s in the context of what’s happening across the world. We believe the investment landscape is shaped over the long term by some key trends, and we use a range of global investment themes to capture these.
Authorities have engaged in ever-greater policy intervention and regulation to shore up economic growth. We believe ‘state intervention’ has increased misallocation of capital, caused volatility in markets and inflated asset prices – and we think that calls for a stock-specific approach.
Machines and networks are becoming more intelligent. This is disrupting the labour market, as machines increasingly replace humans in the workplace. ‘Smart revolution’ considers the implications commercially, socially and politically.
The world has made the transition from connecting places to connecting people to connecting devices. The rapid rise in the ‘internet of things’ is transforming lifestyles and business. This creates winners and losers – our ‘net effects’ theme seeks to identify them.
Cheap money has caused rapid growth in a sector already supported by deregulation. ‘Financialization’ investigates the implications of finance dominating economic activity, instead of serving it.
This could tempt investors out of their comfort zone towards riskier, alternative asset classes.
But we think there are other ways to meet your income targets AND grow your capital – and one particular solution could be our Global Equity Income strategy.
We believe the role of compounding income in creating wealth is often underestimated.
Reinvesting dividends over time can turn equity income into an effective growth strategy over the long term.
But investors may feel compelled to seek the next ‘growth’ company – fearful of missing out on the next big thing.
However, the ability to pick one particular fish out of the sea is difficult. We believe it’s not about what you pick out – it’s what you take away that matters.
That’s what the discipline of income investing is about – it seeks to narrow the universe by removing the statistically unattractive stocks, leaving the attractive ones.
Our Global Equity Income strategy is guided by these key disciplines:
1. Our investment themes, which help us identify long-term structural changes in a market that can be too focused on the short
2. Buy and sell discipline – all new holdings must have a prospective yield 25% greater than the yield on the World Index, and we will sell any holding whose prospective yield falls below that of the index.
3. Each stock must pay a dividend we regard as sustainable Therefore, we focus on strong fundamentals such as solid cash flows and a robust return on capital invested.
4. And we wait for our preferred fish to swim to the top and reach an attractive valuation, to try to buy a stock at the best entry price we can.
Our Global Equity Income strategy seeks out both income and growth in order to try to help our clients meet their long-term goals.
Our Global Equity Income strategy is managed by our equity income team. Our global sector analysts and investment managers are located on a single floor in London, which helps to ensure that the investment process is flexible and opportunistic. Guided by our global investment themes, the team works together to identify opportunities and risks through research and debate.
- years' average investment experience
- years' average time at Newton
Head of Equity Opportunities
Portfolio manager, global equities
Portfolio manager, multi-asset team
Portfolio manager, equity income team
Portfolio manager, emerging and Asian equity income
Portfolio manager, UK equity income
Global analyst, financials
- The strategy seeks to outperform the MSCI World NDR Index by more than 2% per annum over rolling 5-year periods on a total-return basis, by achieving income and capital growth from a global portfolio comprised of companies that typically yield at least 25% greater than the FTSE World Index yield.
- MSCI World NDR Index (total return), FTSE W World Index (yield criteria)
Typical number of equity holdings
- 40 to 70
Every new holding in a global equity income portfolio typically has a prospective yield 25% greater than the index at the point of purchase. Any holding whose prospective yield falls below the comparative index yield will trigger our sale discipline process.*
*In order to prevent the portfolio from being unable to buy or being a forced seller of securities that have suspended their dividend purely owing to the Covid-19 situation, a new additional buy and sell discipline basket has been created specifically for such securities, which temporarily overrides the strategy’s security-level yield-based disciplines. Securities falling into this basket may be purchased or continue to be held providing there is a reasonable expectation that any dividends will be reinstated at a level consistent with the strategy’s yield criteria. The rationale for each affected security will be reviewed at least every six months.
- $9.6bn (as at March 31, 2020)
- January 1, 2006
Your capital may be at risk. The value of investments and the income from them can fall as well as rise and investors may not get back the original amount invested.