Sustainable Global Equity Income Investment Strategy

Strategy Highlights

: Pursuing an asymmetric return profile (low downside market capture), with active stock selection guided by themes, fundamentals and valuation
Disciplined approach seeks to ensure that every stock and the overall portfolio compounds at a higher yield than that of the market, and that dividends are underpinned by sustainable cash-flow streams
ESG analysis positively identifies companies which effectively incorporate sustainability into their core business and strategy, while actively omitting companies involved in areas of high social cost, environmental degradation or violators of the UN Global Compact Principles
: This strategy is offered by Newton Investment Management Ltd (‘NIM’). NIM is part of the Newton Investment Management Group.

Our Philosophy and Process

: Harnessing Newton’s global analysis resources, the strategy adheres to our investment framework focused on fundamentals, themes, valuations and ESG considerations.

We focus on innovative companies and dynamic management teams that provide solutions and benefit from growth opportunities. Active corporate engagement and proxy voting provide powerful feedback loops that make us more informed shareholders who promote positive corporate development.

Our investment philosophy acknowledges that investing is inherently probabilistic in nature. We believe a focus on dividend sustainability 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.

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, dividend 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.

Sustainable ‘red lines’, with responsible investment team validation, seek to ensure there is no investment in security issuers that:
: Breach the UN Global Compact
Are incompatible with a 2˚C world
Are deemed to have material ESG risks which are likely to negatively affect future performance and are associated with significant social or environmental harm
: The strategy seeks to avoid investing in companies that participate in specific areas of activity that we deem to be harmful from an environmental and/or social perspective.

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 themes to help identify opportunities.

Investment Team

Our Sustainable Global Equity Income strategy is managed by an experienced team. In-house research analysts are at the core of our investment process, and our multidimensional research platform spans fundamental, thematic, ESG, quantitative, geopolitical, investigative and private-market research to promote better-informed investment decisions.

25: years’ average investment experience
21: years’ average time at Newton

Jon Bell

Portfolio manager, global equity income
Paul Flood

Head of mixed assets investment
Robert Hay

Portfolio manager, global equity income
Julianne McHugh

Head of sustainable equities
Nick Pope

Portfolio manager, sustainable equity strategies
John C Bailer

Deputy head of equity income, portfolio manager
Brian Ferguson

Portfolio manager, equity income team
Peter D Goslin

Portfolio manager, equity income team
Keith Howell Jr.

Portfolio manager, equity income team
James A Lydotes

Head of equity income and deputy chief investment officer, equity

Strategy Profile

Objective: The strategy seeks to outperform the MSCI World NDR Index by more than 2% per annum over rolling 5-year periods, by achieving income and capital growth from a global portfolio comprised of companies that typically yield at least 25% greater than the FTSE W World Index yield, and which demonstrate attractive investment attributes and sustainable business practices.
Performance benchmark: MSCI World NDR Index (total return), FTSE W World Index (yield criteria)

Typical number of equity holdings: 70 or fewer

Strategy inception: July 18, 2019

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.

The outperformance target stated is net of fees, for indicative purposes only, and may be changed without notice. Targeted return is generally aspirational in nature, not necessarily based on criteria and assumptions, and is not a guarantee of future returns.

Newton will make investment decisions that are not based solely on ESG considerations. Other attributes of an investment may outweigh ESG considerations when making investment decisions. The way that ESG and sustainability considerations are assessed and the assessment of their suitability for Newton’s sustainable strategies may vary depending on the asset class and strategy involved. For Newton’s sustainable strategies, ESG reviews are performed prior to investment for corporate investments (single name equity and fixed income securities). The analysis will then also follow the Newton sustainable investment process to ensure it fits with the wider Newton sustainable investment philosophy.

Key Investment Risks

: Objective/Performance Risk: There is no guarantee that the strategy will achieve its objectives.
Currency Risk: This strategy invests in international markets which means it is exposed to changes in currency rates which could affect the value of the strategy.
Derivatives Risk: Derivatives are highly sensitive to changes in the value of the asset from which their value is derived. A small movement in the value of the underlying asset can cause a large movement in the value of the derivative. This can increase the sizes of losses and gains, causing the value of your investment to fluctuate. When using derivatives, the strategy can lose significantly more than the amount it has invested in derivatives.
Emerging Markets Risk: Emerging Markets have additional risks due to less-developed market practices.
Concentration Risk: A fall in the value of a single investment may have a significant impact on the value of the strategy because it typically invests in a limited number of investments.
Sustainable Strategies Risk: The strategy follows a sustainable investment approach, which may cause it to perform differently than funds that have a similar objective but which do not integrate sustainable investment criteria when selecting securities. The strategy will not engage in stock lending activities and, therefore, may forego any additional returns that may be produced through such activities.
Investment in Infrastructure Companies Risk: The value of investments in Infrastructure Companies may be negatively impacted by changes in the regulatory, economic or political environment in which they operate.
Counterparty Risk: The insolvency of any institutions providing services such as custody of assets or acting as a counterparty to derivatives or other contractual arrangements, may expose the strategy to financial loss.
High Yield Companies Risk: Companies with high-dividend rates are at a greater risk of not being able to meet these payments and are more sensitive to interest rate risk.