Newton cuts dividend target on £2.5bn Higher Income fund

Newton is to lower the dividend target on Tineke Frikkee’s Newton Higher Income fund in light of a "challenging market environment", as the group also moves to merge a number of its UK equity funds.

The yield requirement on Higher Income will be cut by between 20-25%.

Newton said it was taking action as the current environment is characterised by "low returns and low yields across asset classes, which means the current dividend payout is unsustainable."

Newton said the fund would aim to remain in the top 10% of income payers in its peer group.

"The US Federal Reserve's indication last month that they plan to hold interest rates at near zero through to mid-2013, has reaffirmed our belief that unprecedented low interest rates will remain," said Newton CIO Jeff Munroe.

"This reflects the deleveraging and low growth environment that the developed world is experiencing. Companies will therefore find it more difficult to provide dividend payments in line with those they were able to deliver during periods of strong global economic growth.

"In this environment supporting the current dividend level would increasingly affect the Newton Higher Income fund's overall return to investors. The change will give us increased flexibility to invest across the spectrum of UK equities.

Separately, Newton is merging its £77m UK Equity and £104m Growth funds into the Newton Income fund. The income fund will see its assets rise to £1.3bn as a result of the move, and will be renamed the Newton UK Equity fund, managed by Richard Wilmot with Ben Russon as alternate manager.