Nick Clay, manager of the Newton Global Income fund, talks to Mike Sheen about 'fishing in unattractive parts of the market', shunning 'gung-ho' tech and reflecting on ten years of quantitative easing.
Nick Clay joined Newton Investment Management from Morley Fund Management in 2000, initially leading the firm's global multi-asset strategies until joining the global equity income team in 2012.
He is now lead manager of the £8.6bn strategy, which is a consistent top-quartile performer in the Investment Association (IA) Global Equity Income sector.
The onshore Newton Global Income fund - representing £5.2bn of the strategy's assets under management (AUM), making it by far the largest in the sector - has returned 12.8%, 45.5% and 80.2% over one, three and five years, respectively, to 31 May, according to FE.
Over the same periods, the IA Global Equity Income peer group average was 4.8%, 36.2% and 46.5%.
Newton's flagship fund, which is set to be renamed the BNY Mellon Global Income fund from 10 June amid a firm-wide rebrand recently revealed by Investment Week, also saw a new hire recently.
In September, Andrew MacKirdy was the latest firepower added to join Clay and fellow portfolio managers Robert Canepa-Anson, Colin Rutter and Raj Shant who are also supported by a 29-strong global research team.
The fund stands out in the sector, both in terms of sheer size as well as performance. How does the process differ to those of its peers?
What we do is less about individuals and more about processes, which is slightly unusual for retail funds, I would argue.
The process of this strategy is to not do what it says on the tin, which is to focus on income to deliver income. By focusing on income, we offer a good level of total return to clients.
Dividend yield has made up - or sometimes offers more than - the total return in most markets. Even in Japan, where companies barely pay a dividend, it still makes up more than 50% of the total return.
We try to harness or capture the long-term driver of real returns in markets by compounding the dividend.
When most people invest in equities, they tend to invest for growth. It is 'FOMO' - the fear of missing out - on the next Facebook, cure for cancer or electric vehicle, whatever it might be. That means you go fishing in a statistically unattractive part of the market.
Companies with the lowest payout ratio by dividend - how much of their earnings they pay back to their shareholders - are the ones that have the lowest next ten years of earnings growth, whereas the ones investing the least have the best forecasted earnings growth, which is utterly counterintuitive.
So, to stop us fishing in such an unattractive part of the market, we have two simple disciplines. We can only buy stocks which yield 25% above the market - when we first buy them, and then we must sell every company that yields less than the MSCI World Index.