Newton Higher Income

Charity_Dalek

I have some Newton Higher Income in my portfolio (provided by Edward Jones!).

Its performance over the last 5 years has only been 15% and over the last year only 8% (and that’s only thanks to a surge in the last month). But is quoted for a 7% dividend (not that I need the income). Also a £2.6 billion fund size, so a lot of people must think that the fund is OK.

I was wondering if this fund is right for me, given that I don’t need the income and that I would favour funds that had higher returns (for example) such as Aberdeen Emerging Markets which returned 30% in the last 12 months

I am also thinking that this fund is primarily for those that want a good income and a low risk fund.

Would I be correct in my assessment or am I missing something?

Regards

Robert

Flobajob

I would say that emerging markets funds (such as Aberdeen Emerging Markets) are more volatile than UK equity-based funds (such as Newton Higher Income). As such, I wouldn't call the Aberdeen fund low risk (though it has performed very well over the last few years).

Having said that, the Newton Higher Income fund has not performed particularly well compared to other UK equity funds, so it may be worth changing to something either safer (less volatile) or with a similar risk but better track record. Have a look at trustnet.com - there's lots of info there, and you should be able to find a fund which suits your risk/reward tastes.

LongTermLurker

Income can be reinvested, and should be if you don't need it. Therefore, what you are looking at is a fund which has grown and provided addition growth in the form of income. UK Equity Income funds such as this invest in large blue chip companies that are generally stable and have enough capital to outride storms - not always guaranteed and not always exciting, but stable growth and income generators. At some point in the future, you may indeed want the income - then the units will have grown in price and be more expensive to buy. Is it better, then to have bought the units cheaply x years ago?

Emerging Market funds are doing well at the moment and I believe they will continue to, but that can't be guaranteed. They are far from stable and highly volatile - next month they could be down 30%. Being more popular, you are at greater risk of finding yourself in a bubble when the hordes pile in. They are very high risk funds and you may make or lose a fortune.

You talk as though the Newton fund is pretty much all you have - if you want diversity, you'd be well advised to hold both equity income and emerging markets, not swap one for the other. Diversity will give you stability when the storms rage in China. The Aberdeen fund will quite likely give better growth, but I wouldn't put all my money there.

Charity_Dalek

The Newton fund only represents 8% of my total and I am well spread now across a number of sectors and any income is re-invested.

I have just done a review and 4 of my funds were performing at approx 30% (UK Smaller Comp, European Smaller Comp, Emerging markets, Global Smaller markets), then you have Newton at a mere 8%.

I did look for at TrustNet for UK All Companies and yes there are a number of different funds that outperform Newton Higher Income, such as Newton Growth which is ranked 10 out of 318 funds and has returned 22.6% in the last year.

So I need to have exposure to the UK, so do I ditch the Higher Income in return for something that performs better? From an investment point of view what is the right thing to do?

LongTermLurker

You do seem to have a better spread of investments than first appeared, though remember all those small companies and emerging markets are high risk - not a bad thing so long as you have plenty of time left and your attitude to risk & volatility is strong.

If you look at http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/n/newton-higher-income-income/charts, select "total return" and add the Sector UK Equity Income, you'll see your fund is pretty average - it matches the sector quite well.

I have Newton Global Higher Income, which has done better in 1, 3 and 4 years.

If you graph in Invesco Perpetual High Income (acc), you'll see it did better in 1, 4 and 5 years. Artemis Income has done well in 1 and 2 years. Psigma Income has done quite well in the last year or so, but struggled before then.

As you can see, each fund invests differently, and it's not a bad idea to have several slices within each secotr.

Charity_Dalek

LongTermLurker wrote: »

If you look at http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/n/newton-higher-income-income/charts, select "total return" and add the Sector UK Equity Income, you'll see your fund is pretty average - it matches the sector quite well.
.

I followed the link and if you view the funds over a 18 month period you see that the Newton fund is down approx 18% on the benchmark. I also added your Newton Global and that was also down by about 8%.

So what would be the point when you say 'enought is enought' and move on to something better?

LongTermLurker

5 or 10 years? 18 months is too short a timeframe to judge investments. I was trying to point out in my post above that different funds perform differently each year and in different situations - each manager has different opinions and they won't all get it right all of the time. Remember the "past performance is not necessarily a guide to the future" addage (as opposed to a Jupiter prospectus I once read that missed out the word not and gave a very different impression ).

I can't say when I'd look to sell a specific fund for a better performing one because I'm in it for the long term and can't be bothered chopping and changing that much - I have funds that have performed very well in the past but not at the moment - the last couple of years have changed the whole scene. As I said above, you'd be well advised to hold more than one fund in each sector imo.

LongTermLurker

Charity_Dalek wrote: »

I followed the link and if you view the funds over a 18 month period you see that the Newton fund is down approx 18% on the benchmark. I also added your Newton Global and that was also down by about 8%.

If you look over 18 months with income reinvested your fund is still up 35% - what do you want?? As I said, 3 and 5 years is about "average".

You're above the sector average in the last month - you could see that as prospective improvement, or maybe not

Charity_Dalek

The discussion has been useful to put matters into perspective, so I do have a slightly different view on the Newton fund. I will not purchase any more, but will look for better performing funds in that sector.

Thanks for the discussion.

Cautious_Investor_3

LongTermLurker wrote: »

You talk as though the Newton fund is pretty much all you have - if you want diversity, you'd be well advised to hold both equity income and emerging markets, not swap one for the other. Diversity will give you stability when the storms rage in China. The Aberdeen fund will quite likely give better growth, but I wouldn't put all my money there.

Hi

Surely a better way to hedge against storms in China (assuming they appear) would be to invest in a less correlated asset class, e.g. bonds, gilts, commercial property etc.

We all know that equity markets, to some degree, are correlated.

Remember, there are other asset classes to invest in, it isn't all about equities.

The Cautious Investor

LongTermLurker

Cautious_Investor wrote: »

Hi

Surely a better way to hedge against storms in China (assuming they appear) would be to invest in a less correlated asset class, e.g. bonds, gilts, commercial property etc.

We all know that equity markets, to some degree, are correlated.

Remember, there are other asset classes to invest in, it isn't all about equities.

The Cautious Investor

True, many UK companies have their fingers in emerging pies - I was just trying to show the difference between a UK equity income fund (where reinvested dividends add to the raw rate of growth) and emerging market funds, which may appear to be the only place worth investing, but which come with a very high rate of volatility. Also to point out that even though one fund in a particular sector may be underperforming at the moment, every dog has his day and they don't all get it right all of the time.

I also hold a selection of investment grade and high income bond funds that have done very well over the last 12 - 18 months.

As you say, diversification requires a selection of multiple asset classes.