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Newton Global Higher Income

 

Newton Global Higher Income  fund manager James Harries believes ‘economies are too indebted and fragile’ to prosper long term and has not bought into the liquidity-fuelled market rally as a result.

Harries told Citywire Selection: ‘We are not willing to embrace risk in the marketplace like some of our peers and will not keep up with racier markets. Quantitative easing has pushed up asset prices artificially and this makes it a very dangerous environment to be in.’

Cautionary tale

Instead, the manager prefers to concentrate on long-term themes and remains cautious.

Harries seeks out companies that are not dependent on the economic cycle and have stable growth, sustainable dividends and predictable cashflow. He is particularly bullish on healthcare, consumer staples and telecommunications, which he believes fulfil these criteria.

 Harries also recently bought into Microsoft, which he regards as inexpensive and offering a healthy yield.

‘Return on capital continues to be fantastic and [it] has an attractive dividend yield. Its free cashflow keeps increasing and has doubled in the past 10 years,’
said Harries.

The stock also fulfils his strict yield discipline. Harries has a remit of only buying companies yielding 25% more than the FTSE World benchmark.

‘Our yield discipline will take us out of a stock if it becomes too expensive and with this in mind we have recently sold our positions in DNB Bank and AT&T. Both these stocks have become fully valued and our yield discipline kicked in so it was time to sell out.’

Haven sent

Harries believes many countries remain too leveraged and so another theme currently dominating his portfolio is what he calls ‘havens’.

He is favouring companies that can access the debt market and do not have a volatile economic backdrop, so has a preference for countries with well-funded governments rather than those that are heavily indebted.

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