Newton Emerging Income launched for star manager Pidcock
With a large proportion of the highest-rated emerging market portfolios soft-closed to new business, the fund is likely to be of interest to both private investors and IFAs.
BNY Mellon is set to launch the Newton Emerging Market Income portfolio for highly rated manager Jason Pidcock
, subject to FSA approval.
The offering will complement Pidcock’s FE five crown-rated Newton Asian Income
fund – consistently a top-decile performer in its IMA Asia Pacific ex Japan sector since launch and one of the best-selling open-ended funds of recent years.
Sophia Whitbread will co-manage the portfolio, which is expected to be launched within the next few months.
The fund's objective will be to provide income with long-term capital growth, through a portfolio of 40 to 50 high-quality emerging market stocks.
The managers will target an income of at least 15 per cent higher than its FTSE All World Emerging Market benchmark, which at current levels means it would yield around 4 per cent.
Only companies with a prospective yield of 85 per cent of the index will be considered for inclusion; should this fall to below 70 per cent, the managers would be forced to sell out.
Rather like the Newton Asian Income fund, this portfolio is expected to be significantly less volatile than its benchmark and outperform significantly during down markets.
According to FE data, the £2.2bn Newton Asian Income fund has returned 62.15 per cent over five years, with an annualised volatility of 19.76 per cent. By contrast, its FTSE All World Asia Pacific ex Japan index has returned 30 per cent, with a volatility of 24.39 per cent.
Performance of fund vs sector and index over 5-yrs
Source: FE Analytics
Pidcock’s expertise in Asia will be fused with Whitbread’s knowledge of other emerging markets – particularly South America, Russia and Turkey.
Commenting on the launch, Pidcock said: "We believe that there is a great opportunity for us to provide exposure to high-growth economies with strong corporate earnings potential."
"This backdrop supports a positive outlook for sustained income growth within the region: dividend payout ratios have been stable and the number of companies paying dividends continues to grow."
Pidcock points out that the number of companies in the MSCI Emerging Markets index is now higher than in its developed market equivalent.
"A large chunk of the total returns coming from emerging markets in recent years have come from income," he said.
"Payout ratios are getting stronger and stronger and the number of companies paying out dividends continues to increase."
Scott Goodsir, managing director of UK wholesale at the group, says demand for the product has been strong from both institutional and retail clients and that inflows of £200m to £300m in the opening year are very realistic.
"We feel that we are now the go-to house when it comes to equity income, rather like M&G is the go-to house in the fixed interest market," he explained.
Goodsir says the launch has nothing to do with worries over capacity levels in the Newton Asian Income fund, which he believes can sustain significantly more inflows before the group even has to think about soft-closing.
The managers are currently slightly underweight Asia Pacific and hold nothing at all in Russia or India.
They have an 11.1 per cent weighting to South Africa, which Pidcock acknowledges is unusual.
"Higher-risk areas such as these would be offset by lower-risk positions," he explained. "Overall, given the greater number of markets, I’d imagine this portfolio will be less volatile than the Asia Pacific sector."
Newton has stressed that the fund will not deploy hedging or gearing strategies.
Early estimates suggest it will have a total expense ratio (TER) of between 1.6 and 1.65 per cent. There will be no initial charge for the fund until the end of the year, which will also be the case post-RDR.
Like Newton Asian Income, it will have a minimum investment of £1,000.