What is your role at Newton?

I have worked within the BNY Mellon Investment Management group – now specifically at Newton – for virtually my entire career – about 25 years. While I am an active portfolio manager across a number of disciplines, a large part of my role is heading up the global equity income team and driving its research agenda and strategy.

What prompted you to go into investment management?

Initially, I wanted to be a doctor and became a pre-med at Syracuse University. About a year and a half in, I took an economics class as an elective. My economics professor taught the concept of dimensioning marginal returns, which I found fascinating, and I never returned to medicine. Anyway, I really do not like the sight of blood!

What do you like most about the investment management business?

I am naturally very curious, and investment management gives a great opportunity to learn new things every day about a wide range of companies, trends and global change. Whether it is researching Japanese rail businesses or gaining insights into the evolving landscape of European energy policy, there are an unlimited number of topics to learn about. This is an industry where you have to learn new things every day and be able to apply that knowledge to help clients achieve the outcomes they are trusting you to generate. I cannot imagine there is a more interesting job in the entire world.

What would you say are the strengths of Newton in global equity income investment?

Newton has such a long-standing global equity income franchise. Each of the managers on the strategy has been with the firm for more than 20 years and has a great deal of experience in managing global equity income strategies. This, coupled with the experience of the US, UK and Asian income managers who have also been managing money at the firm for a long period, point to a real strength in depth and breadth. Believe it or not, the person who trained me on my first day on the job in 1998 is still with our research team today.

How important is research to your investment efforts?

Very important. We harness expertise from across the breadth of our multidimensional research capabilities, working particularly closely with the equity research, data analytics and investigative research teams. I believe that combining a very disciplined investment process managed by a very long-tenured portfolio management team with our multidimensional platform can lead to steady and consistent client outcomes.

How would you characterise your style as a portfolio manager?

Value is a broad term, but I like to look in areas that are easy to dismiss. Great companies can be the worst possible investments if bought at the wrong price, in the same way that mediocre businesses can be amazing investments if purchased well. Most things have a price where they can be interesting, and sometimes the easiest things to dismiss at first glance for superficial reasons can turn out to be the best opportunities. These are often the least efficient areas of the market and can offer a pretty asymmetric return if you buy them right.

When assessing a company, what measures or qualities do you value the most?

If you look at all the businesses in the world and search for really amazing businesses run by really amazing management teams, you could probably count them on one hand. The fact is there are very few amazing businesses out there and, naturally, there tends to be a disproportionate focus on those few companies. From an investment perspective, I believe passionately that things are rarely ever quite as good or as bad as people perceive them to be. As such, mean reversion – the theory that businesses eventually revert to their long-term mean or average level – plays a huge role in my investment approach. The vast majority of businesses are generally good companies run by rational management teams, but often there are things going on in their business that can cause temporary dislocations in what people believe the business is worth. 99.5% of this job is behavioural, and having a consistent process in place, a deep and broad multidimensional research team and a cool head can allow you to generate value in arbitraging that behaviour.

What is the market outlook for global equity income?

When you are investing in income-generating equities, understanding the capital-allocation decisions being made by managers is key. We were in a low interest-rate environment for a long period of time, which enabled some extremely poor capital-allocation decisions that were not overly obvious given the backdrop. That has all changed. A higher cost of capital instils discipline on management teams and forces them to make much more rational decisions. Income managers are always focused on capital discipline and allocation. Now that we are in a more normal interest-rate environment, how companies allocate capital will matter a lot more. Differentiating those companies that are making sound capital-allocation decisions from those that are not will matter a lot more in the coming years.

What was your route into asset management?

During my gap year before starting at university, I worked at Stewart Ivory (now First Sentier Investors) in Edinburgh. I worked with the portfolio management team, met companies, and got exposure to different portfolio managers and different investment styles. The experience made me realise I wanted a career in investment management. As I planned to move to London, Stewart Ivory suggested I apply to Newton, which it spoke highly of. I applied and joined Newton’s graduate programme in 1995.

How would you describe your career at Newton?

Newton was growing fast when I joined and there was a tremendous amount of opportunity to develop my career. Over the years, I have had a number of roles, including leading large teams, and now I enjoy focusing exclusively on the Global Equity Income and Sustainable Global Equity Income strategies.

Over the years, I have worked with many fantastic people, and ultimately it is the people you work with who make an organisation. I am lucky to work closely on a day-to-day basis with Rob Hay and James Lydotes on global equity income portfolios. Rob and I have worked together for many years, while James joined us with the integration of the former Mellon Investments business, which has brought many other interesting and highly experienced individuals into the firm. In particular I would highlight John Bailer, Brian Ferguson and Keith Howell, who run our US income and value portfolios, and the broader equity income team was further strengthened when David Cumming joined in early 2022 to run the UK Equity Income strategy with Tim Lucas.

How would you characterise your style as a portfolio manager?

I am drawn towards conservative, disciplined, well-run companies with a proven track record of sensible capital allocation. High-quality companies often come with a high valuation attached, and the equity income team’s approach is to look for opportunities to buy high-quality companies at discounted valuations. The quality aspect provides the assurance that, over time, companies should be able to produce strong returns, while the undervaluation can provide the potential for capital appreciation.

What do you most enjoy about your job?

It is incredibly important to be connected to the people who ultimately are the beneficiaries of what it is we are trying to do, and a key part of my role is to represent the strategy to our clients, be they financial advisers, charities, or institutional clients. I work with a range of stakeholders both internally and externally, and my role is to convince them that our investment approach is sensible and disciplined, and I believe it is.

What have been the most memorable periods of your investment career?

Three periods of enormous uncertainty – the bursting of the Nasdaq bubble in 2000, the global financial crisis in 2008-2009 and the Covid pandemic in 2020 – stand out. In both the financial crisis and the pandemic, markets recovered surprisingly quickly because of the aggressive response from central banks. By contrast, after the bursting of the Nasdaq bubble, it took many years for growth stocks to recover their 2000 highs. Looking at markets today, the bursting of the Nasdaq bubble seems most pertinent.

What is the market outlook for global equity income?

The so-called ‘magnificent seven’ (Apple, Microsoft, Amazon, Google, Nvidia, Tesla and Meta) account for nearly 18% of global market capitalisation and currently trade on over 40x historic earnings. The rest of the market, by contrast, is trading at 16x earnings, and income stocks trade at a significant discount to that.[1]

So, from a valuation perspective, the outlook looks positive for value relative to growth. Furthermore, periods of elevated inflation have historically been good for income stocks. Income stocks tend to do well when inflation is high because certain companies are able to raise dividends in the face of higher inflation, and this helps to protect investors from the ravages of inflation. Conversely, on a relative basis, growth stocks can struggle when inflation is high because higher inflation means higher interest rates, which means a higher discount rate and the value of future cash flows from growth stocks is lower.

If you look back at the long history of equity markets, it is the compounding of dividends which has been a significant component of the overall return. This may have been obscured during the era of quantitative easing and near-zero interest rates but, because of high inflation, that era is now behind us. Overall, I am optimistic that income stocks are poised to reassert themselves given the return to a more ‘normal’ market environment.

How do you spend your free time?

My younger son is obsessed with sport, so my weekend often involves ferrying him to and from hockey, cricket or football. I also like to attend horse racing meetings with my eldest son. He is autistic, has no social anxiety at all, and will talk to absolutely anybody. We have had some fascinating conversations over the years with friendly jockeys, trainers, and even television presenters.

What was your route into asset management?

During summer breaks from university, I worked at Martin Currie, and the experience convinced me that a career in investment management would provide the challenge I was looking for. After graduation, I moved from Scotland, where my parents live, to London and joined Newton as a graduate in 2000. I have spent my whole career at the firm.

Why have you stayed with Newton for so long?

Newton has a friendly collaborative culture and over the years I have been lucky enough to work closely with many talented portfolio managers and analysts, who are experts in their fields. More recently, the integration between Newton and Mellon Investments has led to an influx of other highly capable individuals into the firm.

On a day-to-day basis, I work closely with Jon Bell in London and James Lydotes in Boston on the global income portfolios.

How would you describe your style as a portfolio manager?

I look for loss of perspective in share valuation by imagining how a situation might evolve beyond what is attracting attention right now. I have a sceptical, contrarian approach, much of the time at least.

What do you most enjoy about your job?

I enjoy spotting underappreciated investment opportunities, discussing them with colleagues, and then making investment decisions. I also like seeing how these decisions turn out.

As a portfolio manager, I welcome the fact that my objectives are clearly defined and at the end of it all there is a clear numerical outcome in the form of portfolio performance.

What is the most memorable period of your investment career so far?

I started work in 2000 after the Nasdaq technology bubble burst, which was a fascinating and turbulent time. But the 2008-2009 financial crisis was the most memorable period of my career so far. There was mayhem and opportunity, entwined with a career progression step, when I took on the role of lead manager of the Concentrated Global Equity strategy.

Why is equity income an exciting area?

The way we do it at Newton involves a very disciplined approach to investing and forces us to look different from the pack. This liberates us from pressures to deliver short-term performance. Our strict yield discipline seeks to ensure that every stock, and the portfolio, compounds at a higher yield than that of the market. This provides an objective discipline which prevents stock ‘love affairs’ and other behavioural impediments, as well as a strong steer to consider companies that may have become eligible for the strategy for temporary reasons that will be resolved positively. The last few years have again demonstrated the potential of equity income investing, following a period of it being out of favour.

What do you enjoy doing outside of the day job?

I have three young children and I enjoy going on holiday or taking them for days out when I get the chance. I also enjoy listening to music.

The value of investments can fall. Investors may not get back the amount invested.