Three years ago, Newton Global Income manager James Harries surprised investors by departing the firm, having built an impressive 10-year track record on the nearly £6bn fund.
The fund was the first high profile retail global equity income portfolio of its kind when it launched in 2005 and under Harries tenure delivered superior long-term returns.
Indeed, under the income veteran’s guidance the fund returned 135.05 per cent to investors, beating the FTSE World benchmark and IA Global Equity Income sector by 36.36 and 57.75 percentage points respectively.
Performance of fund vs sector & benchmark over manager tenure
Source: FE Analytics
While it is not known the exact reason for his departure, AJ Bell’s head of active portfolios Ryan Hughes said the opportunity to develop more of his own franchise at new firm Troy Asset Management would have been attractive after years of following Newton’s team approach.
Similarly, his investment philosophy and approach was a good fit with Troy, he added, with Harries’ desire to focus on capital preservation through investment in high quality companies sitting well alongside other fund managers at the firm such as Sebastian Lyon and Francis Brooke.
And from Troy’s side, his recruitment made sense.
Gavin Haynes, managing director at Whitechurch Securities, said “Harries would have been sought after by groups looking to add a global income mandate.”
The Newton fund was taken over by Nick Clay, who had been a member of the global equities team at Newton since 2012 before stepping up. Harries, meanwhile, launched his Trojan Global Income fund in October of 2016.
Gill Hutchison, research director at The Adviser Centre, noted: “Given the well-established framework and structured management approach, the transition of the management to Clay was smooth. He has worked at the firm for 18 years and is extremely well-versed in the Newton way.”
So, what are the main differences between the two strategies or are investors being offered very similar products?
Under Clay the Newton fund has continued with its yield discipline of only investing in companies that yield in excess of 125 per cent of the FTSE World index and will sell stocks that fail to meet this requirement.
“This is not a requirement of the Troy fund and it may, with the ability to hold punchier weightings in stocks, have contributed to James’ decision to leave,” said Andy O’Shea, head of investments at Pharon Independent Financial Advisers.
Another difference is the number of stocks that each can hold. “Newton can be more diverse at between 40 and 70 and at the end of September it held 47, whereas the Troy Trojan Global Income can hold between 30 and 50 and at the end of September held 40,” O’Shea added.
AJ Bell’s Hughes noted that the major difference between Newton and Troy is really one of resources and team structure.
“Newton has made much of its broad depth of resources with its strong analyst base feeding thematic ideas to the portfolio managers, whereas Troy is less about having a huge analyst base and more about giving high-quality individuals the freedom to perform,” he said.
Another difference is the assets under management of the two funds. While the Newton fund has largely kept its investors, with an AUM of £5.5bn, the Trojan fund is much smaller at £121m.
“I would have thought that Troy would have expected to raise more than the £120m that the fund currently stands at but it we have some more market instability, I’m sure this fund will be back on investors radar,” Hughes said.
But there are similarities as well. Whitechurch Securities’ Haynes added that both funds are core defensively managed global equity income mandates and are managed in very similar ways.
Concentration in the top ten stocks between the funds is close at 35.02 per cent and 36.90 per cent respectively – another similarity – although the stocks held in each differ greatly.
Indeed, there are three common stocks in the top 10 holdings and when the assessment of common holdings is expanded to include the whole of the portfolios there are only 14 common positions.
“Therefore, the pair could be used together without a lot of duplication,” Pharon’s O’Shea said.
Geographically Newton is underweight North America and the UK and overweight Europe and Asia compared to Troy, although both are significantly overweight the UK compared to the FTSE World index.
Another difference is the fees, with Newton Global Income’s clean ongoing charges figure (OCF) of 0.79 per cent lower than Troy’s 0.95 per cent.
Since Harries launched the Trojan Global Income fund, both funds have provided investors with attractive levels of total return on an absolute basis.
Performance of funds vs sector and benchmark since Troy launch
Source: FE Analytics
The Newton fund is up by 11.63 per cent while Trojan Global Income has gained 8.78 per cent, however both lag the FTSE World index over this period.
Additionally, volatility has been higher on the Troy fund at 8.7 per cent compared to Newton’s 7.88 per cent, while the latter also has a higher Sharpe ratio – a measure of risk-adjusted returns.
On the face of it then, investors might have been better off in the Newton fund with Pharon’s O’Shea noting that Harries’ departure “has had much less impact on performance than feared”. 
“We chose to remain with the Newton Global Income and this has proven to be the right decision for our clients as they have received a higher yield, lower costs and marginally better performance,” he explained.
Another who chose to back Clay (pictured) and the Newton Global Income fund was Whitechurch Securities’ Haynes, who has invested with the fund since launch.
“When Harries left it was a difficult decision whether to move monies to Troy or stay invested in the Newton fund. In the end we have remained invested in the Newton Global Income fund,” he said.
“Given the clearly defined process, the fact that Clay had been involved in running the fund for some time and the support of a well-resourced team of global analysts meant that we were confident the fund could continue deliver on its core objectives.”
However, AJ Bell’s Hughes said that the reason Newton has had the upper hand is in part because it has been a little less defensively positioned than Troy.
“This defensive positioning has hampered Troy in that it has underperformed the average global income fund since launch which probably explains some of the reason why the fund has not raised more money in the last three years,” he said.
“This has certainly been evident this year, when the Newton fund has pulled away from Troy albeit in recent days, this has helped Troy claw back a little ground,” he said.
He said that he is a fan of both funds, but noted that he would be tilted towards Newton, having recently added it to one of the firm’s income managed portfolios.
“This was a difficult choice but given we already use Troy Trojan Income in the portfolio and Newton is around 20 basis points cheaper, we opted for Newton to bring additional diversification to the portfolio,” he said.
The Adviser Centre’s Hutchison added that Newton Global Income is on the firm’s recommendation list while the Troy fund is not, thanks to its “tried and tested process”.
“Newton Global Income is suitable for investors seeking a healthy yield premium versus the global equity index, who are also happy to accept that portfolio positioning and total return outcomes can be very different from the benchmark, given the distinctive nature of the process,” she noted.