Newton manager Metcalfe doubles pharma weighting

Newton manager Metcalfe doubles pharma weighting

Newton’s Christopher Metcalfe has ramped up exposure to pharmaceuticals in his rebranded £1.9bn UK Income fund.

The manager has doubled his allocation to the sector since taking on the fund in March last year, a move he hopes will push the renamed portfolio up the rankings.

The fund, formerly known as Newton Higher Income, was renamed on April 1 to highlight the fact it focuses on UK stocks, although it had 16 per cent in overseas firms this month.

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The combination of the “yields on offer” and “compelling valuations” have driven the manager to plough nearly a fifth, or 18 per cent, of his assets into pharmaceuticals, putting him 9 percentage points overweight.

He said a new series of cancer drugs – known as PD-1s – were an exciting innovation in the healthcare space and he had invested in three of the big players involved in developing this suite of products, including UK giant AstraZeneca, US firm Merck and Swiss group Roche.

Mr Metcalfe added the industry had already witnessed some approvals that had come through and more were expected to follow. “We could be entering a very exciting period,” he said.

“The ageing population is increasing demand for pharmaceutical products and these companies have a very decent yield.”

The manager said he anticipated the environment of muted economic growth to endure and that both interest rates and commodity prices would remain low.

This view has led him to sidestep banks and miners altogether and instead embrace utility and media stocks, which together represent 22 per cent of the fund’s assets.

“Against a backdrop of low bond yield and interest rates, utilities remain a sensible place to be,” he said.

“They are providing a good income. We are looking for companies that can prosper in this environment and we are looking for a sustainable dividend yield.”

Alongside the fund’s name change, there has also been an increased focus on providing sustainable yield.

Mr Metcalfe’s target is to deliver a minimum income of 110 per cent of the FTSE All-Share index’s yield and the portfolio boasts a 3.8 per cent dividend yield.

In recent years, the portfolio has endured an unenviable level of management changes, with Mr Metcalfe, who also runs Newton Multi-Asset Growth, taking over the reins from Richard Wilmot in March 2014. Prior to Mr Wilmot, who had only managed the fund since December 2012, Tineke Frikkee had been in charge.

The vehicle’s past performance is far from covered in glory compared with its peers, after significantly underperforming against the Investment Association UK Equity Income sector average across the three, five and 10 years to April 9, data from FE Analytics shows.

But during the past 12 months, Mr Metcalfe has managed to bring returns back up to speed, with the fund up 12 per cent in the period against an 11 per cent sector average.