Harries said that with free cash flow yields of 5.5%, inflation at 1.5% and expected earnings growth of around 3%, investors might expect a 9-10% annualised return from a portfolio of high-quality companies that share bond-like characteristics, such as predictable income streams.
While no formal yield target has been set, the fund is expected to yield approximately 3%.
Harries said with a focus on quality, and taking a longer-term view with the more concentrated portfolio of 30-50 stocks, even if companies are bought at the wrong price, the effects of compounding will make up for any permanent capital losses – adding this was central to Troy’s investment approach.
With a well-supported dollar and a relatively positive economy, Harries said he favoured developed markets – in particular the US, and was still cautious on Asia and the emerging markets.
Further he said at Newton – which he left at the end of last year – the Global Income fund had a buy and sell discipline, which stipulated he bought stocks yielding 25% above the world index average, and would be sold at market index levels.
This will not apply on the new fund, which he said will no longer limit his choices.
Speaking to Portfolio Adviser, he said: “We will not be held to that, but we will follow it in spirit, so where we might use the yield to highlight opportunities. But if a holding has a decent long-term investment case, we don’t want to become forced sellers because the yield has become compressed over a short term.”
Harries added while sterling weakness was being transcribed into overseas earnings looking disproportionately attractive, it also highlighted the importance of geographic diversification.
