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TM Redwheel Global Equity Income
TM Redwheel Global Equity Income fund will adopt a similar philosophy and investment process to that used very successfully by Nick and the team when they managed the BNY Mellon Global Income fund (previously the Newton Global Income fund). The fund will be broadly diversified across sectors but could be materially underweight or completely omit a number of sectors if they are deemed unattractive.
Previously called TM RWC Global Equity Income
Our opinion
While the fund itself may be new, the team – led by Nick Clay – is highly experienced, and the investment strategy is well-proven. It has a true contrarian nature backed up by a logical and disciplined philosophy. This leads to an attractively yielding income fund (every holding must yield at least 25% more than the broader market at the point of purchase) that also allows for capital return from a concentrated portfolio.
Company description
Redwheel is a specialist, independent investment organisation that is employee-owned. The business was established in 2000 and has offices in London, Miami and Singapore. There are more than 50 dedicated investment professionals working across seven independent investment teams. They specialise in providing developed and emerging market equities, convertible bonds and income solutions. Redwheel is a registered trademark of RWC Partners Limited.
Fund manager
Nick Clay heads up the team of four. His colleagues are Andrew MacKirdy, Robert Canepa-Anson and Colin Rutter. The team moved en-masse from Newton Investment Management, part of the BNY conglomerate, where they managed the BNY Global Equity Income fund. Nick was at Newton for over 20 years and had run the Global Equity Income fund since 2012, taking full control in 2015. Prior to this, he was a UK equities manager at Morley Fund Management and an equity analyst at Sun Alliance, where he started his investment career in 1991. Nick is an Associate Member of the UK Society of Investment Professionals and has a degree in Economics and Philosophy from the University of Leeds.
I don’t believe I am a stronger human being than anyone else, so rely upon disciplines to protect me against common human mistakes and to lean the stats in your favour.
Nick ClayFund manager
Investment process
Nick and the team focus on three things when they consider adding a holding to the TM Redwheel Global Equity Income fund: finding sustainable business models, at good valuations, and trading them with a strong buy/sell discipline. Each of these approaches are common in isolation, but rarely are all three together.
In order to find these ideas, the managers have an overriding philosophy to “buy the controversy and sell the consensus”. This means the fund has a contrarian approach. To find these controversies, they look for multiple types of ideas. These are categorised as ‘troubled compounding machines’, where temporary problems for a business are being mistaken for permanent issues; ‘ex-growth cash generators’, where the market believes a business is broken but is able to create longevity of returns; ‘profitability transformation’, where there are fears over a company’s exposure to the economic cycle; ‘capital intensity’, where the market is bored of a stock or underestimates its compounding power; and special situations such as spin offs or hidden assets.
From here, the team will go through the financial statements of the most interesting companies to build a series of scenarios focusing on the downside potential and risk of a dividend cut from the stock, as well as an upside scenario.
The focus on the downside is intended to draw out the risks of what could go wrong with a stock and what impact this will have on the portfolio primarily – and how sustainable the dividend is. From here, the managers will conduct liquidity risk analysis, to see how long it will take to trade a stock, how much this would cost and the percentage of the stock that is freely floating. This will determine the position size with a compelling idea being weighted 3-5% and an attractive one at 1-3%.
The total portfolio will be just 40-60 stocks, each yielding 25% above the market at the point of purchase.
ESG
ESG - Limited
The philosophy of ‘buy the controversy’ means that Nick will remain open-minded about industries and firms with ESG issues, and therefore won’t exclude them. That’s not to say these issues are ignored though. Nick does consider ESG in the process, and is conscious of the potential risk ESG entails, but this isn’t a sustainable fund in that sense.
For environmental and social issues, Nick will look to identify issues, as well as the cost of addressing them, and build it into his estimate of company cash-flows. If there is evidence a firm cannot overcome their issues, this is marked very negatively. Governance considerations have more of a weight in the process, including factors such as management incentives, accounting practices and conflicting ownership structures.
Nick will use his shareholding to push for change, often in unpopular areas. For example, he has voted against Shell and Total in the past because he felt their CO2 reduction plans weren’t good enough.
There are lots of firms considered laggards for ESG reasons, but rather than preclude them from investment, Nick will monitor those that are improving their profile and be open to admitting them into the portfolio
Risk
TM Redwheel Global Equity Income fund has a genuinely contrarian approach, which means the portfolio will have a distinctly different look to many other global funds. At his previous house, Nick often found himself buying stocks his colleagues were selling and selling what they were buying. As such, the fund is unlikely to have most popular talked about names in the top ten and will have periods of time when it has large under or over weights to certain sectors. The strategy has historically outperformed in volatile markets and, on a relative basis, does best in falling markets due to the valuation discipline, while lagging a little in rising markets.
Read more about this fund
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