When talking to fund managers invested in the stock market, the last thing you expect to hear from them is that they want a stock they are invested in to shrink.
‘We have only been invested in the stock for a few months and we think the investment thesis can continue to improve. Ironically, unlike a lot of stocks that people try to invest in, we don’t want this stock to grow – we want it to actually shrink.’
Over the month of June, the stock was one of the best contributors to the fund (0.11%), despite the fact the company is midway through a €340 million ($400 million) restructuring programme.
‘Its problem has been that it has tried to grow too much. It’s over-expanded, it’s distributed its products through too many channels, lost control of pricing and now it’s going in the reverse.
‘We saw that in the last set of results, sales were down 13%, cost of goods were down 25% and it has doubled its EBITDA and that’s exactly what we want to see this stock do.
‘As long as that process of over-expansion hasn’t damaged the brand which we believe it has not, then this is a well-trodden and repeatable path of repairing brands that we have seen in other instances such as Coach, Gucci, and Burberry’, he added.
Over the three years to the end of September 2017, the Newton Global Income fund returned 25.10% in US dollar terms. This compares with a 21.87% rise by its Citywire-assigned benchmark, the MSCI World High Dividend Yield TR over the same time period.