VIEW-Yield shield is vital in rocky markets

By Simon Falush

LONDON (Reuters) - Defensive assets paying high yields like drug stocks are good value, while bargain hunting for cheap growth companies is dangerous in a market set to languish near recent lows until late 2009, the manager of Newton's Higher Income fund said.

A fundamental change in the dynamic of the investment cycle driven by the seizing up of the credit markets is highlighting the importance of yield, said Tineke Frikkee, manager of the 2.1 billion pound fund.

Newton Investment Management Limited is a London-based global asset management subsidiary of The Bank of New York Mellon Corporation and part of BNY Mellon Asset Management.

Newton has assets under management of more than 34 billion pounds.

"It (the market) was in the leverage model and now we are being shocked into more of a thrift model where credit is much more expensive, Frikkee said.

"The thrift model is going to last for a while, once we get through the crisis we will be in a world where UK equity returns are lower because there's going to be less gearing around."

The fund has fallen 24.5 percent in the 12 months to end-November, but outperformed its peers in the Lipper Global UK equity Income benchmark to rank ninth out of 90 funds.

In a world of lower returns, yield becomes all the more important, and until the storm clouds have passed, it will pay to stick to companies with rock-solid balance sheets, she said.