Newton Real Return - charting a course through choppy waters
Richard Wood | Fri 31 May 2019
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- The managers feel cautious about the prospects for the global economy
- Adjusting the fund’s investments helped navigate difficult market conditions over the last year
- They think alternative asset classes will make an important contribution to future returns
The Newton Real Return Fund is made up of two layers. One part of the fund is invested to try and generate attractive returns. It invests in higher risk assets such as emerging market shares and high yield bonds. The other part of the fund invests in lower-risk assets such as government bonds, gold and cash, that could help provide shelter in turbulent times.
The managers vary the amount invested in each layer of the portfolio depending on their outlook. They aim to provide some shelter in difficult times as well as delivering long-term growth. As the managers need to keep one eye on protecting the value of the fund, it’s unlikely to keep up with a rising stock market. It’s not designed to do so.
Our view
We think the fund’s one of the best in the absolute return sector and it’s included on the Wealth 50 list of our favourite funds.
With the ability to invest anywhere in the world, there’s a lot of bases to cover. The fund’s always been run using a team based approach and we’ve been long-term supporters of previous manager Iain Stewart who led the team for many years.
Though Stewart’s no longer named as the fund’s manager, he’s still a part of the team and contributes to the fund’s investment process. We believe current co-managers, Suzanne Hutchins, Andy Warwick and Aron Pataki, with the support of the wider Newton team, will be able to deliver attractive future returns for investors.
Performance
The twelve months ending 30 April was a good period for the fund. It returned 5.8%*. Equity markets were subject to large swings during this time but the managers used the fund’s flexibility to help weather the storm.
The broader UK stock market’s biggest decline during the last year was 13.1%. Over the same period the fund only fell 2.2%. The managers made some adjustments to the fund heading into the last quarter of 2018 that helped manage losses. They thought markets faced significant risks at the time so reduced the fund’s exposure to shares.
The managers felt stock markets had bottomed out on Boxing Day and started increasing the amount invested in shares in time to benefit from the market rally in the first quarter of 2019.
Remember, past performance is not a guide to future performance. Like any investment, the value of this fund will go up and down and you may make a loss.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Apr 14 -
Apr 15 |
Apr 15 -
Apr 16 |
Apr 16 -
Apr 17 |
Apr 17 -
Apr 18 |
Apr 18 -
Apr 19 |
|
| Newton Real Return | 5.3% | 1.1% | 2.4% | -0.8% | 5.8% |
| LIBOR GBP 1 Month + 4% | 4.5% | 4.5% | 4.3% | 4.4% | 4.7% |
Past performance is not a guide to the future. Source: Lipper IM* to 30/04/2019
Outlook and positioning
The managers are still cautious about the prospects for the global economy. Many central banks are taking away support that has boosted markets and the managers are concerned about the amount of debt taken on by Chinese companies. They don’t want too much invested in the stock market so they’ve reduced the fund’s investment in shares to 19% as at 31 March. But they do like established technology companies like Microsoft and think shares in healthcare companies could fall to attractive levels if drug prices are on the agenda in the US presidential election campaigns.
The managers’ fixed income investments include Australian government bonds which should benefit if the Reserve Bank of Australia reduces interest rates to support its flagging housing market. The managers also think if the US dollar continues to weaken it could be good for emerging market bonds where part of the fund’s invested.
The managers can use derivatives which can help control the impact of the performance of certain assets though they can also increase risk.
The managers expect alternative asset classes such as wind and solar energy to be important to the fund’s future returns. Their returns don’t always move in line with stock markets and can generate income that’s linked to inflation. This makes them good for diversifying a portfolio, helping to manage risk, something the managers spend a lot of time thinking about.