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Fund of the Week: cash plus 4% for patient investors

Iain Stewart's Newton Real Return fund has been attracting a lot of investor attention recently, taking in around £2 billion over the past year.

Fund of the Week: cash plus 4% for patient investors

Steady and consistent returns have been difficult to come by in the volatile markets we have been facing. But one fund that has delivered is the Newton Real Return fund run by Iain Stewart.

The fund invests across asset classes and Stewart's capital preservation mindset meant more than 25% of the portfolio was in cash earlier this year. While this has now  been reduced, Stewart remains in cautious mode.

You can find out where he has been investing and the latest positioning by watching this video.

Our Citywire Selection picks are based on our totally impartial analysis of the funds and managers we believe have established the best track records, operate the best investment strategies and offer the most potential for investors.

Hello I'm jonathan miller and welcome to fund of the week.

This week I’m looking at the Newton Real Return fund which has been attracting a lot of interest, taking in around £2 billion of investor money over the past year.

It’s managed by Iain Stewart and is a multi asset fund investing in equities, bond markets, commodities and currencies. There's a strong emphasis on capital preservation and the aim is to  return cash plus 4% over five years

As you can see here, this target‘s been hit and returns have been generated with around half the volatility of equities.

The way the fund's built means there's a set of core holdings and then lower risk assets surrounding this as a form of protection.

Key themes shaping the world are at the heart of the process and 55% of the portfolio is in equities, with Stewart backing companies with strong cash flows and recurring dividends. This defensive focus means sectors such as pharmaceuticals, tobacco and telecoms are notably favoured.

A quarter of the fund is allocated to  bonds. This is split between  corporates that provide a reliable income stream, whilst there are key government bond positions in Norway and Australia, as well as US inflation linked bonds.

These are seen as hedging assets that surround the core serving to protect capital and dampen volatility. Derivatives are also used and they will cushion part of the fund if equity markets fall.

There’s also currency exposure to the dollar, Swiss franc and Swedish Krona that help when equity markets are weak and cash in its own right stands at 15%. This has come down from 22% a couple of months ago as existing holdings in telecoms, pharma and gold miners have been topped up.

Bringing all this together, you can probably sense that Stewart is in cautious mode. This stems from uncertainties such as the huge debt problem, weak economic growth and the world’s ageing population.

There's also the issue of central bank liquidity measures which have become regular events. Stewart believes these serve to increase volatility and short term spikes in the price of risky assets, but over the longer term could cause economic damage.

This is why there’s a 2% position in gold along with 7% in gold mining equities. Stewart thinks these can boost performance in an environment of further money printing, negative real interest rates and financial repression.

The fund has shown that it can preserve capital and generate returns ahead of inflation. At times it might seem a little pedestrian but returns of 5.5% so far this year show that patience has been rewarded and you also have the added bonus of a 3% yield.

11 comments so far. Why not have your say?

jamnor

Nov 04, 2012 at 16:23

Not sure where they get these numbers from but my experience is this fund goes down whether in a bull or bear phase, and they've been cutting the dividend. Getting out ASAP. My suspicion is this is a fund that pays commission to experts that promote it.

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Loui via mobile

Nov 04, 2012 at 17:42

Does Citywire have a response to jamnor's comment? If true it's pretty serious and raises questions of integrity

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jamnor

Nov 04, 2012 at 18:32

Just an impression - that could be incorrect, but i dont see how the numbers stack up...

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Steven Jeffries via mobile

Nov 04, 2012 at 21:25

I have held this fund for 2 years and it has made very little for me. Has paid out some income but with divi's where they are on solid blue chips, i wud rather buy and hold these equities as holding equity long term is the way to overcome short term volatility. For me target return funds just don't cut the mustard. If anyone knows a good one please let me know. If you are too scared of a managed fund or dont have the necessary investment time leave it in cash. If you must use a fund look at fidelity multi asset strategy which at least participates in market rallies.

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PhilB

Nov 05, 2012 at 11:31

@jamnor - perhaps you are expecting too much! I see this as a "steady eddie" fund, which lost just 15% during the 2008 debacle and 10% in the Aug 2011 sell-off, both pretty creditable.

Mind you, in 2008 the price rebounded fully within 6 months, but it has not yet done so from the 2011 pullback. So maybe the mgr has been a bit too cautious over the last couple of years??

So far as I know this fund does not have an Acc class, so its performance may be understated by the divi (3.3% pa currently), compared to others.

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Jonathan Miller(Citywire Research)

Nov 05, 2012 at 12:41

Thank you for your comments.

Performance figures are calculated without an initial charge imposed. They do take into account the ongoing annual fees and are based on dividends reinvested.

Citywire is independent and does not receive a fee for looking at one fund / manager versus another. As mentioned above:

'Our Citywire Selection picks are based on our totally impartial analysis of the funds and managers we believe have established the best track records, operate the best investment strategies and offer the most potential for investors.'

Jonathan Miller

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StepM

Nov 05, 2012 at 16:54

I lost patience and bailed out in mid March, transferred to M&G Strategic Corporate Bond. Since then, Newton fund up 1%, M&G fund up 6.5%; enough said?

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51Degrees North

Nov 05, 2012 at 18:18

We should evaluate the fund after the next downturn and see what it stands. This is probably just around the corner.

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pqrdef

Nov 06, 2012 at 09:47

Well yes. If you want a tracker, trackers are available. The time to judge a capital protection fund is in a crash. Of course, if you think the Footsie isn't overpriced...

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banjofred

Jan 25, 2013 at 06:26

I have done Ok out of this fund, mainly from dividends, but I am getting bored with it now as return barely covers charges I sold half my holding recnelty and plan to ditch the rest soon.

Troy Trojan does better for me, although divis very low.

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banjofred

Mar 02, 2013 at 05:23

I have now sold the rest. Transfeered the dosh to Artermis Strategic Assets which has come good for me in last few weeks. Williams shorting of the scrap paper of the World is working.

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