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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.
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.
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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.
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by Gavin Lumsden on Sep 12, 2014 at 17:41