Fund Review: Newton Real Return

The Newton Real Return fund has seen a surge in assets in the past three years. In January 2010, assets under management were £922.7m. Today that figure is a whopping £8.3bn.

The fund, which has undergone a number of name changes since current manager Iain Stewart took over in March 2004, morphed from the Newton Intrepid fund to the Newton Absolute Intrepid, and then was renamed Newton Real Return in 2009. It offers investors a return that beats cash before fees, using the measure of one-month Libor plus 4 per cent a year on a five-year basis.

Its current team is proceeding with caution as uncertainty continues to plague global markets.

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Investing from the bottom up, Suzanne Hutchins, investment manager and member of the Newton Real Return team, says the portfolio is an absolute return, benchmark-unconstrained multi-asset fund, with a clear emphasis on the long term and capital preservation.

She adds: “It is a transparent portfolio of individual single securities, so it has direct exposure to companies and securities. There is a huge amount of flexibility at the portfolio level. What it is not is an asset allocation stance where you have policy decisions on how much you want to put into geographical areas or asset classes.”

In addition Ms Hutchins highlights the Newton focus on securities selection, fundamental analysis and a long-term approach, pointing out the benefits of having a broad research team of specialists in-house.

“We have all these specialisms working together and draw the ideas together through our long-term approach of using trends and themes to really define the backdrop and type of environment we are investing in.

“In the fund we are looking for certain characteristics in securities [based on] our view about the world. Our view right now is pretty cautious.”

The disciplined, long-term approach seems to be paying off, producing a five-year cumulative performance of 51.1 per cent to October 8, 2013, according to FE Analytics. Although the diverse nature of the IMA Targeted Absolute Return sector makes it difficult to directly compare performance, the sector average in the same period was 21.3 per cent.

The three-year performance of the fund is also above average with a return of 10.9 per cent, compared with the average peer group return of 7.8 per cent.

Ms Hutchins says the turnover in the portfolio is generally low, with the fund divided into a return-seeking core that drives the above-cash returns and an outer layer of offsetting securities that aims to reduce the volatility of the core and preserve capital.

“The core tends to be much longer term in nature, where as the outer layer tends to be a bit more tactical,” she adds.

“There haven’t been any dramatic changes to the portfolio. At the start of the year we had more than two-thirds of the portfolio in the return-seeking core and that was largely made up of select equities, particularly in healthcare, telecoms, utilities – and we also had, and still have, quite a decent exposure to high yield and also some convertibles.