We like the flexibility the Newton Real Return Fund offers investors. The fund's managers can invest in a wide range of assets from across the globe – from shares to bonds and commodities to cash.
While they have freedom over where they can invest, they do so with a specific aim in mind. The team aims to grow investors' wealth over the long term, but provide some shelter when markets hit stormy waters. This means we'd expect the fund to produce relatively stable returns, although it won't keep pace when markets are rising quickly, as we have seen in recent years. The fund could still make a loss and past performance is not a guide to the future.
We view this as a more cautious fund that could add some stability to a broader investment portfolio. It maintains its place on the Wealth 150+ list of our favourite funds.
Now is the time to be cautious
The team at Newton believe now is the time for investors to be cautious. In their view, there are a number of global trends that could pose a challenge to economic growth.
For instance, the amount of debt owned by governments, companies, and households is at peak levels. An ageing global population puts even more pressure on governments – it means they'll have to spend more on care, which leaves less to spend on infrastructure or other projects that could support future growth. The remaining workforce is also shrinking, and the impact is made worse because workers are becoming less productive.
The team believes the actions of global central banks to stimulate economic growth since the 2008 financial crisis has also had limited impact. A huge amount of money has been pumped into financial markets and pushed up asset prices, including those of shares and bonds. In many cases the team don't think these higher prices are justified and no longer provide enough potential reward for the amount of risk investors take.
What does this mean for investors?
It doesn't necessarily mean money can't be made, but the team believes caution and a more selective approach is needed. In the short term at least, returns from stock and bond markets could be lower than investors have become used to in recent years.
A large portion of the fund is therefore held in cash and short-dated government bonds (25%). This could provide some resilience when markets hit a rough patch, while the cash can be deployed quickly if the team spot a better investment opportunity.
The team have also added to bonds issued by the governments and companies of emerging economies, such as Brazil and India, where they see more value than many developed markets. They also have the flexibility to invest in high yield bonds which, alongside exposure to emerging markets, can increase risk.
The core of the fund remains focused on the shares of high-quality companies that are in good financial health and generate sustainable earnings. Exposure to the technology sector has recently increased and current investments include shares in Microsoft and Cisco Systems, a relatively new addition to the fund.
Share and bond prices have continued to rise in recent years, so the conservative nature of the fund has held back performance. The team also make use of derivatives, which should provide some protection if stock markets fall, but this hasn't yet paid off. This type of investment has the potential to increase risk.
Over the longer term we expect the team to use the tools available to them to the benefit of investors. Historically the fund has held up well when markets have run into trouble and we think the fund will continue to perform this way in future, though there are no guarantees.
|Annual percentage growth|
| Mar 2013 -
| Mar 2014 -
| Mar 2015 -
| Mar 2016 -
| Mar 2017 -
|Newton Real Return||1.3%||6.5%||0.9%||2.2%||-2.2%|
|LIBOR GBP 1 Month + 4%||4.5%||4.5%||4.5%||4.3%||4.4%|
Past performance is not a guide to the future. Source: Lipper IM to 31/03/2018.