Newton Real Return proves worth over long-term
The £6bn portfolio has been overshadowed by Standard Life GARS in terms of inflows, but it has a more established track record.
By Mark Smith, Senior Reporter, FE Trustnet
Friday July 20, 2012
The £6bn Newton Real Return fund is one of the few in its sector that has been able to deliver on its promise of an absolute return in the short-, medium- and long-term, according to FE Trustnet
The fund has beaten the consumer price index in nine of the last 10 calendar years, including during the darkest days of the financial crisis.
In 2008, it returned 4.4 per cent compared with a loss of 3.6 per cent from the average fund in the sector.
The one year it failed to beat inflation – 2011 – it lost just 0.35 per cent.
The performance has given the fund an annualised return of 8.74 per cent over the last decade, higher than the 7.72 per cent achieved by the FTSE All Share over the same period, with significantly less volatility.
Performance of fund vs indices over 10-yrs
Source: FE Analytics
The fund has returned in excess of 131.05 per cent during this time.
FE Alpha Manager Iain Stewart (pictured)
, who has headed up the fund since March 2004, has exposure to a wide range of assets, has no sector or asset class limits and is free to invest in derivatives and alternatives.
He puts a huge emphasis on capital protection. As of 30 June the fund had a 23 per cent weighting to cash, as well as a significant position in gold and gold equities.
This approach has resulted in a more cautious risk profile than the average equity portfolio and has paved the way for outperformance during a period of highly volatile markets.
The fund's unofficial tagline is "equity-like returns with bond-like volatility".
Our data shows that the fund has an annualised volatility score of 6.4 per cent over the last three years.
In comparison the average Sterling Strategic Bond fund has a score of 5.36 per cent, and the FTSE All Share has a score of 15.2 per cent.
One of the ways that Stewart keeps down the volatility is by using derivatives to hedge out certain equity risks.
"The portfolio is made up of high-quality equities and some secure corporate debt and around that we have an insulating layer of hedging assets which can comprise a whole range of different asset classes," he said.
"At the current time we have a pretty significant exposure to cash, some government bonds in a safe-haven area like Norway and areas where we believe interest rates can fall – Australia and New Zealand. We have some exposure to index-linked and gold."
The fund has the longest track record of any in the Absolute Return
sector and a TER of just 1.11 per cent.
With a minimum investment of £20,000, it may be out of reach for those who want to invest directly; however, due to the popularity of the portfolio, many platforms waive this minimum outlay.