Macroeconomic views give Stewart notable and consistent returns in falling markets
Newton is a global thematic investment house focused on identifying forces of change and how they will affect markets. This means macroeconomic views feature in the investment decision-making process.
A successful multi-asset fund manager with Newton for 25 years, Iain Stewart is a senior member of the firm’s strategy team and has responsibility for the development of global investment themes.
He also runs the flagship £1.9bn Newton Balanced fund, and £555m Newton Global Balanced fund – both of which sit in the IMA Balanced Managed sector – plus the £1.6bn Newton Real Return fund, listed in the IMA Absolute Return sector.
Stewart has been identified by Trustnet’s Alpha Manager Ratings as a manager who has produced consistent outperformance against his benchmarks and peers for most of the past decade. He has outperformed his peer group composite in seven years out of a possible eight, with notable success in falling markets.
Over the last five years, each of his funds has generated top-quartile returns.
Global Balanced is ranked fourth of out 92 vehicles in the Balanced Managed sector over five years to 17 May, up 69.6% compared to an average sector increase of 35.8%, according to Morningstar. Over three years the fund is up 23.7%.
Balanced is ranked seventh over five years, up 60.1%, and is up 19.7% over three years. Newton Real Return has returned 65.9% over five years, and 27.4% over three years.
What is your investment strategy?
It is very much a team approach at Newton. We use in-house research, which provides a broad amount of the raw material which the manager has when putting together the portfolio. I run multi-asset single portfolio funds, and I am responsible for all the assets.
I have in-house specialists in all areas but we like to have a general manager running a single portfolio. It is not strictly just an asset allocation approach. Multi-specialism is currently very popular and there is an idea it is all about asset allocation, and asset classes are fairly homogeneous.
We believe instead you should create specific types of portfolio and be selective about the equities you want. You need to consider what sort of characteristics you want in the portfolio – do you want to have equities and where do you want them to be?
Similarly, with corporate or government debt, or with other assets. These are directly invested single portfolios where we know why we want to own each specific underlying security. It is very much about how we see the world at any particular time, and we are trying to put together a portfolio of underlying securities which sit with that view.
What are the reasons for such strong fund performance over three years?
The short-term performance over the last year has not been great but over three years it has been very strong.
The longer-term outperformance is about taking an objective view of the world. We were very light in financials and cyclical stocks so we benefitted throughout the credit crisis.
In 2008 the Balanced funds had a return of around -3% versus around -20% for the peer group. The Real Return fund produced a positive return of about 6%. With Real Return we are trying to put together a core of decent quality assets. Around this we want to have some other assets to reduce the volatility of the core portfolio. These could be a whole range of things such as gold, index-linked bonds, government bonds of various kinds, derivative positions which have tended to be equity market protective positions, options on government bonds, and options on currencies, for example.
What shifts have you made to holdings in recent months?
In an environment that continues to be volatile we have invested in large cap, relatively defensive equities with decent yields, and these positions have been there for some time. We are a bit more active about hedging currencies.
How will the funds develop in the next year?
It would be positive for us if investors started to discount lower activity globally.
For the moment, I think a lot of people have bought the idea of a strong recovery globally and we are not necessarily sure this is going to happen the way they expect. So we have some pretty decent value high-quality assets even though they have not necessarily been performing while the risk trade has been predominant.
It is really hard to make forecasts about what is going on because it is a very volatile backdrop. There have been unprecedented times by anyone’s experience so it is right to be extremely cautious. That is the way we are positioned. This applies to both the Balanced funds and the absolute fund as all three are pursuing the same kind of strategies.
The Real Return fund obviously has more emphasis on capital preservation, although I have always felt this is an important factor in relative funds as well. But, clearly, with an upward only benchmark of Libor +4, which the Real Return fund has, that really focuses our mind on not losing money, so our emphasis is equally on return and capital preservation.
We have some more protective positions in the Real Return fund than we do in the Balanced funds. The investments are a similar list but are more concentrated in Real Return than the Balanced funds.
We are bit different from most investment houses in running these more flexible single portfolios. These funds are not just about asset allocation. The majority of diversified or multi-asset funds have some asset allocation model which they work on, and then they plug in different managers. We think in this kind of world it is worth being more selective and granular and understand why you are in particular assets.
