Stewart raises cash to 26% in £4.5bn Newton Real Return

Iain Stewart and Suzanne Hutchins have raised the cash position in the £4.5bn Newton Real Return fund to 26% in an effort to manage volatility in the portfolio.

According to Hutchins, hiking the cash level over the course of the year has helped protect the portfolio from dramatic swings in volatility.

Some of this cash is diversified into near-cash assets including short-term gilts and US T-bills to avoid banking risk, she said. "We view cash as an asset class unto itself, and its role in the real return strategy has been to reduce volatility and manage risk in the real return strategy," said Hutchins.

"Since it has been very expensive to 'protect' or insure the portfolio against absolute loss of value using put/call strategies, the cash position has been deliberately high to offset the risk and reduce the volatility from the current core of return seeking assets."

About 49% of the fund is in equities, 19% in fixed income, and 4% in commodities, as at the end of December 2011. "The extent and scale of the indebtedness in developed economies will mean a long period of de-leveraging and sub par economic growth. This means uncertainty and volatility," said Hutchins.

Newton's long-term macroeconomic outlook identifies significant risks to the global economy. In particular, greater state intervention through monetary and fiscal policy will cause greater uncertainty and more volatile markets, the group expects.

"We use the cash to buy our favoured securities that have the relevant characteristics for this long-term outlook when we believe the security offers real absolute value," Hutchins said.

The Newton Real Return fund was one of the top selling funds last year, pulling in £2.1bn in inflows and returning 3.3% in 2011.