Real returns look perfectly possible over longer term

INVESTORS have had plenty to be nervous about over the past couple of years and the current economic climate does not look any more reassuring. The potential to make money regardless of the direction of markets is therefore understandably attractive.

The Newton Real Return fund became an absolute return fund in April 2004 having previously been available in the form of a 13 million Global Equity fund. The success of the strategy has led to the manager Iain Stewart now having 1.2 billion to look after.

Stewart said: "The fund has become the default choice for some defined contribution pension schemes, they like the chance to build up a pot of money over time that isn't too volatile."

The fund appeals to charities too, and is ideal as a savings vehicle for retail investors, Stewart claimed.

"We got used to being in a period when conditions were benign, but now the focus is more on the returns over the longer term."

When asked how the allocations to each strategy are decided upon, Stewart explained that the core of the returns-seeking assets are in equities, primarily large high-quality companies.

"We'll also invest in corporate debt where we're getting paid to take the risk. What we own represents decent value. The high yielding equities look attractive against both cash and historic prices."

With the exception of the past year, the performance of the fund has been above average over most time periods.

Stewart attributed the slip in performance over the last 12 months to excessive caution,

admitting that "I kick myself that I didn't get more bullish on equities just over a year ago".

However, having taken a cautious stance during the past year, the manager is not minded to increase the risk of the portfolio at this stage given the significant headwinds now being faced.

The alternate manager on the fund is James Harries, who runs the BNY Mellon Global Real Return Fund as well as the Newton's Global Higher Income fund. Stewart is glad to have specialist input from Harries and the rest of the team at Newton, as the fund invests in multiple asset classes including convertibles, commodities and currency positions and can also use option strategies to protect against downside risk.

For more information about the Newton Real Return fund call 0800 614 330 or visit www.newton.co.uk

• Barry O'Neill is a chartered financial planner with Thomson Shepherd (incorporating Coggans Wood).