Newton Real Return – A fund manager with a gloomy outlook (which could be worth investing in)

6th September 2013

Hargreaves Landown senior investment manager Adrian Lowcock assesses a fund that may be right for these complex times.

This summer financial markets have had a relatively quiet time of it.  For the first time in years there has been no major crisis brewing up in Europe. Apart from some comments from Ben Bernanke suggesting the Federal Reserve will taper the rate of Quantitative Easing there has been little news for investors to get worried about.

In fact the news coming out of the western markets has been very positive; growth in the 2nd three months of the year in the US came in at a forecast beating 2.5%. In the UK we have seen positive GDP data andmuch better manufacturing figures. The service sector is also growing and house prices have started to rise.

It is at this point investors need to be wary of becoming complacent.  The nascent recovery in the UK could easily come unstuck and although the US recovery is a bit stronger it is still fragile.

There are managers who don’t believe all the good news.  James Harries, Co-manager of the Newton Real Return fund, is one of those managers and has a gloomier outlook on things.

Harries expects there will be a shattering realisation at some point that QE does not work.  Quantitative easing has distorted the prices of assets, which has led to a misallocation of capital and could potentially result in lower returns on equity.  Our problems have not gone away and growth will be anaemic at best.

This view explains why the fund has underperformed the recent rally. James Harries accepts that its conservative nature will mean it continues to lag if things are actually getting better.  If the US does not recover as strongly as some believe, and if China also disappoints, a better investment opportunity could arise at a later date.

Mr Harries describes the fund as “robust to a variety of outcomes”. It is a relatively concentrated portfolio. Given the negative outlook investors should look at this fund as insurance policy to protect your assets should things not go according to plan.

This is a fund for the cautious investor looking to shelter and limit the volatility of their portfolio.  We are currently undergoing the biggest monetary and fiscal policy experiment in history, the results of which no-one can accurately predict. Given this, it makes sense to have a fund such as this within your portfolio.

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