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10 minutes with…Iain Stewart

Iain Stewart

Telecom and healthcare stocks are notable core defen-sive holdings, for example. Overall, his aim is to pick up some upward momentum in risk assets while protecting capital in down markets, with a formal Libor plus 4 per cent return target.

In the fund’s early years after moving to the current strategy in 2004, most of the performance came from equities but Stewart took a key call in 2007/08 to slash sterling exposure from 100 per cent to about 35 per cent. He says: “Our benchmark is 100 per cent sterling as cash plus 4 per cent so anything outside that is a risk but we benefited from the currency’s devaluation through the credit crunch.

“Another major position was avoiding indebted areas of the stockmarket such as banks, real estate and consumer discretionary and we also had various equity hedges in place plus a large position in government debt.”

During 2008, equity expo-sure dragged on performance despite the hedges and returns came from government debt and options on these bonds as well as gold and an all-time high cash stake at 40 per cent. Post-Lehmans, Stewart shifted his government bond position into corporates and benefited from the sector’s really but rem- ained fairly defensive on equi-ties, unwilling to dive into cyclicals. He currently has 59 per cent in shares – largely areas less geared into the economy, such as telecoms – with just over 20 per cent in bonds, 5 per cent in commo-dities and the rest in cash.

On the fixed-interest side, the fund has solid high-yield positions and is generally skewed toward senior debt higher up the capital structure. He also has some allocation to Norwegian government bonds, seeing the country as one of the few genuine AAA-rated sovereign issuers in the world.

Stewart has around 70 per cent sterling exposure, expecting the currency to be weak long term against Asian counterparts but potentially exhibiting some strength from cheap levels on the back of austerity measures. Also key to the portfolio is Newton’s trademark thematic approach, which looks to identify companies or assets better positioned to benefit from long-term trends.

A major theme currently in place is the group’s all-change idea in the wake of the credit crunch, which highlights the necessary readjustment in markets and the financial industry. This also has signif-icant implications for areas such as currencies and has led the team into using derivatives to provide downside protec-tion in an uncertain environ-ment. Investments based on this theme include companies such as Total, GlaxoSmithKline, Novartis, Roche and Vodafone.
Another theme currently in place is developing economies as these countries continue on their convergence course with the West.”

Against a background of unprecedented monetary easing and competitive currency devaluations, he continues to invest a solid portion of the fund in gold via physical positions and shares. One recent addition in this space – at the end of the third quarter – was Yamana Gold. Stewart says the company boasts a compelling growth pipeline and the team believes its portfolio of South African assets is significantly under-valued in comparison with its peers. They funded this purchase via the reduction of Gold Fields, where the managers see less scope for share price appreciation.

Stewart says: “Elsewhere, our networked world theme continues to be reflected in the fund’s stock selection. We added a new holding in MTN, the South African-based mobile telecommunications operator, to gain exposure to the strong growth in mobile telecoms across Africa.”

Another sub-theme in this area is how companies capit-alise on growth in data usage and Newton has long been an advocate of putting tiered pricing in place ahead of a predicted surge in the coming years. To play this trend, the team introduced Swedish stock Teliasonera last year, which has plans to benefit from mobile data growth.

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