Bestinvest says
The fund has successfully met its performance target (cash plus 4%) through most of its life, offering fairly consistent capital growth combined with some protection from falling markets. However, it is perhaps more comparable with the more cautious funds of the Mixed Investment sectors than with its peer group - its volatility is higher than is typical for an Absolute Return fund. In particular the fund suffered significant monthly falls during the banking crisis in late 2008.
Investors should be aware that Absolute Return funds do not guarantee a positive return and you could get back less than you invested, as with any other investment. Additionally, the underlying assets of these funds generally use complex hedging techniques through the use of derivative products, which can carry additional risks which may not be immediately apparent.
The starting point for the process is the views of Newton's strategy group, which attempts to identify long term trends in the global economy, such as the over-indebtedness of western countries and the rapid growth of emerging countries. The managers use these views in determining the fund’s asset allocation – they invest globally, principally in direct holdings of equities (predominantly large, multinational companies), bonds and cash. However, they also use derivatives for downside protection, income generation and currency hedging, and sometimes uses exchange traded funds (ETFs) and other collectives to access asset classes such as gold, agriculture and other commodities.
Like other Newton funds, stocks are chosen from the recommendations of Newton's global sector analysts. However, stock selection also incorporates additional investment criteria to reflect the fund’s absolute return mandate. These include:
- Business characteristics, such as barriers to entry and cost control;
- Investment characteristics, such as absolute valuation, cashflow yield and liquidity;
- Portfolio characteristics, allocation between yield, dividend growth and revaluation potential.