NEWTON MULTI-ASSET INCOME FUND

Transcription

1 NEWTON MULTI-ASSET INCOME FUND Jon Bell / Paul Flood January 2018 FOR PROFESSIONAL INVESTORS ONLY Please read the important information at the back of this material PRE00311

2 Investment process Newton Multi-Asset Income Fund LEARNING POINTS CHALLENGES FACING CLIENTS REQUIRING INCOME Market characteristics that have reduced traditional sources of yield Fundamental, active & flexible WHY A SUSTAINABLE INCOME IS IMPORTANT High yield can often imply high-risk RISK APPETITE Example assets Safe havens (protective qualities) Core (attractive risk/return attributes) Opportunities (higher growth profile) USE OF ALTERNATIVES AS A SOURCE OF INCOME Areas of opportunity that offer sustainable income and low sensitivity to the economic cycle Income focused flexibility is key 1

3 Newton s investment philosophy Global thematic investing since 1978 We believe in GLOBAL THEMES ANALYSIS CONVICTION Thinking globally, evaluating each idea in a global context Using themes to understand the forces driving global change Conducting rigorous fundamental analysis incorporating ESG 1 considerations Constructing investment portfolios incorporating our highest conviction ideas Note: 1 Environmental, Social and Governance. Our primary objective is delivering results for our clients 2

4 Income diversification has moved on Infrastructure REITs UK Equities 60% UK Equities TRADITIONAL DISTRIBUTION FUND 40% UK Government Bonds Alternatives NEWTON MULTI-ASSET INCOME FUND Overseas Equities UK Government Bonds EMD Corporate Bonds Overseas Government Bonds You have to make the rules, not follow them Sir Isaac Newton 3

5 Financial repression $8.8trn of global fixed income with negative yields Bond ownership by central banks 44.3% 37.9% 35.8% $2.47 trn $338 bn 32.5% 31.2% 29.8% 27.8% 27.0% 23.4% $2.37 trn $3.92 trn Japan Germany Finland Ireland Austria Denmark France Nth'lands Belgium Source: BofA Merrill Lynch Global Fixed Income Markets Index and Bloomberg, 30 June All figures in USD Source: Bank of England, European Central Bank, Bank of Japan, Research Division of the Federal Reserve Bank of St. Louis, 31 July 2017 Need to think differently, invest differently 4

6 Inflation missing in action? Or hiding in plain sight? Total return performance in local currency since January FINANCIAL ASSET PRICES REAL ECONOMY PRICES Source: Bloomberg, June Wide dispersion between real economy & financial asset price inflation 5

7 Policy impacting corporate bond markets Yield to worst at all time lows % Oct-07 Jun-09 Feb-11 Oct-12 Jun-14 Feb-16 Oct-17 BoA ML Euro Corporates Index BoA ML US Corporate Index HY yielding 2.7% for most levered part of corporates market % Oct-07 Jun-09 Feb-11 Oct-12 Jun-14 Feb-16 Oct-17 BoA ML European Currency High Yield Constrained Index BoA ML US High Yield Index For illustrative purposes only. Source: Bloomberg, 31 October Opportunity cost of cash is at all time lows 6

8 Inflation around the world US CPI Bond 10 year yield US Treasury 2.5% UK Gilt 1.2% German Bund 0.4% Mar-11 May-12 Jun-13 Jul-14 Sep-15 Oct-16 Nov-17 US CPI UK CPI German CPI For illustrative purposes only. Source: Bloomberg, 4 January No protection against the ravages of inflation 7

9 US consumer business sentiment strong Small business optimism Nov-10 Jan-12 Mar-13 Apr-14 Jun-15 Jul-16 Sep-17 Small Business Optimism Index Nominal wage growth of US individuals Nov-10 Jan-12 Mar-13 Apr-14 Jun-15 Jul-16 Sep-17 Atlanta Fed's Wage Growth Tracker Source: Bloomberg, 30 September Dislocation between economy and markets? 8

10 What you pay influences future returns Aggregate valuations stretched Observations over 100 years S&P valuation level (cycle-adjusted) vs. 10-year average annual returns 16. Financial and economic risks are high. Probability of sharp drawdowns is elevated Sept x -8 Valuation increases Cycle-adjusted P/E multiple, x Source: Prof Robert Shiller, Yale University, Newton, 30 September Chart depicts 100 years of monthly data points. Potential return for taking risk is low 9

11 Central bank liquidity has been the key support for financial markets An attempt to reduce the size of central bank balance sheets Central Bank Net Asset Purchases 1 Today COMMODITY BUST 1.0 EUROZONE DEBT CRISIS EM & COMMODITY BUST FORECASTS??? Sweden US UK Japan Euro Area China 6 Economy Aggregate Note: 1 (3MMA, $Bn), F Source: Bloomberg, Newton, September Liquidity to be withdrawn 10

12 Alternatives demonstrate strong thematic attributes Stable and growing income RENEWABLES AVIATION PROPERTY INFRASTRUCTURE Diversifying portfolio income, returns and risk 11

13 Stock selection bringing the process to life Greencoat UK Wind FUNDAMENTALS Beneficiary of attractive secular trends Strong position in growing renewables market Strong management team with proven track record Dual income Electricity exported to grid ROCS (Renewable Obligation Certificate) VALUATION 6% dividend yield (1.8x covered) Retail Price Index (RPI or inflation) linked growth Internal Rate of Return (IRR) 7 9% The securities mentioned are only for illustrating the investment process of Newton Investment Management. These opinions should not be construed as investment or any other advice and are subject to change. This slide is for information purposes only and does not constitute an offer or solicitation to invest. P/E = Price/Earnings. For illustrative purposes only. Source: Newton, May Focused on the best risk/return opportunities 12

14 Considering risk and return at the portfolio level duration risk Infrastructure performance over 10 years Infrastructure 10 year correlation With FTSE UK Gilts Over 10yrs 0.11 With FTSE Jul-07 Mar-09 Nov-10 Jul-12 Feb-14 Oct-15 Jun-17 Newton Multi-Asset Diversified Return Fund - Infrastructure holdings FTSE 100 FTSE UK Gilts Over 10yrs For illustrative purposes only. Source: Newton, 31 July

15 Considering risk and return at the portfolio level duration risk Renewables performance since 28 February Renewables correlation With FTSE UK Gilts Over 10yrs With FTSE Feb-13 Sep-13 Mar-14 Sep-14 Mar-15 Oct-15 Apr-16 Oct-16 Apr-17 Newton Multi-Asset Diversified Return Fund - Renewables holdings FTSE 100 FTSE UK Gilts Over 10yrs For illustrative purposes only. Source: Newton, 31 July

16 Semiconductors Driving Innovation Globally Big Data / Cloud Semiconductors More and more things 70 GB/day 3 Smart car Artificial Intelligence 1 PB/day 2 Smart Factory Offshore Wind Farm ~$400 billion 1 market and expanding 50 PB/day 2 Public Safety 1 Source: Gartner September Source: Cisco global Cloud Index White paper Source: Intel Data is the New Oil 8 July Source (images): Shutterstock, TB/day 2 Connected Plane 15

17 Investment process Newton Multi-Asset Income Fund LEARNING POINTS CHALLENGES FACING CLIENTS REQUIRING INCOME Market characteristics that have reduced traditional sources of yield Fundamental, active & flexible WHY A SUSTAINABLE INCOME IS IMPORTANT High yield can often imply high-risk RISK APPETITE Example assets Safe havens (protective qualities) Core (attractive risk/return attributes) Opportunities (higher growth profile) USE OF ALTERNATIVES AS A SOURCE OF INCOME Areas of opportunity that offer sustainable income and low sensitivity to the economic cycle Income focused flexibility is key 16

18 Newton Multi-Asset Income Fund Aiming to deliver sustainable and growing income. Strong heritage of managing multi-asset portfolios Aiming to deliver sustainable and growing income Newton Multi-Asset Income Fund Income 130% of 60% equities / 40% bonds reference. A long-term focused process. An experienced team committed to a rewarding relationship Seeking to deliver attractive income and total returns through: Stable and growing income Fundamental, active & flexible Harnessing the power of compounding The 60% MSCI AC World, 40% hedged BoAML Global Broad Market index is used as an income reference for this fund. The fund does not aim to replicate either the composition or the performance of the index. Note: 1 Based on performance from inception to 30 September Sustainable income and attractive total returns 1 17

19 Performance since inception to 31 December 2017 Newton Multi-Asset Income Fund Stable and growing income Current annual yield Newton Multi-Asset Income Fund 4.0% Reference yield target 2.7% Income received¹ Total return² 1 Source: Newton, GBP Inc share class, 31 December Total income received from holdings smoothed daily for illustrative purposes. 2 Source: Lipper, midday prices, total return, income reinvested, net of 0.63% annual management charge, Inst W Acc share class, in GBP, 31 December Aiming to deliver robust and stable returns 18

20 Current positioning by industry, as at 31 December 2017 Newton Multi-Asset Income Fund Fundamental, active & flexible Currency hedging 0.2% Basic Materials 0.0% Cash 3.1% Derivatives 0.0% Oil & Gas 1.9% Direct Lending 1.7% CLO Equity 1.9% Industrials 7.2% Property 6.8% Consumer Goods 9.2% Infrastructure 6.5% Weight; 3.3% Health Care 2.6% Weight; 28.4% Renewables 11.5% Yield; 5.5% Weight; 52.7% Consumer Services 9.4% Weight; 15.6% Yield; 5.0% Yield; 3.1% Telecommunication 2.9% Emerging Market Bonds 2.6% Utilities 0.6% Sub Investment Grade Bonds 5.4% Government Bonds 3.0% Corporate Bonds 2.5% Convertible Bonds 2.0% Index Linked 0.2% Technology 6.4% Banks 5.0% Financials 7.5% Source: Newton, 31 December Active, flexible and directly invested 19

21 Total return performance since launch 1 vs sector peers Newton Multi-Asset Income Fund Fundamental, active & flexible Newton Multi-Asset Income Fund IA Mixed Investment 20%-60% Shares IA Mixed Investment 40%-85% Shares IA Flexible Investment Note: 1 Inception date: 5 February Source: Lipper, midday prices, total return, income reinvested, net of 0.63% annual management charge, Inst W Acc share class, in GBP, 31 December Strong relative performance 20

22 Key risks Newton Multi-Asset Income Fund Investment performance Dec-16 to Dec-17 % Dec-15 to Dec-16 % 12 month returns Dec-14 to Dec-15 % Dec-13 to Dec-14 % Dec-12 to Dec-13 % Fund N/A N/A N/A Index N/A N/A N/A N/A N/A YTD 2017 % 2016 % Calendar year returns 2015 % 2014 % Fund N/A N/A N/A Index N/A N/A N/A N/A N/A Performance is stated gross of management fees. The impact of management fees can be material. A fee schedule providing further detail is available on request.. Past performance is not a guide to future performance. Your capital may be at risk. The value of investments and the income from them can fall as well as rise and investors may not get back the original amount invested. You should read the Prospectus and the Key Investor Information Document (KIID) for each fund in which you want to invest. The Prospectus and KIID can be found at Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Newton is not a tax expert and independent tax and/or legal advice should be sought % Key investment risks. There is no guarantee that the Fund will achieve its objective.. This Fund invests in international markets which means it is exposed to changes in currency rates which could affect the value of the Fund.. The Fund will use derivatives to generate returns as well as to reduce costs and/or the overall risk of the Fund. Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large movement in the price of the derivative investment.. Investments in bonds are affected by interest rates and inflation trends which may affect the value of the Fund.. The Fund holds bonds with a low credit rating that have a greater risk of default. These investments may affect the value of the Fund.. The Fund may invest in emerging markets. These markets have additional risks due to less developed market practices.. The Fund may invest in investments that are not traded regularly and are therefore subject to greater fluctuations in price.. The Fund may invest in small companies which may be riskier and less liquid (i.e. harder to sell) than large companies. This means that their share prices may have greater fluctuations.. The Fund takes its charges from the capital of the Fund. Investors should be aware that there is potential for capital erosion if insufficient capital growth is achieved by the Fund to cover the charges. Capital erosion may have the effect of reducing the level of income generated.. The Bank of New York Mellon Corporation or one of its affiliates ( BNYM ) has invested in the Fund. As a result of restrictions under the Volcker Rule, which has been adopted by US Regulators, BNYM must reduce its shareholding percentage so that it constitutes less than 15% of the Fund within, generally, three years of the Fund's establishment (which starts when the Fund's manager begins making investments for the Fund). Risks may include: BNYM may initially own a proportionately larger percentage of the Fund, and any mandatory reductions may increase Fund portfolio turnover rates, resulting in increased costs, expenses and taxes. Details of BNYM's investment in the Fund are available upon request.. A complete description of risk factors is set out in the Prospectus in the section entitled Risk Factors. Source: Newton, close of business prices, total return, income reinvested, gross of fees, in GBP, 31 December Key investment risks 21

23 Important information For professional investors only This is a financial promotion. Issued in the UK by Newton Investment Management Limited. Portfolio holdings are subject to change at any time without notice and should not be construed as investment recommendations. Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell this security, country or sector. Where an index is used as a comparative index, this strategy does not aim to replicate either the composition or the performance of the comparative index. Where the portfolio has exposure to hedge funds, gold, private equity and property via publicly quoted transferable securities, there are additional risks associated with these sectors. The portfolio may hold derivatives. An investment in derivatives may be volatile, but the volatility of the strategy is not expected to be any greater than that of the underlying stock and fixed income markets. Where the fund is invested in sub-investment grade bonds, which typically have a low credit rating and carry a high degree of default risk, please be aware that this may affect the capital value of your investment. The value of overseas securities will be influenced by fluctuations in exchange rates. A concentrated portfolio does not have the diversity of investment that is generally expected. This means that each stock within the portfolio may have a more significant effect on its performance. Assets under management include assets managed by Newton Investment Management Ltd and Newton Investment Management (North America) Limited. In addition, AUM for Newton may include assets managed by Newton s officers as employees of The Bank of New York Mellon and assets of wrap fee account(s) for which Newton Investment Management (North America) Limited provides subadvisory services to the primary manager of the wrap program. Newton Investment Management (North America) Limited and Newton Investment Management Limited are authorised and regulated by the Financial Conduct Authority in the UK, and Newton Investment Management (North America) Limited is registered as an investment adviser with the SEC. The enclosed material is confidential and may not be reproduced or redistributed without the prior written consent of Newton Investment Management Limited. Nothing herein constitutes an offer to sell, or solicitation of an offer to purchase, any securities. Newton refers to the following group of affiliated companies: Newton Investment Management Limited, Newton Investment Management (North America) Limited and Newton Investment Management (North America) LLC. NIMNA LLC personnel are supervised persons of NIMNA Ltd and NIMNA LLC does not provide investment advice, all of which is conducted by NIMNA Ltd. Except for Newton Investment Management (North America) LLC and Newton Investment Management (North America) Limited, none of the other Newton companies offer services in the US. The opinions expressed in this document are those of Newton and should not be construed as investment advice. Newton claims compliance with the Global Investment Performance Standards (GIPS ). To receive a list of composite descriptions of Newton and/or a compliant presentation, contact the RFP Team at Newton-RFP-team@bnymellon.com or write to Newton Investment Management Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA, Tel: Newton Investment Management Limited BNY Mellon Centre 160 Queen Victoria Street London EC4V 4LA Tel: Registered in England No BNY Mellon Fund Managers Limited BNY Mellon Centre 160 Queen Victoria Street London EC4V 4LA Tel: Registered in England No Registered office: as above. Both firms are authorised and regulated by the Financial Conduct Authority, are members of the IA and are Bank of New York Mellon Companies SM 22