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Focus on Newton's UK Opportunities Fund

Investment expert Nathan John looks at the fund’s investment approach which has a solid track record, forged by a consistent approach since inception in 2002.

The UK fund with a global outlook

Newton’s UK Opportunities Fund has freedom to invest wherever the fund manager sees the most value. Taking high conviction positions backed by rigorous analysis provides investors with a very different product than the ‘me-too funds’. What is not held is also important. Fund manager Christopher Metcalfe has chosen to be underweight in banks, miners and oil companies. Instead Christopher prefers stocks which demonstrate pricing power in a weak economic environment, have strong balance sheets and high through cycle returns on equity. This positioning continues to generate positive performance.

A UK fund operating in a wider context

Despite its name, the fund has a global outlook. We feel this is crucial given that more than half of the UK equity market is now held by foreign investors and the majority of UK company earnings are generated outside of the UK. It means looking not just at the obvious UK names – such as GlaxoSmithKline versus AstraZeneca – but also looking at those names versus global peers such as Novartis and Pfizer. Only by doing this relative work can we feel more confident about how international investors might view companies in future and what looks attractive globally. Whether it’s American investors buying shares in Unilever over Procter & Gamble, or Thai consumers buying Unilever’s products, we live in a globalised world.

This global approach is reflected in our investment process. Unlike other large investment houses, there are no ‘siloes’, and there is one truly global daily morning meeting attended by all. This all helps build a coherent and globally attractive portfolio of primarily UK-listed companies.

The manager can invest directly into the best of Newton’s overseas ideas and allocates up to 20% of the fund outside the UK. A significant portion of this is currently allocated to technology companies, giving the fund one of the highest weightings to technology in the UK All Companies sector. Christopher believes technology is one of the few sectors which offers long-term structural growth at, in many cases, reasonable valuations. All of Christopher’s technology holdings have the following common characteristics: strong balance sheets (in many cases net cash), low capital requirements, low working capital requirements, high free cash flow relative to market cap and long-term structural growth. Christopher prefers to own the stocks doing the disrupting than be exposed to companies which have been disrupted (high street retail, domestic media).

Newton ‘themes’: a key differentiator

The final element is Newton’s ‘themes’. These ideas help the fund managers and sector analysts identify evolving trends at an early stage. They also help the team to focus on the longer-term and remind them that investment is not about the next quarter but often the next decade. If they continue to identify key global trends earlier than others, as the themes did in helping the team avoid banks in 2007/2008 and avoid miners in 2014/2015, they should be well placed in the future too.

Using this approach, the team believe that Newton UK Opportunities, with a concentrated portfolio of typically between 30-50 stocks, provides something very different from the herd, and has the track record and high conviction positioning to prove it.

Fergus McCarthy, Head of UK & Ireland Intermediary Distribution at BNY Mellon Investment Management EMEA, comments: “We’re delighted that the Newton UK Opportunities strategy has been added to WealthSelect. The fund has a solid track record, forged by a consistent approach since inception in 2002. It is this approach which we think really differentiates it to other funds in the UK All Companies sector and we’re confident that this approach will continue to deliver a good outcome for investors.”

Your clients investment may fall or rise in value and they may not get back what they put in.

Past performance is not a guide to the future.

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The views expressed by external contributors are not necessarily those of Old Mutual Wealth or Old Mutual International.

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