The average deposit required for a first time buyer in the UK is twenty per cent, while the average house costs well over £150,000. With interest rates at historically low levels and inflation well above the Bank of England’s target of 2.2 per cent, investing my money in a stocks and shares ISA seems the only logical step if I want to buy a house before I can get my hands on my pension.
I’ve decided to split my yearly allowance between four funds, though the biggest bulk of my portfolio is invested in Newton Asian Income – a £1.7bn portfolio that sits in the IMA Asia Pacific ex Japan.
Some of my ISA plays this year are short-term, attempting to tap into a certain theme in the market; I’ve backed Smith & Williamson Global Gold & Resources, for example, because I believe gold equities will close the gap on the gold price following a weak 2011.
The Ruffer Investment Company is a play on Japan, which makes up 40 per cent of the portfolio’s equity exposure. While I
believe a weakening yen could see this overweight boost the trust’s performance in the next twelve months, I am less optimistic about the medium-term outlook for Japan. However, Newton Asian Income is a long-term play which I expect to hold in my portfolio for many years to come.
The fund is one of the very few in its sector that has an income focus. While dividends are generally associated with developed countries, the income-culture in Asia is growing by the year. According to data from Newton & BNY Mellon Asset Management, at the end of 2010, 26 per cent of global companies yielding more than 3 per cent were listed in Asia, while only 8 per cent came from the UK.
Indeed, Jason Pidcock’s portfolio has a very competitive yield of 4.97 per cent, which is more than both the FTSE All Share, and the average fund in the IMA UK Equity Income sector.
As well as providing me with a decent level of income, this fund has very good growth prospects in the long-term – particularly compared to the UK. With western markets set for stagnant growth for at least the medium term, the outlook for GDP growth in the likes of China and India is far more promising.
I am, however, relatively cautious by nature, and favour funds that tend to outperform during market turmoil. There are a number of risks in the Asia Pacific – namely, a slow-down in China’s growth and demand for commodities – so I want a fund that isn’t packed full of economically sensitive companies.
Newton Asian Income’s focus on dividend paying stocks – which are by their nature larger, and more defensive than their cyclical counterparts – means that it is likely to preserve better against the downside.
We’ve already seen this in both 2008 and 2011, when the portfolio lost significantly less than its peer group and benchmark. Last year, Newton Asian Income was the best performing fund in its sector by some distance, delivering negative returns of just 1.45 per cent.
Year-by-year returns (%) of fund, sector and index
| Name | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 |
| Newton Asian Income | 10.23 | -1.45 | 31.98 | 49.8 | -25.2 | 19.8 | 17.1 |
| FTSE Asia ex Japan | 9.63 | -14.8 | 23.88 | 55.5 | -33.1 | 37.2 | 17.2 |
| Asia Pac ex Japan | 9.41 | -16.8 | 23.14 | 52.5 | -33.1 | 36.8 | 18.1 |
Source: FE Analytics
In spite of the portfolio’s defensive stance, Pidcock has held his own during market rallies, either matching or outperforming his peer group every year with the exception of 2007.
This combination of significant outperformance during down markets and competitive performance during up markets has boded very well for Newton; according to FE data, it’s the sixth best performing portfolio of its kind since November 2005, with returns of 127.96 per cent.
It’s also a top-ten performer over a one, three and five year period. Inevitably, it’s consistently one of the least volatile funds in its sector as well.
Performance of fund, sector and index since launch
Source: FE Analytics
Cost is also a very important reason for my choice, since a high total expense ratio (TER) can erode returns quite considerably, especially in the long-term. With a TER of 1.66 per cent, Newton Real Return is among the cheapest retail fund in its sector. According to FE data, the average Asia Pacific ex Japan portfolio that is suitable for a retail investor has a TER of more than 2 per cent.
The fund is one of the best selling in the entire unit trust and OEIC universe over the last twelve months, with investment inflows of £784m. Here’s hoping that I’m in good company.
The expert view
“You’ll be pleased to hear that the Newton Asian Income fund is on our Wealth 150 list,” said Richard Troue, an analyst at Hargreaves Lansdown. “Though we only added it recently, we’ve been looking at it for a long while now.”
“Not only has it got an exceptional five year track record, but it offers something a little bit different, in that it provides exposure to a high growth market as well as a strong dividend yield.”
“Whereas in the past Asian companies re-invested their capital in order to grow the company, there is more of a demand for income from both domestic and foreign investors.”
“It’s been quite difficult to find a manager with a proven track record in this area, but [Pidcock] has been very solid, and is one of the more experienced individuals in his field.”
Troue also rates Smith & Williamson Global Gold & Resources – another portfolio that’s made it onto Hargreaves’ Wealth 150 list.
“It’s based out in Canada, so it has good access to a lot of the companies it invests in,” he explained. “The fund has a small to mid cap bias, and concentrates on producers, which have been particularly hard of late.”
“We believe there is certainly the opportunity for a very strong run not only in the short-term, but the long-term as well.”
According to FE data, Smith & Williamson Global Gold & Resources has returned 239.1 per cent since it was launched in December 2004 – more than its two gold-focused rivals with a long enough track record.
Performance of funds since December 2004
Source: FE Analytics
Troue believes the Ruffer Investment Company is a worthwhile play on Japan, and while he lists my final pick – the £6.9bn M&G Optimal Income portfolio – as one of his favourite funds, he says its size is beginning to concern him.
“This fund is something of a behemoth, which is the one thing that worries me,” he said. “It’s not as nimble as it once was, and until they close it inflows are just going to keep pouring in.”
“That said, it’s got one of the most experienced teams out there, and is a good core holding for any portfolio.”