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This is a financial promotion for Professional Clients. Any views and opinions are those of Newton Investment Management, unless otherwise noted. Defaqto Diamond Rating as at 1st May 2015. A Distribution Technology Rating is for illustrative purposes only and should not be relied upon when making an investment decision. Ratings are correct as at end of month shown
May 2015
1
What we’ll cover Multi-asset + income comes naturally to Newton Yield hunters and baby boomers Our approach Summary
2
Newton: pioneers of multi-asset & income 2015: Multi-Asset Income launched £20bn
£15bn
2004: £20bn+ Real Return launched
4000
1998: Global Balanced launched
1978: Commenced management of Newton Exempt Fund
3000 £10bn
£5bn
2000
£0 1000
Growth of Multi-asset AUM (LHS)
Growth of FTSE All Share (RHS)
1987: Newton UK Income Fund launched*
*Previously known as the Newton Higher Income Fund. ^Previously known as the Newton Global Higher Income Fund. The above example is for illustrative purposes only. Source: Newton, based on Composite AUM assets (combination of Multi-Asset Relative and Absolute return), excludes directly held private client assets, December 2014.
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2003: Multi-Asset Diversified Return launched 2005: Newton Global Income Fund launched^
0
2008: Managed Income launched
What we’ll cover Multi-asset + income comes naturally to Newton Yield hunters and baby boomers Our approach Summary
4
Valuation – available globally World markets: Gross equity dividend yields & 10 year bond yields 1.6% 3.9%
UK 10 year
United Kingdom
2.0%
1.9%
North America US 10 year
MSCI UK
2.9%
5.0% Russia 10 year
Europe
MSCI Europe ex UK
2.2%
S.Korea 10 year
MSCI North America
1.6% Japan MSCI Japan
3.6% Africa MSCI EFM Africa ex S.Africa
2.7%
6.9%
Ethiopia 9 year
Latin America
2.6%
Asia Pacific MSCI Asia Pacific ex Japan
MSCI Emerging Markets Latin America
4.5%
2.3%
Brazil 10 year
Australia 10 year
3.2%
NZ 10 year
Look globally for opportunities …
Source: Bloomberg, MSCI World as of 31st March 2015.
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Some yield hunters are travelling even further!
6.625%
Source: FT.com, 4 December 2014.
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Baby boomers: retiring into a low return world 16%
10 year bond yield
70
Fed funds rate
Baby boomer average age (RHS) 60
14%
12%
50
10%
MSCI USA dividend yield 6%
30
4%
20
2%
10
0% 1982
Source: Datastream, Bloomberg, US Census Bureau, Newton.
2014
7
0
Age
40
8%
The senior citizen tsunami
Sources: ONS 2014.
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And what about their grandchildren?
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The days of guaranteed annuities are long gone
Source:1. www.hl.com, 13/02/15. Based on 60 year old male, single life, no escalation or guarantees and no tax-free cash (PCLS) taken.
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Income that avoids capital erosion is now key for retirement
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What we’ll cover Multi-asset + income comes naturally to Newton Yield hunters and baby boomers Our approach Summary
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Our approach 1. Don’t reduce the capital base •! Avoid strategies that sacrifice capital for income and other potential capital/ growth eroding strategies 2. Don’t chase yield in unchartered territory •! Will lenders to Ethiopia, Sierra Leone and Morocco get all their money back? 3. Focus on realistic, sustainable income and aim to incrementally grow the capital base •! 130% of the yield of a basket of 60% equities/40% bonds.
Risk vs reward vs retirement income 13
Income diversification has moved on
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Building diversification
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Diversified source of income
For illustrative purposes only. Source; Newton as at 31st May 2015.
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Macquarie Korea Infrastructure Fund •! Leading Korean infrastructure fund •! Invests in roads, toll roads, tunnels, bridges and ports •! Korean car industry 5th largest in the world with 8% year on year growth •! Yield: 5.4% •! Minimum revenue guarantee
For illustrative purposes only. This Fund may not be saleable in the UK and is only being used to demonstrate the types of holding the Newton Multi-Asset Income Fund holds. Source: KAMA 2012.
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REITs: building even more diversification
90% 18
Newton Multi-Asset Income Fund Current Positioning as at 31 May 2015 Oil & Gas 1% Basic Materials 1% Industrials 5%
Cash 9% Direct Lending 3%
Consumer Goods 7%
CLO Equity 3%
Equities Health Care 5%
Property 5%
Fixed Income Alternatives
Consumer Services 8% Infrastructure 9%
Telecommunication 4% Emerging Market Bonds 1% High Yield Bonds 3%
Utilities 4%
Sub Investment Grade Bonds 5% Financials 6% Government Bonds 3% Corporate Bonds 4% Convertible Bonds 2% Index Linked 3%
Source: Newton, 31 May 2015.
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Banks 5% Technology 6%
Cash
What we’ll cover Multi-asset + income comes naturally to Newton Yield hunters and baby boomers Our approach Summary
20
Summary
1. Multi-asset income comes naturally to Newton
3. 2. Aims to avoid capital erosion and not follow yield hunters
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Focus on sustainable income from diversified sources
Appendix
22
Multi-asset income At the centre of Newton’s core competencies Absolute return
Income
Active
£14.3bn
£13.0bn
£25.5bn
Global Dynamic Bond Real Return
Asian Equity Income Emerging Equity Income Global Equity Income Global High Yield Bonds
Asian Equity Emerging Equity European Equity Global Bonds
Managed Income (fund of funds)
Global Equity1
UK Equity Income
Global ex US Equity Multi-Asset/Balanced UK Equity1
Utilising all of Newton’s core competency’s – absolute return, income and active management
1Includes
derivations of core desk strategy, e.g. Opportunities. Source: Newton, 31 December 2014.
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Newton Multi-Asset Income Fund Attributes
Strategy type
•! Aims to yield 30% more than reference yield
Global multi asset income
•! Paid monthly •! A fully flexible multi-asset strategy •! Emphasis on long term investing and focus on income
Objective
•! Single portfolio to source the best income producing opportunities across all asset classes and capital
To provide income with the potential for capital growth over the longer term
Comparative income reference 60% equities 40% bonds1
Allowable assets Wide range of assets fund can invest in: •! Cash •! Government bonds •! •! •! •! •! •!
Note: 1 60% MSCI AC World, 40% hedged BoA ML global broad market index.
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Corporate bonds Convertible bonds/Preference shares Equities Other income generating assets Derivatives REITs
Paul Flood Multi-Asset Income Fund Manager Curriculum vitae 2006 to date Newton Investment Management – Portfolio manager, multi-asset team 2004 – 2006 Mellon Investment Funds (Europe) – Unit trust dealer
Qualifications CFA charterholder CQF (Certificate in Quantitative Finance) BSc (Astro-Physics) 8 years at Newton 10 years’ investment experience
CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.
25
Nick Clay Multi-Asset Income Fund Manager Curriculum vitae 2000 to date Newton Investment Management – Portfolio manager, global equity team 1994 – 2000 Morley Fund Management – Deputy head of life, UK equities 1991 – 1994 Sun Alliance – Analyst
Qualifications Associate member of the United Kingdom Society of Investment Professionals (UKSIP) BA 13 years at Newton 23 years’ investment experience
CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.
26
Newton Multi-Asset Income Fund team Investment Strategy Group
Thematic Focus Groups
Bond / FX Strategy Group
Multi-Asset Income team Portfolio Managers
15 years average investment experience 7 years at Newton
Global Research 20
20
Industry Analysis
Equity
4 21 Multi-Asset
Responsible Investment
Nick Clay Co-Lead manager
Paul Flood Lead manager
5 Credit
9 Fixed Income
9 Bhavin Shah Multi-asset manager
Khuram Sharih Credit analyst
17 years investment experience 11 years at Newton
Alternatives 14 years investment experience 7 years at Newton
Absolute & Income strategies
Single location, interactive and collaborative approach Total number of investment personnel = 71 (some investors included in more than one category). Source: Newton, June 2015.
27
Multi-Asset team – Idea generation and input Investment Strategy Group
Thematic Focus Groups
Bond / FX Strategy Group
Multi-Asset team Portfolio Managers
21 years average investment experience 15 years at Newton
Global Research 20
20
Industry Analysis
Equity
Christopher Metcalfe
21
Rob Stewart
Matthew Brown
3
Bhavin Shah
Simon Nichols
Responsible Investment
Multi-Asset
6 Credit
9
Nick Moss
Oliver Larminie
Hilary Meades
Jon Bell
Rob Shelton
9
Fixed Income
Alternatives
17 years investment experience 11 years at Newton
13 years investment experience 7 years at Newton
Paul Stephany
Emma Mogford
Iain Stewart
Nick Clay
Paul Flood
Single location, interactive and collaborative approach Total number of investment personnel = 71 (some investors included in more than one category). Source: Newton, January 2015.
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Tim Wilson
Newton Multi-Asset Income Fund Example of smoothed payment schedule •! Aims to provide a stable monthly income for investors •! Intend to pay 11 smoothed monthly payments. Dividends will be calculated on the last calendar day of each month and paid within the following month •! Any remaining income will be declared in the 12th month (June) and paid in July •! The fund’s prospective yield is determined by the income reference** and may be revised at any time during the year if deemed necessary, potentially affecting the monthly payments Xp
Example fund payout projections* Per 100p unit
smoothed monthly distributions Remaining income
0.28p
0.28p
0.28p
0.28p
0.28p
0.28p
0.28p
0.28p
0.28p
0.28p
0.28p
0.28p 31-Jul
31-Aug
30-Sep
31-Oct
30-Nov
31-Dec
31-Jan
28-Feb
Funds’ financial year begins (1st July) Current income reference: 2.6%**
* Source: Newton, based on the current prospective yield as at 29 January 2015. **Income Reference: 60% MSCI AC World, 40% hedged BoA ML global broad market index.
29
31-Mar
30-Apr
31-May
30-Jun
Total of 12 months 3.36p
Newton Multi-Asset Income Fund Current positioning as at 31 May 2015 Major holdings
Major absolute sector positions Infrastructure
Fund (%)
12 month forecast yield (%)
Newton Global High Yield Fund
2.8
6.1
VPC Specialty Lending Inv
2.3
4.0
Industrials
GCP Infrastructure Investments
1.8
6.6
Cash
HICL Infrastructure
1.6
4.8
Greencoat UK Wind
1.6
1.5
Property
Reynolds American
1.3
4.0
Utilities
Volta Finance
1.3
8.4
Intl Public Partnership
1.2
4.6
Technology
Bluefield Solar Income Fd Ltd
1.2
3.7
CLO Equity
BAE Systems
1.1
4.3
Novartis
1.1
2.9
High Yield Bonds
New Zealand Government
1.1
3.6
Oil & Gas
Dixons Carphone
1.1
1.8
SSE
1.1
5.6
Infinis Energy
1.1
6.1
Top 15 absolute holdings
Consumer Goods Financials Consumer Services
Health Care Telecommunication
Government Bonds Banks
Direct Lending Basic Materials
Emerging Market Bonds 0.0
3.0
% of fund
Equity
Number of securities – 122 Source: Newton, Bloomberg as at 31 May 2015.
6.0
30
Non Equity
9.0
12.0
Multi-asset performance history 1 Yr!
3 Yrs
5 Yrs!
Incep.!
Fund
9.8
14.0
9.0
9.9
Comparative index (IA Flexible Sector)
4.9
10.1
7.0
6.9
Fund relative to benchmark
4.9
3.9
2.0
3.0
Newton Multi-Asset Growth – inception 19/03/1990!
! Newton Multi-Asset Balanced Institutional Composite – inception 31/12/1995! Composite
7.9
10.7
7.8
8.6
Comparative index (composite of component fund benchmarks)
4.1
10.4
8.0
6.7
Composite relative to benchmark
3.7
0.3
-0.1
1.9
Fund
7.5
10.3
7.8
12.8
Comparative index (CAPS Pooled Fund Median)
5.1
10.9
8.2
11.3
Fund relative to benchmark
2.5
-0.5
-0.5
1.5
! Newton Exempt Fund – inception 31/12/19781!
1. The Newton Exempt Fund is an authorised unit trust and has no retail share class. Source: Newton, 30 December 2014. Total Return, gross of fees. Fund performance calculated as total return (including reinvested income net of UK tax) and charges. All figures are in GBP terms. The impact of an initial charge (currently not applied) can be material on the performance of your investment. Further information is available upon request. For illustrative purposes only.
31
Newton Multi-Asset Income Fund Chasing yield can be dangerous Comparing forecast and realised dividend yields since end-1995 to 31 December 2014 Transocean: dividend cut by 80%
18.0
16.0
17.0
Dividend yield (%)
14.0
11.8
12.0
10.0
9.5 8.4
8.0
7.4 6.5
6.0
5.4 4.5
6.3
5.7
5.1
6.5
6.4
6.0 5.4
4.4
4.0
2.0
1.8
1.7
0.0 <4%
4%-5%
5%-6%
6%-7%
7%-8%
Average yield
Source: SG Quantitative Research, Factset/Newton Global Income Fund as at 31 December 2014.
8%-9%
Realised yield
32
9%-10%
10%-15%
15%-20%
“!all the right notes, but not necessarily in the right order’’.
Client Investment Experience vs Adviser Cashflow Forecast £20k withdrawals, average 3.6% real return p.a.
Eric Morecambe
Balance
Sequencing Risk
£450,000 £400,000 £350,000 £300,000 £250,000 £200,000 £150,000 £100,000 £50,000 £0
65
67
69
71
73
75
77
79
81
83
85
87
89
Age
Planner cashflow plan
For illustrative purposes only. Source: BNY Mellon as at 31st March 2015. Good sequence, rolling 5 years: 18%, 12%, 8%, -5%, -15%. Bad sequence, rolling 5 years: -15%, -5%, 8%, 12%, 18%.
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Good sequence
Bad sequence
91
93
95
Strategies to help manage sequence of return risk The benefit of ‘natural’ income means that income is derived from the income-yielding assets, rather than unit encashment Markets Fall – Income remains stable
Markets Rise – Income remains stable Year 1
Year 2: markets rise
Year 1
Year 2: markets fall
Share price
£1
£1.20
Share price
£1
£0.80
No. of shares
100,000
100,000
No. of shares
100,000
100,000
Capital value
£100,000
£120,000
Capital value
£100,000
£80,000
Dividend per share
5p
5p
Dividend per share
5p
5p
Yield
5% p.a.
4.2% p.a.
Yield
5% p.a.
6.3% p.a.
Income
£5,000
£5,000
Income
£5,000
£5,000
Source: BNY Mellon research, Dec 2014. For illustrative purposes only.
34
Newton Multi-Asset Income Fund The benefits of Multi-Asset investing Perspective
Diversification Rank 1
2005 GO"Gswkv{
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Risk reward
Risk
Equity Pref.shares Convertible Hybrid Subordinated Senior secured For illustrative purposes only Source: Newton, 31 December 2014.
35
Important information Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When investments are sold, investors may get back less than they originally invested. This is a financial promotion for Professional Clients. This is not investment advice. For a full list of risks applicable to this fund, please refer to the Prospectus. You should read the Prospectus and Key Investor Information Document (KIID) for each fund in which you want to invest. The Prospectus and KIID can be found at www.bnymellonim.co.uk. Investments should not be regarded as short-term and should normally be held for at least five years. This material may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised. This material should not be published or distributed without authorisation from BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA). Portfolio holdings are subject to change, for information only and are not investment recommendations. The Fund is a sub-fund of BNY Mellon Investment Funds, an open-ended investment company with variable capital (ICVC) with limited liability between sub-funds. Incorporated in England and Wales: registered number IC27. The Authorised Corporate Director (ACD) is BNY Mellon Fund Managers Limited (BNY MFM), incorporated in England and Wales: No. 1998251. Registered address: BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Authorised and regulated by the Financial Conduct Authority. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the corporation as a whole or its various subsidiaries. BNY Mellon Investment Management EMEA Limited, BNY MFM, and any other BNY Mellon entity mentioned are all ultimately owned by The Bank of New York Mellon Corporation. Issued in the UK by BNYMIM EMEA, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority. Issued as at 19-06-2015. CP15421 -19-09-2015(3M).
36