MAIF’s Flood adds to EM bond, alternatives and renewables allocation

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Recent disparate returns highlight the benefits of a multi-asset approach, says Newton’s Paul Flood.

Paul Flood, manager of BNY Mellon’s Multi-Asset Income Fund1, has increased his allocation to emerging market bonds, alternatives and renewables to close to all-time highs as he attempts to balance known risks with the potential for upside.

With the former, says Flood, there’s a need for defensive positioning to account for possible dislocations caused by Brexit, the US/China trade war and liquidity risk. But this doesn’t mean the outlook is entirely negative. “We also see scope for upside,” he says. “Here, we think rising productivity could boost returns from select companies and industrial sectors and we also think the current ‘goldilocks’ global growth scenario could have a longer shelf life than people are expecting.”

According to Flood, the need for balanced allocations is apparent if you consider the disparate returns from different asset classes within the fund recently. In 2018, for example, amid a broad equities sell-off which saw the MSCI All World Index (local currency) lose 7.69% by the end of the year, and US 10-year Treasuries (local currency) come in almost flat, the fund’s infrastructure holdings returned 9.89%. Holdings in renewables and alternatives also did well, adding 8.19% and 6.53% respectively.2

In Q1 2019, in contrast, the MSCI All World Index (local currency) performed well, gaining 12.28%. The fund’s renewable holdings also made ground, returning 7.33%, while US Treasuries (local currency) were boosted by the dovish mood music from the US Fed to return 4.59%.

Against this background, the fund’s alternatives holdings gained just 2.13% while the fund’s infrastructure allocation gave up some of their 2018 progress with a -0.21% fall.

Says Flood: “The disparity of returns over such a short timeframe highlights why active diversification is helpful; not just within an individual asset class but across a broad portfolio. In my view it underscores the value of a multi-asset approach.”

In equities, the top-three contributors to returns over the 12 months to 31 March 2019 were insurer AIA, Hikma Pharmaceuticals and tech group apple. In bonds, the top contribution over the same period came from longer-dated US Treasuries and Australian government debt.

In the alternatives space, renewable energy company Greencoat UK Wind added the most, followed by infrastructure investment groups John Laing Environmental Assets and BBGI. Greencoat UK Wind is now the single highest allocation on the portfolio, accounting for 3.1% of the overall total.

Recent additions to the fund include Deutsche Wohnen, a residential property company that develops and manages residential properties in Germany and across Europe. Flood has also increased the allocation to Greencoat UK Wind, a company producing renewable energy.

More widely, the allocation to equities has increased marginally in recent months while at the same time Flood has added exposure to other areas including renewables and emerging market bonds to broaden diversification.

He concludes: “We continue to select companies we believe can continue paying their coupons and growing their dividends throughout the cycle. We believe this approach should help us to meet our objective of providing an attractive and growing income over time.”

NB: The ‘Bonds’ category includes government bonds, sub investment grade bonds, corporate bonds, emerging market bonds, convertible bonds, index-linked and investment grade bonds. 

Newton Multi-Asset Income strategy: asset allocation

31-Dec-18
31-Mar-19
Equities
44.01
46.35
Renewables
10.32
11.03
Infrastructure
7.59
7.09
Emerging Market Bonds
1.87
5.93
Government Bonds
7.46
4.85
Asset Financing
4.09
3.97
Sub Investment Grade Bonds
4.16
3.85
Corporate Bonds
3.26
3.15
Property
2.53
2.86
Index Linked
1.99
1.89
Energy Storage
1.81
1.82
Royalties
1.69
1.57
Direct Lending
1.70
1.57
CLO Equity
1.23
1.36
Convertible Bonds
0.91
0.88
Economic Infrastructure
0.70
0.82
Currency Hedging
-0.60
0.31
Cash
5.12
0.69

Industry sector allocations: three month change (5)

31-Dec-18
31-Mar-19
Financials
11.75
13.53
Consumer Services
7.81
7.90
Industrials
6.45
6.67
Consumer Goods
5.63
6.19
Technology
5.15
5.35
Oil & Gas
1.96
2.15
Telecommunications
2.58
1.96
Health Care
1.63
1.61
Basic Materials
0.92
0.89
Utilities
0.14
0.11

Source: Newton as at 31 March 2019.

Source: Lipper as at 30 April 2019. Fund performance for the Institutional Shares W (Income) calculated as total return, including reinvested income net of UK tax and charges, based on net asset value. 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. Effective date, 27 January 2018, the Newton Managed Income Fund (in BNY MMF I) merged into the Newton Multi-Asset Income Fund (in BNY MIF).

Past performance is not a guide to future performance.  

The value of investments can fall. Investors may not get back the amount invested. Income from investments may vary and is not guaranteed.

Objective/Performance Risk: There is no guarantee that the Fund will achieve its objectives.

Currency Risk: This Fund invests in international markets which means it is exposed to changes in currency rates which could affect the value of the Fund.

Credit Ratings and Unrated Securities Risk: Bonds with a low credit rating or unrated bonds have a greater risk of default. These investments may negatively affect the value of the Fund. 

Credit Risk: The issuer of a security held by the Fund may not pay income or repay capital to the Fund when due.

Emerging Markets Risk: Emerging Markets have additional risks due to less-developed market practices.

Important Information

For Professional Clients only. This is a financial promotion and is not investment advice. Portfolio holdings are subject to change, for information only and are not investment recommendations. Any views and opinions are those of the investment manager, unless otherwise noted. This is not investment research or a research recommendation for regulatory purposes.

INV01662 

1 Please note, on 10 June 2019 the Fund’s name changed from Newton Multi-Asset Income Fund to BNY Mellon Multi-Asset Income Fund.

2 Source for all performance and positioning data unless otherwise specified: Newton 31 March 2019.

 

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