Troy Trojan Income - defence as the best form of attack

Richard Wood | Tue 21 May 2019

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• Two new investments have been added to the fund
• It's performed better than the broader UK stock market over the last year
• The manager continues to think the UK offers attractive investment opportunities

Our view

Lots of fund managers will tell you they think differently to the herd. But many of them fail to deliver better returns than the market.

Francis Brooke seeks to be contrarian in his approach, looking for companies that could outperform regardless of the economic climate. He has delivered attractive returns over the course of his career at Troy. He invests cautiously, buying shares in companies he expects to sustain and grow profits.

Brooke holds fewer investments in his fund than the average fund manager in his sector. This allows each one to make a significant contribution to returns, but magnifies the effect of any that perform poorly which adds risk.

Brooke’s executed his strategy effectively and consistently over the years. We think the fund is invested in a different way to a lot of income funds so it could add diversity to a portfolio. It’s included on the Wealth 50 list of our favourite funds.

Performance

The fund’s performed well over the last year to 30 April. It returned 6.3%* while the broader UK stock market returned 2.6%. Investments in consumer goods and financial companies helped the fund to beat the UK market which suffered some setbacks during this period. This highlighted its ability to perform better than the general market during turbulent times.

Francis Brooke vs the UK Stock Market

Trying to avoid losses is key to how Brooke runs the fund. Over the course of his career at Troy it’s led to attractive returns as shown in the graph below although this should not be seen as a guide to the future.

Past performance is not a guide to the future. Source: Hargreaves Lansdown to 30/04/2019

Each point shows how the fund’s done compared to the FTSE All-Share Index over the previous 3 year period. This helps us determine the market conditions in which Brooke’s performed well but we think investments should be held for at least 5 years. The higher the graph climbs above 0, the more the fund has outperformed. When it falls below 0, the fund has underperformed.

For example, the first point, September 2007, shows that over the previous 3 years the fund under-performed the FTSE All-Share by 13%.

Brooke’s best comparative performance came around the financial crisis.

Past performance is not a guide to the future. Source: *Lipper IM to 30/04/2019

Invest in quality businesses

Brooke spends more time thinking about the companies he invests in than the prospects for the wider economy. He wants to invest in businesses selling products and services that should be in demand whatever the economic climate. He thinks these investments help the fund outperform in difficult conditions.

He’s recently bought shares in Victrex. It's a leading producer of PEEK polymers, a high performance plastic. It has a diverse range of applications that include replacing heavier metal components in planes, saving fuel, and repairing broken bones. The company has no debt and produces lots of cash, which could help support a rising dividend.

Brooke’s also taken a new position in Associated British Food. He reasons that people will always need to eat, so its products should remain in demand regardless of how the economy’s performing. Not all his investments work out though. A holding in Royal Mail shares lost money last year. Shares fell after the company said it expected to deliver fewer letters in the coming years and Brooke has now sold the shares.

Profiting from Mergers & Acquisitions

There’s been a number of takeover bids for UK companies recently. Brooke thinks this highlights the opportunities offered by the UK stock market. The difficult political climate has suppressed some share prices but international businesses are more likely to try and buy UK companies when they think their shares are cheap. The fund’s holding in dairy producer Dairy Crest received a boost following a successful takeover bid from Canadian firm Saputo.

Brooke also takes advantage of the fund’s ability to invest a portion of the portfolio outside the UK. He invests in Coca-Cola, in part because he says there’s no comparable international soft drinks company based in the UK, but most importantly because he thinks it’s a high quality business.

Find out more about this fund including charges

Troy Trojan Income Key Investor Information