Troy Trojan – cautious at heart
Kate Marshall | Mon 03 February 2020
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- This fund aims to limit losses and provide stability in weaker markets
- The manager's cautious outlook means he's recently reduced investments in shares
- We like his willingness to be flexible as market conditions change
Our view
We like the simple philosophy behind the Troy Trojan Fund. Rather than trying to shoot the lights out, the fund aims to grow investors' money steadily over the long run, while limiting losses when markets fall.
This means Sebastian Lyon, the fund's manager, is cautious at heart. He invests in quality companies when he thinks their share prices are at attractive levels. Then he rotates into bonds, gold and cash when he thinks stock markets have less potential to grow. He's currently as cautious as he's been for quite some time, and this is reflected in how the fund's invested. As a result, we think the fund will come into its own and do well when markets take a turn for the worse, while performance could be more subdued if stock markets are strong.
Troy Trojan could be used to bring some stability to a more adventurous portfolio, or provide some long-term growth potential to a more conservative portfolio. Lyon has managed the fund since launch in 2001 and we like that he's been consistent in his philosophy. As a part-owner of Troy Asset Management, we feel he’s incentivised to perform for investors.
The fund currently features on the Wealth 50 list of our preferred funds across the major sectors.
What happens when the music stops?
Most global stock markets have had the time of their lives over the past decade. Supportive monetary policy from central banks across the globe, like low interest rates and huge bond-purchasing programmes, has seen money flow into the financial system. While there have been some inevitable setbacks along the way, stock markets have generally continued to climb higher.
While the music keeps playing, the party keeps going, and means many investors could still benefit from rising share prices. But what happens when the music stops and the policies that have helped prop up markets gets taken away, or company earnings are no longer strong enough to provide additional support?
Lyon is mindful this can't go on forever. In many cases, he thinks share prices look expensive. This means their earnings might not be strong enough to help prices grow much further from here. Overall, he has a conservative outlook for markets and reduced exposure to shares to one third of the fund.
That said, the manager thinks there are still a handful of companies with the potential to generate healthy returns for investors. He's been selective though, and focuses on larger companies he thinks can grow sustainably over the long run, and endure even the toughest economic conditions. This includes some of the world's best-known companies with highly recognisable brands, such as Microsoft, Coca-Cola, Unilever and Nestlé. He has the freedom to invest in higher-risk smaller companies as well. But the fund hasn’t had much exposure to this area of the market for several years.
He's made some new investments over the past year too, mainly across the technology and healthcare sectors, such as Agilent, Medtronic and Alphabet (owner of Google). Tobacco company Altria and pharmaceutical giant GlaxoSmithKline have been sold.
The rest of the fund is made up of investments that could bring some stability to the portfolio during more difficult markets. 30% is invested in US index-linked bonds, which could protect investors if inflation rises. When inflation rises it erodes the spending power of money, and makes the interest paid by conventional, fixed-rate bonds less attractive. But the interest paid by inflation-linked bonds increases in this environment.
Elsewhere, 21% of the fund is invested in UK government bonds, 10% in gold-related investments including physical gold, and 6% in cash.
While the portfolio contains a diverse range of investments, it is concentrated. This approach means each investment can contribute significantly to overall returns, but it is a higher-risk approach.
Slow and steady wins the race
Troy Trojan has performed better than the broader UK stock market, as measured by the FTSE All Share index, since its launch in 2001. Not only that, it's achieved this with lower volatility.
Last year the fund didn't go up as much as the broader market, though it still grew 10.7%*, which is attractive for a more conservative fund. This is how we expect the fund to perform in a rapidly rising market, and in weaker markets we think the fund should hold up much better although there are no guarantees.
Past performance isn't a guide to future returns though and the fund can still go up and down in value, so you could get back less than you invest.
Troy Trojan - performance since launch
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Dec 14 -
Dec 15 |
Dec 15 -
Dec 16 |
Dec 16 -
Dec 17 |
Dec 17 -
Dec 18 |
Dec 18 -
Dec 19 |
|
| Troy Trojan | 3.2% | 12.3% | 4.1% | -3.0% | 10.7% |
| FTSE All-Share | 1.0% | 16.8% | 13.1% | -9.5% | 19.2% |
Past performance is not a guide to the future. Source: *Lipper IM to 31/12/2019