Troy Trojan: May 2021 fund update

Tom Mills | Wed 26 May 2021

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• We like the simple philosophy behind this fund, with the potential for long-term growth and a focus on limiting losses in weaker markets
• Manager Sebastian Lyon is part-owner of Troy Asset Management so we think he's incentivised to perform
• He also has a good team of analysts around him to provide support on this fund
• This fund is on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

Rather than trying to shoot the lights out and perform strongly at all times, Troy Trojan aims to grow investors' money steadily over the long run, while limiting losses when markets fall. It tries to experience less ups and downs than the broader global stock market or a portfolio that's mainly invested in shares. As a result, it could form the foundation of a broad investment portfolio, bring some stability to a more adventurous portfolio, or provide some long-term growth potential to a more conservative portfolio.

Manager

Sebastian Lyon has managed this fund since its launch in 2001, using the same investment philosophy that was founded when Lyon helped to set up Troy Asset Management. He has also managed Personal Assets Trust since 2009 – this is an investment trust that is invested similarly to Troy Trojan.

Lyon is also CIO (Chief Investment Officer) of Troy Asset Management. This position takes up some of his time, but he's previously handed over some of the day-to-day company management responsibilities to capable colleagues. This leaves him to focus more of his time on investment management. Lyon also has support from Charlotte Yonge, who was appointed the fund's assistant manager in 2018 and carries out analysis across a range of assets. Overall we think Troy is home to a stable investment team.

Process

Lyon likes to keep things simple. He aims to shelter investors' wealth just as much as grow it.

To do this, the fund is constructed around four 'pillars'. The first contains large, established companies Lyon thinks can grow sustainably over the long run, and endure tough economic conditions. He has tended to focus on companies based in developed markets, such as the UK and US. This includes some of the world's best-known companies with highly recognisable brands, such as Microsoft, Unilever and Nestlé. Although the fund hasn’t had much exposure for several years, the manager has the freedom to invest in higher-risk smaller companies.

Entering 2020, the fund was cautiously positioned with around one third of the portfolio invested in shares. Lyon felt many share prices looked expensive and economic growth looked to be slowing. Following share price falls in February and March of 2020, Lyon took advantage by investing in companies at more attractive prices, adding to a number of existing positions including Nestle, American Express and Unilever and increasing the fund’s exposure to shares to above 40%. Shares currently make up 43% of the fund, with a bias to companies listed in the United States.

The rest of the fund is made up of investments that could bring some stability to the portfolio during more difficult markets. The second pillar is made from bonds. 32% of the fund is currently invested in US index-linked bonds, which could shelter investors if inflation rises. 7% of the fund is also invested in traditional UK government bonds (gilts).

The third pillar consists of gold-related investments, including physical gold, and accounts for 12%. Gold often acts as a safe haven during times of uncertainty, or could perform well if inflation takes off or key global currencies weaken. The final pillar is cash, where 6% of the fund is held. This provides important shelter when stock markets stumble.

While the fund contains a diverse range of investments, it is concentrated. This approach means each investment can contribute significantly to overall returns, but it can increase risk.

Culture

We like that Troy's fund managers are dedicated to the same investment philosophy that was established two decades ago. The group has always been clear about the way its range of funds are managed, and the managers don't stray into overly complicated areas of investment markets. Wealth preservation is key, and each manager adheres to this mantra.

Lyon is a part-owner of Troy Asset Management, so we believe he's incentivised to perform, and for his funds and the business to do well over the long term. Other senior members of the group also own a part of the business, and we think this contributes to the stability and loyalty of the team. While Troy is home to a small, close-knit team of investors, the group has recruited more junior members over the years to boost resource and ensure the funds are left in good hands as and when more senior members retire. Despite the team’s growth we think Troy has remained a very collegiate unit with all members able to have input.

Cost

This fund has an ongoing annual charge of 0.86%, but we've secured HL clients an ongoing saving of 0.25%. This means you pay a net ongoing charge of 0.61% and makes the fund one of the lowest-cost funds available in the Flexible Investment sector through HL. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

Since its launch in 2001 the fund has achieved growth well in excess of inflation (measured by the UK Retail Price Index) and has performed better than the broader UK stock market, as measured by the FTSE All Share index, which we think is impressive for a more conservative fund. Over that time it’s risen by 301%* compared with 183.3% for the broader UK stock market. It's also achieved this with less than half the volatility of the market. Please remember past performance isn't a guide to future returns.

Avoiding large losses has been an important characteristic of the fund and it has tended to come into its own and hold up well in weaker markets, such as the bursting of the tech bubble in 2001-2002 and the global financial crisis in 2008. We saw this again in the first quarter of 2020 when global markets stumbled amid the coronavirus outbreak. Investments in cash, index-linked bonds and gold provided some resilience, while the shares of quality companies held up relatively well compared with some sectors that are more exposed to the health of the economy that the fund does not own.

In the past 12 months, the fund grew by 8.4%* while the FTSE All Share index rose by 25.9%. The fund is not likely to keep up when share markets are performing strongly, but we expect this given its cautious approach. 12 months is also a very short timeframe in which to assess performance and over the long term, the fund has delivered on its objective of growing investors’ capital ahead of inflation, while smoothing out the journey and avoiding significant losses.

Remember though, the fund will go up and down in value, so you could get back less than you invest.

Past performance is not a guide to the future. Source: *Lipper IM to 30/04/2021.

Find out more about Troy Trojan including charges

Troy Trojan Key Investor Information