- Fund invested cautiously to shelter from potential stock market volatility
- Manager has recently added to investments in tobacco companies
- We think it’s a good addition to a more conservative portfolio
The idea behind the Troy Trojan Fund is simple. Grow investors’ money over the long term and limit the volatility that comes with only investing in shares.
Sebastian Lyon has managed the fund since launch in 2001 and, as a part-owner of Troy Asset Management, he’s incentivised to perform. He invests in quality companies when 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. Although the manager is quite conservative in his approach, investors should remember the fund can still lose money.
We’d expect this fund to lag stock markets when they’re rising quickly, but to hold up better when markets aren’t doing so well. We therefore think it could be a good addition to a more defensive investment portfolio. Or it could bring some stability to any broader portfolio. That’s why it has a place on the Wealth 150 list of our favourite funds in the major sectors.
How is the fund invested?
Sebastian Lyon thinks lots of global stock markets look expensive. They’ve performed well for several years, but he doesn’t think company earnings are strong enough to help share prices grow much further from here.
This means just 36% of the fund is currently invested in shares, which compares to an average of 45% since launch. He’s focused on large UK and US firms that he thinks still offer reliable earnings and good growth potential. These could hold up better than less-established companies when stock markets are volatile. The manager 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 recently added to investments in tobacco companies Altria and British American Tobacco. These companies have been out of favour in recent months. But it means Sebastian Lyon has been able to invest in solid businesses at lower prices.
Shares in four companies were sold over the past year. This included Dr Pepper Snapple whose share price rose sharply when it merged with coffee business Keurig Green Mountain. So the manager used this as a chance to take some profits.
An investment in US software giant Microsoft was reduced. The company’s share price has risen strongly in recent years so the manager thinks it has less potential to grow from current levels. The company is growing its sales and is run by a strong management team though so he’s happy to hold a smaller investment.
39% of the fund is invested in UK and US inflation-linked bonds that aren’t too sensitive to interest rate changes. As rates rise, bond prices fall (and their yields rise) as the interest rates available on cash look more attractive. But these bonds could offer some protection if interest rates and inflation rise. A further 9% is invested in gold, which tends to do better when economic and stock market conditions are tougher. The final 16% is held 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 can increase risk.
How has the fund performed?
The fund protected against stock market volatility over the past year. It hasn’t lost any money while the broader UK stock market fell 1.5%.
The slow and steady approach has worked over the long term. Performance is ahead of the stock market since launch and the fund has experienced less severe ups and downs too. Past performance shouldn’t be seen as a guide to the future.
|Annual percentage growth|
| Oct 13 -
| Oct 14 -
| Oct 15 -
| Oct 16 -
| Oct 17 -
Past performance is not a guide to the future.Source: *Lipper IM to 31/10/2018