Personal Assets Trust: May 2021 Update

• We like the simple philosophy behind this trust, with the potential for long-term growth and a focus on preserving wealth in weaker markets
• Manager Sebastian Lyon is part-owner of Troy so we think he's incentivised to perform
• He also has a good team of analysts around him to provide support on this trust

How it fits in a portfolio

Rather than trying to shoot the lights out, this trust 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 took over management of Personal Assets Trust in March 2009. He's since managed the trust using the same investment philosophy that was founded when Troy Asset Management was set up in 2000. He has also managed the Troy Trojan Fund since its launch in 2001 – this is an open-ended fund that is invested similarly to Personal Assets Trust. Investors in the trust should be aware that closed-ended funds can trade at a discount or premium to the net asset value (NAV).

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 investment management support from Charlotte Yonge, who carries out analysis across a range of assets, and 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 trust 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 trust hasn’t had much exposure for several years, the manager does have the freedom to invest in higher-risk smaller companies.

Entering 2020, the trust 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 trust’s exposure to shares to above 40%. Shares currently make up 43% of the trust, with a bias to companies listed in the United States.

The rest of the trust is made up of investments that could bring some stability to the portfolio during more difficult markets. The second pillar is made from bonds. 33% of the trust is currently invested in US index-linked bonds, which could shelter investors if inflation rises. 8% of the trust is also invested in traditional UK government bonds (gilts).

The third pillar consists of gold-related investments, including physical gold, and accounts for 11%. 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 5% of the trust is held. This provides important shelter when stock markets stumble.

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. The manager has the flexibility to use derivatives and gearing (borrowing to invest) which, if used, adds 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

The trust's ongoing charge for the year to 30 April 2020 was 0.73%. Investors should refer to the latest annual reports and accounts and Key Investor Information for details of the risks and charging structure.

If held in a SIPP or ISA the HL platform fee of 0.45% (capped at £200 for a SIPP and £45 for an ISA) per annum also applies.

Performance

The chart below shows the trust's performance since Lyon took over its management in 2009. Over this time it has grown 165.4%*, which we think is an attractive return for a more conservative trust, and well ahead of UK Retail Prices index of inflation. Remember past performance isn't a guide to future returns.

The trust hasn't done as well as the broader UK stock market, as measured by the FTSE All Share Index, which is the trust's main comparator. We expect the trust to perform in this way though. Even with the market setback in 2020, global stock markets have risen strongly over the past decade, and the trust's more cautious approach means it's been less able to keep up with rapidly rising markets.

Avoiding large losses has been an important characteristic of the trust and it has tended to come into its own and hold up well in weaker markets. We saw this again in early 2020 when global markets stumbled amid the coronavirus outbreak. Investments in cash 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 trust does not own. Remember though, the trust will go up and down in value, so you could get back less than you invest.

Personal Assets - Performance under Sebastian Lyon

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

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

FIND OUT MORE ABOUT PERSONAL ASSETS TRUST INCLUDING CHARGES

PERSONAL ASSETS TRUST KEY INVESTOR INFORMATION