Personal Assets Trust: September 2022 Update

How it fits in a portfolio

Rather than trying to shoot the lights out, Personal Assets 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. However even though the two are similar, they will perform differently at times. Investors in the trust should be aware that closed-ended funds can trade at a discount or premium to the net asset value (NAV). Unlike many other trusts, the manager looks to limit the size of the discount or premium to the net asset value (NAV).

Lyon is also 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 US and UK. This includes some of the world's best-known companies with highly recognisable brands, such as Microsoft, Alphabet, Visa 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.

Since April 2021, the amount of the trust invested in shares has reduced from 45.7% to 29.2% , with a focus on companies listed in the United States. Lyon has been reducing the overall amount invested in shares following strong performance in 2021 and the deteriorating market environment in 2022. In terms of specific companies, he has reduced investments in Alphabet and Microsoft, while he has sold out of Medtronic completely.

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. 37.7% of the trust is currently invested in bonds, with the bulk of this held in US index-linked treasuries.

The third pillar consists of gold-related investments, including physical gold, and accounts for 11.3%. Gold often acts as a safe haven during times of uncertainty, and the manager has held gold in the trust since introducing the pillar approach in 2009. The final pillar is ‘liquidity’, where 21.6% of the trust is held. This is made up of a combination of UK Treasury bills and cash. This provides important shelter when markets stumble, but also a chance to invest in other assets quickly when opportunities arise.

While the trust 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.

The trust undertook a share split at the start of August. This means each share in the trust was split into 100. While this decreases the value of each share, existing investors would have seen the number of shares increase by a multiple of 100, so the overall value of any investment was not impacted. The split makes it easier for smaller investments to be made in the trust.

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.

ESG Integration

All of Troy’s funds are run with a medium to long-term investment horizon in mind, with a focus on capital preservation. So, assessing whether society will support the business model over the long term, and whether management will act as good stewards of shareholders’ capital is an important part of the investment process.

While the team at Troy is relatively small, they have increased resource specifically to help improve their analysis of companies’ ESG credentials. That said, there is no specific ESG or sustainability team at Troy and it is up to the fund managers to consider ESG factors as part of their company analysis.

Overall, it is clear that ESG factors are considered at a company analysis level within the Trust, however they are considered more from a risk perspective and are not deemed to be a significant driver of investment decisions.

Cost

The trust's ongoing charge for the year to 30 April 2022 was 0.67%. 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

Since Lyon took over management of the trust in 2009 it has grown 161.3%*, 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 the trust uses as its 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 in early 2020 when global markets stumbled amid the coronavirus outbreak. We have also seen this so far in 2022 with the trust performing better than both global shares and bonds. Remember though, the trust 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 31/08/2022.

FIND OUT MORE ABOUT PERSONAL ASSETS TRUST INCLUDING CHARGES

PERSONAL ASSETS TRUST KEY INVESTOR INFORMATION