Personal Assets Trust – update

This Trust’s ’capital preservation’ philosophy resonates with many investors wishing to balance opportunity and risk

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  1. Rob Morgan

With the economic and political outlook uncertain, some investors might currently wish to introduce some more defensive holdings into their portfolios to help protect against market volatility. One option could be Personal Assets Trust managed by Sebastian Lyon of Troy Asset Management.

Mr Lyon’s first principle is not losing money - rather than being concerned with relative performance against a benchmark. He blends a variety of assets to try and help shelter investors from market volatility, although like any investment it can fall as well as rise.

Historically, the Trust’s consistent, stable performance has been down to its mix of assets. Mr Lyon maintains a balanced approach, allocating portions of the fund to four areas: equities, index-linked bonds, cash and gold. This has proved a resilient combination as returns from these areas tend to move independently of each other rather than up and down in tandem; although past performance is not a guide to the future.

The manager’s more cautious stance has led to some rather dull periods of performance. Indeed, over the past few years it has been left behind by funds more fully invested in the stock market. However, the Trust has tended to come into its own during difficult times. This proved the case during the global financial crisis of 2007 and 2008, and recent performance amid volatile markets has also been resilient. Considering his generally low exposure to equities we believe the manager has a creditable track record of generating decent returns.

For some time, Mr Lyon has been concerned by what he sees as high valuations in many parts of the equity market, together with low economic growth globally and heightened political risk. He has typically invested less than half of Trust assets in equities while he waited for better value to emerge, with substantial exposure to shorter dated US Treasury Inflation Protected Securities (TIPS), UK gilts and gold. During this year he has reduced equity allocation still further – to 33% of net assets, down from 36% in April.

This exposure is focused on UK and US blue-chip companies in defensive industries the manager believes can flourish in a ‘low-growth’ world, the largest holdings being Microsoft, Nestle, Unilever, Coca Cola, and British American Tobacco. Turnover among the 20 or so shareholdings remains low, although a small position in GlaxoSmithKline was sold as the share price strengthened. Meanwhile, accountancy giant Sage was reduced following a recovery. The past few months has also seen the addition of two new holdings, medical device company Medtronic and Google parent Alphabet. Mr Lyon presently favours medical device companies over pharmaceuticals, due to their greater consistency of returns and lack of patent expiries, while he was drawn to Alphabet as its valuation in relation to earnings became more attractive.

Despite the FTSE All Share being relatively weak, the past six months has seen the Trust grind out a positive return, largely thanks to some of the longstanding US holdings including Microsoft, Coca-Cola, Nestle, Proctor & Gamble and Franco-Nevada. The latter benefited from an 18% rise, in Sterling terms, in the gold price. UK beverages firm AG Barr was the biggest detractor, due to weaker trading. The pound’s strength from its early September lows was an impediment, although most of the US exposure is currently currency-hedged as Mr Lyon sees a resurgence Sterling as a key risk that might affect short to medium-term returns.

The Trust has substantial exposure – over 50% currently – to US Treasury Inflation Protected Securities (TIPS) and inflation-linked UK gilts, designed to provide a stable core to the portfolio and shelter from volatility, but also to guard against potential higher levels of inflation in the future. The gold bullion position, currently some 9%, is viewed by Mr Lyon and as an ‘insurance policy’ against a loss of faith in central bankers. While sometimes handy during bouts of market volatility this has at times been an impediment to performance in recent years, particularly when confidence in the global economy strengthened while expectations of inflation remained subdued.

Our view

Mr Lyon’s capital preservation philosophy could resonate with many private investors wishing to balance opportunity and risk in a sensible manner. Therefore, it is reassuring to see the fund delivering relatively consistent returns during a period of volatile equity markets, such as late 2018 and summer 2019. It is not an investment option likely to set pulses racing – but therein lies the attraction. It is the sort of resilient holding that could be considered for part of the more stable core of a long-term portfolio, and it remains part of our Foundation Fundlist of preferred funds across the major sectors for new investment.

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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