Tips Funds

Diversify and mitigate downside with Troy Trojan

Dave Baxter

While adventurous investors might be considering buying the dip in falling equity markets and
upping their exposure to risk assets, those with a more cautious approach should assess how well
diversified their holdings are. The heavy sell-off over recent weeks should have shown you how
much of a buffer your investments have against a severe drop in equity markets. And if would like
a greater level of protection against further volatility, you should consider adding funds with a
more defensive approach.

A fund that has proved its ability to mitigate downside recently and in other times of
volatility is Troy Trojan (GB00BZ6CNS31). The fund, managed by Sebastian Lyon and
Charlotte Yonge, aims for some growth and to beat UK retail price index (RPI) inflation over five
to seven years.

The fund can invest across different asset classes including bonds, and diversifying assets such as
private equity and precious metals. It has a hefty weighting to safe-haven assets, with 21 per cent
of its assets in conventional UK government bonds, 29 per cent in index-linked bonds, 11 per cent
in gold-related investments and 5 per cent in cash at the end of January.

The fund also had about a third of its assets in equities across a variety of different sectors at the
end of January, when its 10 largest holdings included Microsoft (US:MSFT), Unilever (ULVR)
and British American Tobacco (BATS).

The fund has limited investors’ losses in periods of market chaos. For example, the FTSE All-
Share index fell nearly 13 per cent over the month to 6 March and MSCI World index was down 9
per cent. But Troy Trojan only fell 1.7 per cent over that period. And over six months the fund is
up 0.7 per cent, while the FTSE All-Share is down 8.4 per cent and MSCI World is down 3.4 per
cent. The fund performed in a similar way in the final quarter of 2018 when markets also suffered
significant falls.

This is not the only option available to investors seeking diversifiers. Personal Assets Trust
(PNL), an investment trust we recently tipped, holds a similar mix of bonds, gold and large-cap
equities, and has performed in a similar manner to Troy Trojan. It is also run by Mr Lyon. Both are
valid sources of diversification, but Troy Trojan Fund may be a better option if you prefer the
simplicity of open-ended funds relative to investment trusts.

Troy Trojan's diversified asset allocation and exposure to defensive assets means that its ability
to generate capital growth over the longer term is limited. For example, it made a sterling total
return of 28.5 per cent over the five years to 6 March 2020, compared with a 61.6 per cent rise
in MSCI World index and a 17.3 per cent gain for the FTSE All-Share index.

So, as with all defensive investment approaches, it is important to be aware of what you might
sacrifice over a longer period by not taking enough risk. Both Troy Trojan and the Personal Assets
Trust’s returns lag those of MSCI World index over three, five and 10 years. If you are happy to
ride the ups and downs of markets over time, such funds may not be appropriate for you.
But if you want to diversify your portfolio without giving up too much in the way of returns, and
mitigate downside in falling markets, Troy Trojan looks like a very good option. It is run by an
experienced team, and provides a mixture of growth and diversification. Buy. DB

Troy Trojan Fund

Price 109.99p Mean return 2.96%
IA Sector Flexible Investment Sharpe ratio 0.56
Fund type Oeic Standard deviation 4.19%
Fund size £4.4bn Ongoing charge 0.87%
No of holdings 37* Yield 0.72%
Set-up date 31 May 2001 More details taml.co.uk
Source: Morningstar as at 9 March 2020, *FE as at 31 December 2019

Performance
1-year 3-year 5-year 10-year
Fund/benchmark total cumulative total cumulative total cumulative total
return (%) return (%) return (%) return (%)
Troy Trojan 9.6 9.9 28.9 68.5
IA Flexible Investment
3.6 8.8 25.8 76.9
sector average
MSCI World index 9.5 19.3 61.6 167.9
Source: FE Analytics as at 6 March 2020

Top 10 holdings
Gold bullion securities 7.0%
Microsoft 5.6%
Unilever 3.5%
British American Tobacco 3.2%
Alphabet 2.6%
Nestlé 2.5%
Procter & Gamble 2.20%
Coca-Cola 2.20%
Physical Swiss gold ETF 2.20%
Berkshire Hathaway 2.10%
Source: Troy Asset Management, 31 January 2020
Asset allocation
Overseas equities 25.0%
UK equities 9.0%
Gold-related investments 11.0%
US index-linked bonds 29.0%
Gilts 21.0%
Cash 5.0%
Source: Troy Asset Management, 31 January 2020
BULL POINTS

Diversification

Falls less in down markets

Experienced managers

BEAR POINTS

Lags equity returns

IC TIP RATING
Tip Style:
Growth
Risk Rating:
Medium
Timescale:
Long Term