Fund in focus: Trojan

Posted by Liz Rees in Fund and industry updates category on 01 Apr 20

The proposition

The Trojan fund aims to deliver growth and income ahead of inflation over 5 to 7 years.

The fund is well diversified across a range of different asset classes as well as countries. This includes government bonds, corporate bonds, shares, private equity, precious metals, cash and deposits.

Investment philosophy & process

Manager Sebastian Lyon believes that preserving wealth is just as important as growing it and hence his focus is on risk management.

Using an asset allocation framework, Lyon invests in equities, government bonds, index linked bonds and precious metals and also uses cash actively. He constructs a well-diversified portfolio with a long-term mind-set.

The strategy has demonstrated low volatility; since launch in May 2001, the annualised volatility for the fund is 6.2% versus 13.4% for the FTSE All Share Index1.

The team use a range of valuation measures to identify opportunities. The fund will increase exposure to riskier asset classes only when they believe prices are sufficiently cheap to compensate for the risks. This means he tries to buy stocks when they are temporarily unloved.

Lyon looks for cash generative businesses with stable revenues, a sustainable competitive advantage and high returns on capital. The fund holds 20-45 shares with a maximum exposure to large companies of 6%, mid-caps 3% and small-caps 2%.

Lyon works alongside 11 experienced investment professionals with whom he debates and exchanges ideas.


The fund usually maintains significant cash or near-cash, such as Treasury notes, which enables Lyon to quickly deploy capital into the market when appropriate.

He started 2020 with only a third of the fund allocated to shares, low by historic standards, in expectation of a pick-up in volatility. By the end of February, exposure to shares was increased by 5% although he does not yet consider the asset class to be cheap overall. Stock selection favours companies with defensive characteristics.

The fund has a bias towards consumer goods, healthcare and software sectors. In the bond segment of the portfolio, Lyon currently prefers government bonds over corporate bonds. Gold is held for its defensive qualities.

Liquidity is a key attribute he looks for and he doesn't hold alternative investments, infrastructure or REITs. He also avoids use of derivatives.

Performance & Costs

The fund has weathered the recent downturn in markets well. It has fallen 2.7% from the start of this year compared with a decline of 14.6% for the Flexible Investment sector, and remains in positive territory over 1 year with a 3.8% gain2.

Over 10 years to 30 March 2020, the fund delivered a total return of 60.8% compared with 32.3% for the UK RPI and 51.7% for the Flexible Investment sector2.  

Due to its defensive positioning the fund can lag momentum driven markets but may prove more resilient in falling markets.      

The Ongoing Charges Figure (OCF) is 0.82% which we consider to be competitive compared to its peers.

Current outlook

Lyon thinks that a severe, albeit possibly short-lived recession, should be expected as a result of the coronavirus crisis and extensive fiscal policies will be required to support the global economy.

Lyon has been concerned for some time that markets have been driven by cheap debt, rather than growth in company earnings. He remains poised to exploit further falls in stock markets and believes that for a long-term investor there are grounds for optimism.

Lyon is aware that it is often when the outlook is bleakest that stock markets start to recover. However, he will only buy when he has confidence that a company’s share price significantly understates its long-term potential.

Our view

Lyon is a seasoned professional who does not allow himself be distracted by events he cannot control. Despite his cautious approach he is not afraid to back his conviction with aggressive repositioning of the fund when he sees opportunities.  

We believe the Trojan fund is worthy of consideration for investors seeking a superior return than cash savings, but have at least a 5 year time horizon and are prepared to take some risk.

1 Source: Troy Asset Management, Lipper, at 29th February 2020
2 Source: FE Analytics total return in local currency, at 30th March 2020