"My job is to guard savers' wealth"
18 June 2016
The Daily Telegraph
Sebastian Lyon of the Trojan fund has lost money in just one of the past 15 years. He tells Ed Monk how.
Savers with money held in the Trojan Fund must think investing is a simple business.
In every year but one since the fund launched, in 2001, they have benefited from a positive return.
The exception was 2013, during which they were made to endure a 3.1pc loss.
Limiting losses has resulted in strong long-term returns. The fund is seventh of more than 200 funds in its flexible investment sector over 10 years, and top over one year.
That has been achieved with a maximum "drawdown" – meaning the largest peak-to-trough fall – of just 13.4pc since launch, compared with 45.6pc for the FTSE All Share index.
Trojan’s manager, Sebastian Lyon, acknowledges that some of the success of the fund is down to a friendly environment for the shares in the high-quality, stable companies it favours.
Its focus on wealth preservation, however, is no accident, and it is this that Mr Lyon credits for the fund’s favourable positioning in the past 15 years.
Avoiding banks prior to 2008, for example, may not have been down to a firm prediction that some were about to go bust, but a deliberate aversion to cyclical and highly leveraged companies, including the banks, meant the shock was dodged nonetheless.
Here he explains the approach, and why his exposure to shares is as low now as it was immediately prior to the crash.
How do you construct the fund?
The aim is wealth preservation. My approach has been to study periods when markets have suffered their largest peak-to-trough falls, and which shares had fared best.
That has led us to high-quality businesses and away from cyclical ones, particularly those with high levels of debt.
It’s one of the things that helped us avoid the banks prior to 2008.
How is it positioned at the moment?
The type of shares we buy are very rarely cheap compared to the rest of the market.
There are periods when we can’t buy them at valuations we think are fair so it's then we move to other asset classes, including gold and bonds.
Right now our equity position is only 40pc, the same as it was prior to the crisis. We have been as high as 75pc.
Within that, there is a bias towards large-cap stocks, although we have held mid-caps, and we tend to look at measures like free cashflow yield and dividend yield to identify those that can survive shocks.
Debt is also important and we look closely at interest cover.
This month sees the fund’s 15 anniversary – how has it differed from previous funds you’ve managed?
I was hired in 2001 by Lord Weinstock (formerly chairman of General Electric Company) to manage money belonging to his family with the stated aim of preserving that wealth.
I had come from running institutional money where the emphasis was on growth over the index, but here there was a high expectation that I wouldn’t lose money.
That really allowed me to look at stocks in a different way.
The previous focus was on winning over short periods but I was told clearly that I was not to speculate. I didn’t have to invest if I didn’t want to and didn’t have to make big bets on equities I didn’t particularly like.
That was really important. Instead of a chief executive looking over my shoulder, wanting to know why I wasn’t invested, I had a saver who didn’t want sleepless nights.
I’ve come to see myself as a fiduciary as well as an investment manager.
What have you recently added to the fund?
As I explained, we have been reducing our equities but there have been some positions we’ve added to. Last year the stock market falls in August gave the chance build a position in Proctor & Gamble.
The shares fell to trade at 17 times earnings, pushing the yield to 3.8pc. It had grown its dividend for 59 years in a row, which shows the quality of the company.
It was unpopular with brokers because it was having issues absorbing the costs of previous acquisitions and we thought it was pricing some of its product to highly – which you’ll perhaps understand if you have had to buy Gillette razor blades.
Another addition has been American Express. Again, it was unpopular with brokers after it lost an exclusive mandate to work with Costco in the US, but that will have worked through by 2017, we think.
Do you invest your own money in the fund?
Yes, heavily in both this fund and Personal Assets, the investment trust I help to manage.
If you hadn’t become a fund manager, what would you have been?
I’d always wanted to be a professional tennis player. I’ve started playing real tennis, which is a bit gentler, so perhaps that’s a better bet.
How to buy the fund as cheaply as possible
The trust has a total cost (the "OCF" or "TER") of 1.05pc a year. Be sure to buy the right "share class" which is the "I". The investment shop through which you buy the fund will also levy a charge. Some will charge a percentage of the amount invested, others will apply a flat annual fee. Our colour coded tables at telegraph.co.uk/investing will guide you to the cheapest fund shop for your circumstances.
Despite the combative name, Trojan does its best to wrap investors up in cotton wool.
There have been very few periods since it launched 15 years ago when they have lost money. That doesn’t mean a higher return hasn’t been available elsewhere from time to time, but if protecting against losses is key, few funds have done the job better.
It must be said that the fund, in some ways, has benefited from a series of lucky breaks. Launching in 2001 meant missing the worst of the tech wreck and then riding generally rising markets until the financial crisis.
The fund continued to perform well after that thanks to its aversion to riskier stocks and high demand for the quality companies the fund specialises in.
Where Mr Lyon hopes to add value is by buying these companies only when the price is right. When it isn’t right, the freedom he enjoys to move to safer assets and cash – 27pc of the fund is in cash at the moment – has seemingly paid off.
Mr Lyon is also in charge of running the Personal Assets investment trust, which is run to a similarly conservative mandate.