Safety first puts trojan at the top

In Homer’s Odyssey, armed Greek warriors spring out of a huge wooden horse to defeat the Trojans. At Troy Asset Management, it’s somewhat more prosaic, but plucky Sebastian Lyon has single-handedly beaten allcomers to top the Balanced Managed sector with his Trojan fund.

The fund is up 21.8% since launch in May 2001, but don’t be misled by its warrior-like name – this is no aggressive focus fund. Manager Sebastian Lyon has one fundamental aim: not to lose money for his customers. He’s a long-term holder of equities, gilts and preference shares, and is happy to stay in cash when he feels the market is weakening. What he does share with the focus funds is a complete disregard for benchmarks or indices.

You’ve probably not heard of Troy or the Trojan fund. Troy doesn’t have an intermediary sales team; in fact, it doesn’t have any salespeople at all. It doesn’t even have (or at least not until very recently) any other fund managers, analysts or support to back Lyon up.

Troy is a highly unusual set-up. Lyon used to work for GEC in its pre-Marconi days, as one of the team running its pension fund. He must have been doing something right because he was then asked by GEC supremo Lord Weinstock to set up an independent management company to look after a portion of the Weinstock family fortune. He was given £36m by the family and a brief to manage it conservatively, minimising downside but nonetheless obtaining decent long-term capital returns.

“It’s not my job to report that the fund is down 20%, but the market is down 22%, so haven’t we done well,” he says. He’s almost venomous about the rest of the industry’s obsession with benchmarks, which he condemns as driven by commercial risk rather than investment risk.

But this fund is not just for the Weinstocks. From the start, it was opened up to any other investors, so long as they had the minimum £25,000 to invest. And given this was a word-of-mouth fund, and given that the main mouths were extremely high net worth individuals, the £25,000 minimum investment hasn’t exactly been a high hurdle to jump.

Today the fund has about £75m under management, but Lyon can – almost uniquely for a fund manager – say: “I know the names of nearly all my investors.” Not that this is an exclusive club: Lyon is very keen to welcome new investors (Troy is launching a second, income, fund this month), although he has shied away from the funds of funds.

He doesn’t want to see £5m bunged into the fund and then see it disappear again in six months; he’s keener on long-term investors who understand his philosophy and approach. In any case, because the fund takes some big asset allocation decisions, it is unlikely to be attractive to the managers of funds of funds, who want to take those decisions themselves.

So far Lyon’s asset allocation calls have been impressive. Given the launch date of May 30, 2001, it would have been easy to shove the money into the market, only to see it go disappear. Lyon sat tight, convinced that the market was still overvalued.

“At the time, the FTSE 100 was at 5800 and yielding a shade over 2%. It was still very expensive by historic standards, even after the falls from the peak. If you had given £35m to other managers, they would have put 10% into Vodafone, BP, Glaxo, whatever, because that’s what the benchmark told them. I didn’t do anything of the sort. I held a lot of cash and fixed interest, and for quite a long time. I’ve never held any Vodafone, although I have held some Glaxo and Shell.” Lyon’s equity holdings gradually built up from 25% of the fund in the early days to a peak of 60% last year. Now it is back at 50%, recognising his mild pessimism about the outlook for equities: “I can’t see a lot of value in the equity market at the moment. I’ve had a fair amount of cash come into the fund recently and I just haven’t felt that it’s right to raise the equity weighting.”

His equity portfolio currently has 36 stocks and he says he would be very unlikely ever to take it over 50 stocks. He has a “go anywhere” brief, which allows him to buy stocks in any market cap range, and his smallest at the moment has a £30m capitalisation.

His biggest holding is BT: “It’s definitely through the worst. Everybody else seems to hate or it are bored with it. But with a 6% prospective yield and secure earnings, I think it represents good value.”

Shell is the second-largest holding, followed by a clutch of tobacco stocks – Reynolds, BAT and Gallaher. After that, the list goes through National Grid, Newmont Mining, Centrica and Rutland investment trust: “Rutland is a classic Troy investment. In 2002, it had a NAV of 45p and a share price of 27p. But of that 45p, 30p was cash. Now the share price is at 36p, and we’ve had a 3p dividend as well.”

Outside of direct equity, Lyon is a big fan of bank preference shares and his fixed interest portfolios include a range of gilts and some US treasuries. But, overall, what is most attractive about this fund is that it has all of the attributes of a traditional with-profits fund without the problems that have plagued that sector. It has a wide range of assets managed conservatively – the lowest the unit price has ever fallen to is 97.8p from its 100p launch – but none of the opacity of with-profits.

In Lyon, it also has a manager who takes sensible bets. It’s a flattering comparison, but his approach to indices and stocks reminds one of Neil Woodford at Invesco Perpetual. What’s more, Lyon is now part of the launch of the income fund (Trojan Income), although that will be lead managed by Francis Brooke, who joined the company recently.

It will follow the same safety-first, absolute return strategy, targeting a yield of about 4% with low fees an added bonus. It could be a very interesting vehicle to join at launch.

PATRICK COLLINSON
The Guardian Personal Finance Editor