Troy’s Lyon: Why I’m sticking with ‘the most hated of assets’


Troy’s Sebastian Lyon plans to stand by his £2.5bn Trojan fund’s gold position despite its recent sell-off, arguing that the yellow metal should not be used as a short-term trade.

The Troy Trojan fund has 10 per cent of its portfolio in gold, with another 3 per cent held in gold equities. The commodity is one of the ‘four pillars’ the fund is constructed around, joined by sustainable business franchises with strong brands and international earnings, inflation-linked government bonds and cash.

Gold has been hit hard in recent months and the sell-off intensified after Federal Reserve chairman Ben Bernanke said the central bank could start to slow its $85bn-a-month bond-buying programme if the US economy continues to improve as expected.

In the second quarter, the price of gold slumped by 23 per cent – resulting in the metal posting its sharpest quarterly drop since Reuters’ records started in 1968.

Lyons says: “Gold, which has served us so well for almost a decade, has suffered a bout of investor nerves and profit taking. Today, precious metals are the most hated of assets. The investment in bullion should be viewed as insurance against a loss of faith in central banks. It has never been a short-term trade.”

Back in May, he argued that conditions are in place for a secular bull market in gold, although he does not believe it will necessarily be “a pleasant ride”, as normalisation of monetary policy around the world is unlikely to be carried out anytime soon.

The manager adds that inflation-linked government bonds remain an important part of the fund’s strategy, as central bankers’ ability to print money “is infinite”. Troy Trojan has 15 per cent in UK index-linked bonds and 13 per cent in US index-linked bonds.

Lyon also pointed to the fund’s 16 per cent allocation to cash and equivalents: “Its virtue of zero correlation to other asset classes, along with nominal value protection, remains underrated in our view.

“Our effort to steer a course between the dual threats of deflation and inflation remain. The investment environment is unclear and fraught with risk. With equity markets near all time highs, a defensive positioning is warranted.”

Troy Trojan’s cumulative performance to 11 July 2013

Troy Trojan -4.07% -0.17% 0.62% 22.50% 56.01%
1.75% 8.31% 17.36% 28.95% 32.15%
-5.72% -7.83% -14.26% -5.01% 18.05%
  125 / 131 122 / 130 121 / 127 85 / 108 7 / 92
4 4 4 4 1

Source: FE Analytics