Troy’s Lyon defends Trojan cash pile

Lyon Sebastian Troy
Sebastian Lyon

Troy Asset Management chief executive Sebastian Lyon has defended the high cash weighting in his £2.7bn Troy Trojan fund, arguing there is a lack of appealing opportunities around.

Troy Trojan had 23.7 per cent of its portfolio in cash or equivalents at the end of May. Lyon builds his fund around four pillars, with cash joining strong international brands, inflation-linked government bonds and gold.

In his latest investor update, Lyon says it “is not surprising” that he receives queries about the fund’s sizeable cash holding given that the stockmarket bottomed out some four years ago.

He says: “The fund’s liquidity has been rising as we have found fewer appealing investment opportunities. In a world where most asset prices have risen, thanks to loose monetary policy, it is becoming harder to truly diversify.

“Whereas in 2000 or 2008, bonds offered diversification from equities, and even positive returns in a falling market, today this safety may prove illusory.”

Troy Trojan has a 25 per cent allocation to international equities, with another 9 per cent in UK stocks. Some 15 per cent is held in UK inflation-linked bonds and 13 per cent is in US inflation-linked bonds, with 11 per cent in gold.

Lyon argues in the current environment few assets have the ability to protect investors from both deflation and inflation. He also predicts that inflation will rise in the years ahead, although he says that “deflationary shocks” cannot be ruled out along the way.

He says: ’“This leaves cash – the most loathed of assets – as king, providing dry powder should both equities and bonds fall from their highs.”

Bestinvest business development and communications managing director Jason Hollands says this tactical call by Lyon could reap rewards in the short term given the “froth” being seen in the market at the moment.

Hollands says: “This fund is managed with a strong focus on capital preservation rather than relative performance. It is unsurprising that after a stellar run for riskier assets and squeezed bond yields Lyon has decided to hold a large weighting in cash until he can see better value.

“For investors taking a long-term strategic view, cash isn’t king, it is a wasting asset because of the confluence of record low interest rates and above trend inflation. However, this isn’t at odds with taking shorter term tactical view on the valuation of risk assets.”