Wealth preservation has been at the top of the list of priorities at Troy Asset Management since it was established in 2000. Founded by the late Lord Weinstock and named after his Derby-winning racehorse, the family still owns 37 per cent of the business, which has gone from strength to strength.
Limiting losses in a falling market, so there is less ground to make up when they rise again, is a formula that has allowed the business to successfully carve a niche in asset management over the years.
I am a huge advocate of equity income investing and Troy has been shrewd in understanding every group should have this type of bread and butter fund. Under Francis Brooke’s careful leadership, it has established a great income franchise, beating the likes of Neil Woodford and Mark Barnett over 10 years. Brooke aims to deliver returns through the investment cycle and drive a balance between capital growth and income. Also important is the growth of income over time. He is one of very few managers with an unbroken record of raising the dividend each year.
Last year, the true yield on the market was estimated to be around 2 per cent, as widespread dividend cuts were expected. When I recently caught up with the manager, it was interesting to note he feels the risk of falling dividends has now receded. A recovery in the oil price has been of help as some of the FTSE’s largest dividend payers are the oil majors, and weaker sterling has boosted the value of overseas earnings.
However, the past year has highlighted the importance of understanding where income is coming from, according to Brooke. In the FTSE 100, almost half the income is generated by 10 companies. Many of these companies also feature in the Trojan Income fund. That said, he prefers to not be overly reliant on a small number of businesses, and does not wish to be too exposed to vagaries in the oil price, so they account for less than 40 per cent of the fund’s income.
The cash level in the fund stands at 5 per cent and Brooke is one of the few managers to use the asset tactically. I generally find a high cash position acts as a drag on long-term performance and would be better employed in the market. However, Brooke disagrees, believing it provides the flexibility to add to holdings when an opportunity presents itself.
For example, he is currently bullish on Lloyds Bank, which he feels has been undervalued. Once the Government relinquishes its stake in the business, he expects the share price to rise rapidly and a dividend payment in excess of 6p per share to commence. In line with his process of adding to holdings when they are out of favour, he has used some of the fund’s cash to steadily build exposure over the past few years.
The Troy Income & Growth Trust is almost a mirror image of the open-ended fund, and very similar in terms of charges. Troy runs a discount and premium control policy, buying back shares when the share price falls below the net asset value and issuing them when the share price is above the NAV. It is a policy most providers shy away from, as it can shrink the trust’s size over time if share buybacks are commonplace. In Troy’s case, it highlights the board’s trust in Brooke to grow the asset over time.
Brooke’s investment approach has not changed over his tenure. His style was out of favour in the months following Donald Trump’s election to the White House, as investors flocked to more economically sensitive options. However, I expect his approach to deliver excellent returns over the long term. His philosophy may appear dull to some, but boring is usually good when it comes to investing.
Mark Dampier is head of research at Hargreaves Lansdown