It is four years since Gabrielle Boyle joined Troy Asset Management and began a fundamental re-orientation of its UK equity fund, transforming it into a global equity fund. And despite (or because of) taking a highly conservative approach, it is today ranked top decile in its sector, making it a worthy competitor to the likes of Fundsmith Equity and Lindsell Train’s global equity offering.
It shares with both those funds a preference for steady-eddy consumer staple stocks with good cashflow and dividends. It also has a relatively concentrated portfolio.
A generation ago, a conservative UK portfolio would have been highly diversified, with 100 stocks or more. It’s a measure of how much we have changed that Boyle calls her approach conservative yet her Trojan Global Equity fund has just 32 stocks.
“Our starting point is that the best way to make money is not to lose it in the first place. Our approach to capital protection is to find strong businesses with a high return on capital, lots of cash generation and little debt,” she says.
Like Fundsmith Equity, her single biggest holding is Microsoft, followed by a tobacco stock, although in Boyle’s case it is Altria rather than Imperial. After that they both share a liking for Sage.
Over one year Trojan Global Equity is up 9.7 per cent – which is some way behind the 17.3 per cent Terry Smith has managed over the same period – but enough to put Boyle into fourth place among the 251 funds in the sector.
“Performance has been very broad based across the portfolio,” says Boyle. “Some of the highlights have been in tech. Microsoft has done very well, as has Sage, and Fiserv has been a great stock.”
“Our starting point is that the best way to make money is not to lose it in the first place.”
Fiserv, which provides financial services technology to a lot of smaller institutions in the US, such as credit unions and savings and loans, is the fund’s ninth largest holding. Its Nasdaq share price has been on a steady straight line up for the past five years, rising from $30 in April 2011 to $100 in recent trading.
“Fiserv sells to a very diversified customer base in the US, providing processing and IP software, often on eight year contracts,” says Boyle. It is this sort of repeat-revenue model that she most likes in technology, rather than blue-sky technology investments.
Tobacco is another of Boyle’s favourite areas, with Altria 5 per cent of the portfolio. Altria emerged out of Phillip Morris, holding its American business, such as Marlboro in the US.
We all know from Neil Woodford how tobacco stocks have transcended health worries and high taxes to produce enormous returns. Altria is no different; it has gone from $35 three years ago to $61 today.
But how much longer can the tobacco story continue to repay investors? I’m recently back from a trip around south east Asia, and it was striking how anti-tobacco sentiment is now very strong in markets previously seen as growth opportunities. Pick up a packet of cigarettes in Malaysia now and the health warnings and prices are as punitive as they are in the west.
“The amazing thing about tobacco is how cash generative it is. The companies are realistic about future growth limitations, and are run very efficiently, with iron cost control,” says Boyle.
Her consumer staple stocks are the likes of Colgate and Coca-Cola. Colgate Palmolive has nearly doubled in the past five years to $72 as emerging market consumers have begun buying its products in the same way as the west. But the process still has a long way to go, claims Boyle.
“Colgate has been in India since the early 20th century. Yet it is still the case that the average household in India possesses just one toothbrush. There is still a lot of underlying growth to be found in places such as India,” she adds.
But pure emerging market stocks hold little interest to Boyle. “We haven’t had anything in emerging markets. Not because they are not attractive, but because the companies we would like to own in emerging markets have been very expensive.”
Healthcare is another of Boyle’s themes, with Becton Dickinson, Roche, Medtronic and Novartis all in her top 10.
Beckton Dkickon is almost akin to a consumer staple stock, making syringes and needles, as well as other medical instrument systems. Roche and Novartis are in the portfolio because, she says, they are very cheap at the moment.
Almost entirely absent from the Trojan portfolio are oil and commodity stocks. Boyle has a distrust of ‘price taking’ stocks that will soar – or flop – on the rollercoaster of world commodity markets. She admits that at times when the market’s appetite for risk is high, her fund may underperform.
The yield on the fund is surprisingly low – just 1 per cent – which she says is partly because fees are taken from income not capital. It also reflects holdings such as Alphabet (Google), which pays zero dividends, although Boyle is “confident that over time it will”.
Turnover on the fund is miniscule – just 10 per cent last year, although she expects that figure to be slightly higher in 2016.
Boyle can trot off yield, price-to-earnings and return on equity numbers much like Terry Smith, to prove just how conservative yet great value her investments are. It’s a very compelling story. What’s surprising is just how little goes into this fund, at £115m, compared to Fundsmith Equity, which has 50 times more assets under management.
Gabrielle Boyle is senior fund manager at Troy Asset Management
£115m Assets in the Trojan Global Equity fund
9.7% Performance of the fund over one year
32 Stocks in the Trojan Global Equity fund
10% Turnover on the fund last year
$61 Share price of tobacco firm Altria, which was $35 three years ago
1% Yield on the fund