‘My job is to guard savers’ wealth’

Sebastian Lyon of the Trojan fund has lost money in just one of the past 15 years. He tells Ed Monk how

Savers with money in the Troy Trojan fund must think investing is a simple business. In every year but one since the fund launched in 2001, they have benefited from a positive return. The exception was 2013, during which they suffered a 3.1pc loss.

Limiting losses has resulted in strong long-term returns. The fund is ranked seventh out of more than 200 funds in its “flexible investment sector” over 10 years, and top over one year.

That has been achieved with a maximum “drawdown” – the largest peak-to-trough fall – of just 13.4pc since launch, compared with 45.6pc for the FTSE All Share index.

Trojan’s manager, Sebastian Lyon, acknowledges that some of the success of the fund is down to a friendly environment for the shares in the high-quality, stable companies it favours.

Its focus on wealth preservation, however, is no accident, and it is this that Mr Lyon credits for the fund’s favourable positioning in the past 15 years.

Avoiding banks before 2008, for example, may not have been down to a belief that some were about to go bust, but an aversion to cyclical, highly leveraged companies.

Here he explains the approach, and why his exposure to shares is as low now as it was immediately before the crash.

How do you construct the fund?

The aim is wealth preservation. My approach has been to study periods when markets have suffered their largest peak-to-trough falls, and which shares have fared best.

That has led us to high-quality businesses and away from cyclical ones, particularly those with high levels of debt. It’s one of the things that helped us avoid the banks before 2008.

How is it positioned at the moment?

The type of shares we buy are very rarely cheap compared with the rest of the market.

There are periods when we can’t buy them at valuations we think are fair, so it’s then we move to other asset classes, including gold and bonds.

Right now our equity position is only 40pc, the same as it was before the crisis. We have been as high as 75pc. Within that, there is a bias towards largecap stocks, and we look at measures such as free cash flow yield and dividend yield to identify those that can survive shocks. Debt is also important and we look closely at interest cover.

This month is the fund’s 15th anniversary – how has it differed from previous funds you have managed?

I was hired in 2001 by Lord Weinstock (former chairman of GEC) to manage money belonging to his family with the stated aim of preserving that wealth.

I had come from running institutional money, where the emphasis was on growth, but here there was a high expectation that I wouldn’t lose money.

That really allowed me to look at stocks in a different way. The previous focus was on winning over short periods but I was told clearly that I was not to speculate. I didn’t have to invest if I didn’t want to and didn’t have to make big bets on shares I didn’t particularly like.

That was really important. Instead of a chief executive looking over my shoulder, wanting to know why I wasn’t invested, I had a saver who didn’t want sleepless nights.

What have you recently added to the fund?

We have been reducing our exposure to shares but there are some positions we’ve added to. Last year the stock market falls in August gave the chance to build a position in Procter & Gamble.

The shares fell to trade at 17 times earnings, pushing the yield to 3.8pc. It had grown its dividend for 59 years in a row, which shows the quality of the company.

Another addition has been American Express.

Do you invest your own money in the fund?

Yes, heavily in both this fund and Personal Assets, the investment trust I help to manage.

If you hadn’t become a fund manager, what would you have been?

I’d always wanted to be a professional tennis player. I’ve started playing real tennis, which is a bit gentler, so perhaps that’s a better bet.

TROY TROJAN

vs flexible investment sector over 10 years

How to buy the fund as cheaply as possible

The trust has a total cost (the “OCF” or “TER”) of Be sure to buy the right “share class”, which is “I”. The investment shop through which you buy the fund will also levy a charge. Some will

1.05pc a year.

charge a percentage of the amount invested, others will apply a flat annual fee. Our colour coded tables at will guide you to the cheapest fund shop for your circumstances.

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