‘Coronavirus won’t put us off KitKats and Nespresso’

Sebastian Lyon tells Harry Brennan how his Troy Trojan fund has avoided the sharp losses suffered by the wider market

On Monday shares plummeted on the back of a slump in oil prices and the London stock market suffered its worst day since the 2008 financial crisis. It was the second-quickest plunge into “bear market territory” in history and follows deepening concern over the economic effects of the spread of coronavirus, which has already caused the FTSE 100 index of Britain’s biggest firms to fall by more than a fifth from its previous peak.

On Wednesday the Bank of England cut interest rates from 0.75pc to 0.25pc and Rishi Sunak, the new Chancellor, unveiled a package of measures in a bid to protect businesses and hold off a recession.

But one fund is, so far, holding its own. Listed as one of The Telegraph’s Defensive 10, the £4.4bn Troy Trojan fund has lost just 4pc in one of the worst months for markets in years. Over the past 12 months it has returned almost 7pc, while the FTSE 100 has fallen by more than 16pc.

Here we speak to the manager, Sebastian Lyon, about the defences that have helped shield investors from the worst of the fall and what is coming next.

WHO IS THE FUND FOR?

People who want to preserve their wealth. This means the fund will lag the markets a little when they are rising but will protect your money when they are falling, as they have been over the past month.

HOW DO YOU DO THIS?

We can change the fund around a lot. So when markets are very good and we feel confident they will continue to perform, we can boost our exposure to shares to as much as three quarters of the fund.

Conversely, when we are feeling more cautious we can hunker down into some of those more defensive assets such as gold and bonds. Gold is up around 12pc in pound terms for the year so far and has performed well for us. We own gold instead of insurance policies that are guaranteed to pay out when markets fall as these options tend to be expensive, especially in the good times.

We own bonds where the interest payment rises with inflation, and these have done well, although this week’s oil price fall has offset some of those gains. Thankfully, we sold our only oil company, Canada’s Imperial Oil, in December.

WHAT’S COMING NEXT?

The Bank of England rate cut and the Budget announcements won’t do much to calm things – the markets are ahead of them and have already accounted for a lot of the damage Covid-19 could well cause with lower share prices.

We have been adding to our existing stocks as prices have been falling and, if markets continue to fall, we will add more.

The companies we own are ones that shouldn’t be affected by falling markets so much. We focus on consumer staples we believe will never go out of fashion or use. Things like KitKat biscuits and Nespresso coffees made by Nestlé, or Head & Shoulders shampoo made by Procter & Gamble, or the makers of Marmite and Magnum ice creams, Unilever.

We also own Warren Buffett’s investment company, Berkshire Hathaway, which is sort of a microcosm of this approach and famously owns consumers staples such as Coca-Cola.

These shares have fallen but are holding up relatively well compared with the wider market. Some others haven’t though, and our largest stock, Microsoft, has fallen by more than 10pc over the month.

£1,000 invested at launch would be worth £3,560 today

WHAT ARE YOU AVOIDING?

We don’t have much exposure to the domestic British economy, as we mainly invest in large multinationals. We prefer more predictable, stable businesses.

So we would not invest in hotels, airlines or conference businesses, for example, as their profits depend on essentially filling their rooms, planes or events. If you don’t achieve this, you have an almost immediate knock-on effect on earnings.

This is why we have seen these very exposed businesses like airlines suffer so much as the coronavirus outbreak takes its toll.

WHAT HAVE BEEN YOUR BEST AND WORST INVESTMENTS?

We’ve made a lot from Microsoft, which we still own. We bought it at about $25 a share and today it’s worth around $160 a share.

The worst was EMI, the record label, which we had to sell in 2003 after it fell by around 70pc. The industry did not foresee the huge shift in the way people listen to music.

DO YOU HAVE YOUR OWN MONEY IN THE FUND?

Yes, and I have done since day one.

HOW ARE YOU PAID?

A basic salary and a bonus if I perform well.

WHAT WOULD YOU HAVE BEEN IF NOT A MONEY MANAGER?

A tennis coach.