Preserve and grow: Troy’s multi-asset philosophy

For those who are less familiar with Troy Asset Management, could you please introduce the firm and explain what sets you apart?

Tom Yeowart: Troy was founded 25 years ago by our CIO, Sebastian Lyon, and Lord Arnold Weinstock, a well-known British industrialist and businessman. Weinstock transformed the General Electric Company (GEC) into a major British industrial group. Following his retirement, his successors pursued aggressive acquisitions, and Lord Weinstock lost much of his fortune during the burst of the tech bubble. This uncomfortable experience shaped Troy’s founding focus: capital preservation.

We are well aware of the mathematics of compound interest: if you lose 50%, you have to gain 100% to recover. Our top priorities are capital preservation and steady growth above the rate of inflation. This clear objective has guided us through market cycles, and our strategy has consistently protected capital well during periods of market stress, including the financial crisis, the pandemic and the recent sell-off. For instance, our drawdown from February to April of this year, when the MSCI World Index fell by approximately 20% in euro terms, was just 3.5%. Troy Asset Management is a company that is majority employee-owned and has just four core strategies. This deliberately focused structure supports long-term thinking and strong client focus.

How does your philosophy shape portfolio construction in today’s environment?

Yeowart: Our principles remain unchanged, but to be successful, we must adapt to changing conditions. The US dollar has long been a safe haven for us. However that may not remain the case in future, as highlighted by its weakness during the sell-off in April. We have reduced our net US dollar exposure from 25% at the start of the year to 10% today. We have taken an 8% position in the Japanese yen, another currency that has performed well during periods of market uncertainty, via short-term Japanese government bonds.

Within fixed income, we felt that we were not being adequately compensated for duration risk. We have therefore further reduced the portfolio’s duration from around 5.5 years to 2 years. Our equity exposure is close to our long-term average of 40%. We increased this in April by adding quality stocks such as Alphabet and Agilent that were trading on attractive valuations, but we remain cautious as valuations, in general, appear high, particularly in the US.

Unlike other multi-asset funds, yours is long-only, with a highly selective, low-turnover approach. Why did you choose this approach, and what advantages does it offer investors?

Yeowart: A multi-asset investor may be tempted to buy everything. Compared to other multi-asset strategies, our approach is deliberately simple. Our focus is on four core asset classes – equities, bonds, gold and currencies, and take a strong equity-centric approach, because equities are the main driver of returns. We also believe in the power of compound interest over time. At the same time, we only include high-quality companies in the portfolio that can significantly contribute to long-term performance. Good examples of this are Microsoft and Visa. We have held both for several years and have benefited from their long-term structural growth.

Rather than making frequent reallocations, we focus on understanding the long-term drivers of corporate success. However, we remain flexible during turbulent market phases. When share prices fall sharply, as they did during the pandemic or in April this year, we aim to respond decisively. In such moments, turnover rises, but it remains low over time.

Could you tell us more about the team behind the multi-asset strategy? How is research conducted and investment decisions made at Troy?

Yeowart: We have one investment team covering four strategies. The team works closely together and there is significant overlap in equity holdings across strategies. Joint ownership across strategies, as well as long holding periods, fosters detailed knowledge of the companies we own, enabling robust discussion and debate about each company’s future prospects.

Each strategy also has its own sub-team. The multi-asset team consists of four members: Sebastian Lyon, Charlotte Yonge, Marc de Vos and Michael Kinsella. I provide support as deputy CIO.

The investment process is highly collaborative but investment decisions for the multi-asset strategy are ultimately made by Charlotte Yonge and Sebastian Lyon.

How do you make the right decision regarding asset allocation?

Yeowart: Our asset allocation is primarily based on equity valuations. Typically, we aim for an equity allocation of between 35% and 65% over a market cycle. However, this allocation has sometimes been as low as 20% and as high as 70%. Over the past 25 years, two-thirds of our returns have been attributable to equities.

Gold has been a core component of our portfolio since 2005, typically accounting for 8% to 12% of the total. We aim for a minimum allocation of 8% to achieve a significant impact, while avoiding more than 12% to reduce concentration risk. Given gold's recent strong performance, we have trimmed our holdings to stay within this range.

Our fixed income exposure depends on where we see potential. These are often inflation-linked bonds. We also hold a liquidity bucket in cash and very short-dated government bonds. Currency exposure is managed carefully. While we never select assets purely on the basis of currency considerations, we do consider currencies as a secondary factor, primarily as a capital preservation tool.

Your strategy focuses on acquiring high quality companies at the right valuation. How do you define quality and avoid overpaying for it?

Yeowart: When selecting quality companies, we focus on those with strong competitive advantages, sustainable growth, robust balance sheets, and high returns on capital. These companies also frequently reinvest in innovation to ensure they can adapt. On valuation, we remain disciplined and wait for the right entry point.

For instance, we recently added Hubbell, a US-based company that manufactures critical electrical products for utilities, the power grid, construction and industrial sectors. Hubbell has a solid financial profile and undervalued growth potential resulting from investments in electrification and infrastructure. Another example is Verisign, which operates the registry for .com and .net. After monitoring the company for a long time, we bought its shares in June last year at a price-earnings ratio of around 20 times earnings, down from 40 previously. Since then, the share price has risen by over 50%.

Finally, why do you think that Troy’s multi-asset strategy is particularly relevant to investors today?

Yeowart: The question of whether our strategy is right today or tomorrow is irrelevant – it is always relevant for anyone who wants to protect and steadily grow their assets.
It was developed to provide investors with security. If investors are looking for an appropriate balance of risk and long-term returns without major fluctuations, this strategy offers a compelling solution.