In the spirit of Rushbrook

The devoted shareholders of Britain's most bearish investment trust, Personal Assets Trust (PAT), were left devastated by the sudden death in October 2008 of its long-standing managing director, Ian Rushbrook, at the age of 68. He passed away in the hour of his greatest triumph - just as his long-unheeded warnings about the dire consequences of the credit and housing bubbles in the US were finally coming to fruition.

However, the trust began a new chapter in March 2009 with the appointment of the highly-rated and equally cautious Sebastian Lyon as investment manager. As a successor to Mr Rushbook, Mr Lyon looks like a good appointment.

A "Rushbrook disciple" and a personal shareholder in the trust, Mr Lyon believes we are still in a bear market and that the recent rally is vulnerable. Governments, he believes, are taking a huge risk with inflation in printing so much money.

For the past eight years he has been managing money at Troy Asset Management, an independent fund manger established by the late Lord Weinstock in 2000, with the same priority as Mr Rushbrook of preserving investors' capital before growing it. PAT's objective is to protect and increase (in that order) the value of shareholders' funds over the long term and its benchmark is the FTSE All Share index. Personal Assets Trust is the firm's first closed-end fund mandate.

In March, Mr Lyon won the Lipper Award for investment consistency over five years for his Trojan Fund, which has been in the top decile of the Investment Management Association's Balanced Managed Sector over 1,2,3,4,5,6 and 7 years. Launched on 31 May 2001, the Trojan Fund had by 31 January 2009 produced a total return of 79.7 per cent (7.9 per cent annualised) compared to -5.1 per cent (-0.7 per cent annualised) on the FTSE All-Share Index.

"As a Personal Assets shareholder myself for the past ten years, I benefited from Ian's outstanding performance as well as his wisdom," he says. "His approach to investment has had a major influence on the way I have managed money at Troy for the past eight years."

Between 1 May 2009 and 31 July 2009, Mr Lyon increased Personal Assets Trust's investment in gold bullion and added new holdings of Berkshire Hathaway and Diageo. "We have avoided financials stocks such as banks and life companies because of the opacity of their structure and exposure to bad debts and illiquid or unmarketable securities," he says.

"Berkshire Hathaway has not performed well this year. Strong balance sheets are not the investment fashion for now. Pricing power in insurance and reinsurance remains very strong, however. Berkshire's other direct corporate investments are valued conservatively at book value. It seems we are paying little if any premium for Mr Buffett's investment abilities. We know investors go thorough periods of according different degrees of goodwill to Berkshire. At present we have a good margin of safety, with some healthy upside on a two- to three-year view."

The board's policy is to ensure that the shares of Personal Assets Trust always trade at close to NAV using share buybacks. They are currently trading at a small premium.

Source: Morningstar (figures as at 17 August 2009)

TOP TEN HOLDINGS (31 July 2009)

GEOGRAPHICAL ANALYSIS (31 July 2009)

SECTOR BREAKDOWN (31 July 2009)