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Protect against inflation with Troy Trojan

If you are worried about inflation, this fund could be a good addition to your portfolio.

A rise in long-term global inflation is becoming an increasingly likely scenario, according to a number of analysts. This week there have been inflation data releases in the UK, US and the eurozone. The eurozone numbers were broadly in line, the UK numbers were lower than expected, and the US numbers were slightly higher than expected compared with economist forecasts, according to Bloomberg. While all this suggests that higher inflation probably isn't going to happen any time soon, what should be noted is that the key market implied five-year inflation rate (the US five-year breakeven rate) hit a new 12-month high last week.

Tip style
Risk rating
Long Term
Bull points
  • Offers protection if inflation rises
  • Available through DIY brokers
  • Low correlation with the market
Bear points
  • Underperformed consistently for five years
  • Soft closed

If you are worried about your investments keeping pace with rising inflation, Troy's Trojan fund (ISIN: GB00B01BP952) could be a good addition to a portfolio. This fund invests on a global basis with an aim of wealth preservation. It has around 40 per cent of its assets invested in index-linked bonds and gold, which means it should perform well if global inflation moves higher.

Its investment objective is to achieve growth in capital and income in real terms over the longer term. It invests substantially in UK and overseas equities as well as fixed interest securities, but may also invest in collective investment schemes and commodities, aiming to protect investors' capital and increase its value year on year.

It has underperformed its benchmark, the FTSE All-Share Index, consistently over one, three and five years, delivering a disappointing 2.8 per cent over five years (to 19 June 2014), compared to 96.6 per cent by the FTSE All-Share. However, past performance is not an indicator of future returns, especially when the tide is changing. This fund's fortunes could be set to change over the long term.

Manager Sebastian Lyon is experienced and has consistently outperformed his peer group since 2001. His equity weighting within the fund can range from 25 per cent, when he is very cautious, up to 85 per cent, when he is most optimistic. Equities currently make up 44 per cent of the portfolio. The equity exposure currently has a bias away from sterling, with 1 per cent in UK equities and 30 per cent in non-UK equities. It's largest holdings are Gold Bullion Securities (GBS)(8.4 per cent), British American Tobacco (BATS) (4.6 per cent), and Becton Dickinson (BDX) (3.8 per cent).

Troy Trojan has closed to direct investors with less than £250,000 to invest because the manager wanted to save time dealing with new investors and get on with running the fund. However, new investments of as little as £1,000 can still be placed through all the popular DIY brokers for a TER of 1.07 per cent.

Mick Gilligan, head of research at Killik & Co, warns that the current asset allocation may act as a headwind to performance if the inflation outlook remains benign and equity markets continue to push higher. However, he adds that in an environment where so many investments have moved higher at the same time (such as equities, corporate bonds, real estate), the case for having a less correlated set of assets is actually pretty strong.

"The case for holding the Trojan fund is further supported by the longer-term risk of unexpected inflation and the negative impact this could have on much of investors' current positioning," he said.

For investors looking to preserve their wealth, this is a fund that despite being soft-closed, is still an option on the table. Buy.


Troy Trojan fund (GB00B01BP952) key facts

IMA SECTORFlexible Investment3-YEAR PERFORMANCE9.20%
No OF HOLDINGS21 equities, 5 bondsYIELD0.72%
MANAGER START DATE31 May 2001MORE DETAILSfile:///C:/Users/Katie.Morley/Downloads/trojan_fund_fact_sheet_may_2014_final%20(2).pdf
Source: Morningstar on 19/06/14  

Portfolio allocation (as at 30 May 2014)%
Cash & equivalent  17.3
Overseas equities 30
Gold shares 3
Gold 11
US index-linked bonds 9
UK index-linked bonds 16
Cash (inc. UK T-Bills) 13
Singapore T-Bills 4

Top ten holdings (excl government bonds) as at 30 May 2014%
Gold Bullion Securities  8.4
British American Tobacco  4.6
Becton Dickinson  3.8
Imperial Oil 3.7 
Microsoft 3.6 
ETFS Physical Gold  2.6
GlaxoSmithKline 2.5 
Dr Pepper Snapple  2.5
Altria 2.5 
Berkshire Hathaway 2.5