Diversify and mitigate downside with Troy Trojan

A fund that has proved its ability to mitigate downside recently and in other times of volatility is Troy Trojan (GB00BZ6CNS31). The fund, managed by Sebastian Lyon and Charlotte Yonge, aims for some growth and to beat UK retail price index (RPI) inflation over five to seven years.

The fund can invest across different asset classes including bonds, and diversifying assets such as private equity and precious metals. It has a hefty weighting to safe-haven assets, with 21 per cent of its assets in conventional UK government bonds, 29 per cent in index-linked bonds, 11 per cent in gold-related investments and 5 per cent in cash at the end of January.

The fund also had about a third of its assets in equities across a variety of different sectors at the end of January, when its 10 largest holdings included Microsoft (US:MSFT), Unilever (ULVR) and British American Tobacco (BATS).

The fund has limited investors’ losses in periods of market chaos. For example, the FTSE All-Share index fell nearly 13 per cent over the month to 6 March and MSCI World index was down 9 per cent. But Troy Trojan only fell 1.7 per cent over that period. And over six months the fund is up 0.7 per cent, while the FTSE All-Share is down 8.4 per cent and MSCI World is down 3.4 per cent. The fund performed in a similar way in the final quarter of 2018 when markets also suffered significant falls.

This is not the only option available to investors seeking diversifiers. Personal Assets Trust (PNL), an investment trust we recently tipped, holds a similar mix of bonds, gold and large-cap equities, and has performed in a similar manner to Troy Trojan. It is also run by Mr Lyon. Both are valid sources of diversification, but Troy Trojan Fund may be a better option if you prefer the simplicity of open-ended funds relative to investment trusts.

Troy Trojan's diversified asset allocation and exposure to defensive assets means that its ability to generate capital growth over the longer term is limited. For example, it made a sterling total return of 28.5 per cent over the five years to 6 March 2020, compared with a 61.6 per cent rise in MSCI World index and a 17.3 per cent gain for the FTSE All-Share index.

So, as with all defensive investment approaches, it is important to be aware of what you might sacrifice over a longer period by not taking enough risk. Both Troy Trojan and the Personal Assets Trust’s returns lag those of MSCI World index over three, five and 10 years. If you are happy to ride the ups and downs of markets over time, such funds may not be appropriate for you.

But if you want to diversify your portfolio without giving up too much in the way of returns, and mitigate downside in falling markets, Troy Trojan looks like a very good option. It is run by an experienced team, and provides a mixture of growth and diversification. Buy. DB