Mark Dampier: Let Lyon's Trojan fund time the stock market for you

The Analyst

Stock markets are not currently rewarding a buy and hold approach to investing. It is not the first time this has been the case. Between 1967 and 1982 the Dow Jones Industrial Average went nowhere.

In fact, adjusted for inflation it lost 50 per cent. The same can be said of the FTSE 100 since 1999. If you take dividends into consideration it has risen, but adjust for inflation and it's a different story.

Investors need to think carefully about the most appropriate strategy to pursue. The above should provide a stark warning to those who favour coupling a buy and hold strategy with passively managed index-tracking funds. Using exchange-traded funds and passive investments to time the market, buying the lows and selling the highs, could in theory yield better results. In practice, timing trades accurately is virtually impossible for most. Looking for active managers to do this on your behalf could be a better solution.

Sebastian Lyon, manager of the Trojan fund, has built an impressive track record. Since launching in May 2001 it has risen 159 per cent compared to 46 per cent for the FTSE 100 Index, including dividends. Capital preservation sits at the heart of his approach. Permanent capital loss is a key risk for most investors. Seeking to limit any downside leaves you on a sounder footing when markets begin to rise. This does not mean the fund can't fall in value. Mr Lyon invests in risk assets, so it will.

To illustrate the merits of his approach one needs to think in percentage terms. If the stock market (and consequently a fund tracking the stock market) falls 50 per cent, a recovery of 100 per cent is needed just to get back to square one. Mr Lyon believes that if he can limit falls in the value of the fund to 10 per cent to 15 per cent, he has to work considerably less hard when better times come.

Essentially, he looks to buy quality assets at attractive prices. It is partly his ability to identify the right assets, at the right price, at the right time that has driven the fund's strong performance.

Presently, the best way to describe Mr Lyon is as a frustrated bull. He sees the attraction of cash-generative companies with pricing power and ongoing revenues, but no longer sees them as a contrarian trade. While he is happy to hold the likes of Unilever, Microsoft and British American Tobacco, he believes they are fairly valued and is not comfortable adding new money. Consequently, the allocation to UK equities is at its lowest-ever level at just 13 per cent of the portfolio, while overseas equities account for a further 20 per cent.

One of Mr Lyon's key concerns is the inflationary effect of quantitative easing. While he can't pinpoint exactly when inflation might become more of a problem, he wants to be prepared.

Around 10 per cent of the portfolio is invested in gold as a hedge against future inflation and 26 per cent is in US and UK index-linked bonds. He agrees that the latter aren't cheap, but he believes investors will pay a premium to be protected from inflation.

Nevertheless, a bout of inflation in excess of 5 per cent or 6 per cent could hurt equities and bonds alike. Inflation erodes the value of a bond investor's income and capital while the same is true of company earnings. At this stage, the best place to be would be in either sterling or overseas currencies.

While this would feel awful to investors at the time, the aftermath could lead to one of the great buying opportunities of a generation. He currently holds 18 per cent of the portfolio in cash ready to pounce upon opportunities.

I feel this fund is a core holding that can be held for the long run knowing Mr Lyon will do his best to preserve capital and make money when opportunities arise.

Before attempting to time the market yourself, I suggest you take a close look at the Trojan fund.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Claims Administrator

    £16000 - £18000 per annum: Recruitment Genius: A position has arisen within th...

    Ashdown Group: Development Manager - Rickmansworth - £55k +15% bonus

    £50000 - £63000 per annum + excellent benefits : Ashdown Group: IT Manager / D...

    Recruitment Genius: Security Officer

    £16500 per annum: Recruitment Genius: Applicants must hold a valid SIA Door Su...

    Ashdown Group: Business Analyst - City, London

    £50000 per annum: Ashdown Group: Business Analyst - Financial Services - The C...

    Day In a Page

    The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

    The saffron censorship that governs India

    Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
    Prince Charles' 'black spider' letters to be published 'within weeks'

    Prince Charles' 'black spider' letters to be published 'within weeks'

    Supreme Court rules Dominic Grieve's ministerial veto was invalid
    Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

    How did fandom get so dark?

    Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
    The galaxy collisions that shed light on unseen parallel Universe

    The cosmic collisions that have shed light on unseen parallel Universe

    Dark matter study gives scientists insight into mystery of space
    The Swedes are adding a gender-neutral pronoun to their dictionary

    Swedes introduce gender-neutral pronoun

    Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
    Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

    Disney's mega money-making formula

    'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
    Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

    Lobster has gone mainstream

    Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
    Easter 2015: 14 best decorations

    14 best Easter decorations

    Get into the Easter spirit with our pick of accessories, ornaments and tableware
    Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

    Paul Scholes column

    Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
    Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

    The future of GM

    The greenhouses where Monsanto 'plays God' with the future of the planet
    Britain's mild winters could be numbered: why global warming is leaving UK chillier

    Britain's mild winters could be numbered

    Gulf Stream is slowing down faster than ever, scientists say
    Government gives £250,000 to Independent appeal

    Government gives £250,000 to Independent appeal

    Donation brings total raised by Homeless Veterans campaign to at least £1.25m
    Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

    The most borrowed book at Bank of England library? Oh dear

    The book's fifth edition is used for Edexcel exams
    Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

    Cowslips vs honeysuckle

    It's the hunt for UK’s favourite wildflower
    Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

    Did a botched blackmail attempt help Cyril Smith escape justice?

    A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss