The manager of popular investment trust Personal Assets Trust (PNL) has issued a warning to investors thinking about a wholesale switch into ‘value’ stocks.
Troy Asset Management’s Sebastian Lyon, who has managed the trust for more than a decade, warned that some dividends cut or reduced during the Covid-19 pandemic, may never return to previous levels, making the value end of the stock spectrum a ‘treacherous pool in which to fish’.
Lyon assured investors that he’ll be sticking with his own focus on high quality companies that generate sustainable returns over the long-run.
‘PAT’ OUTPERFORMS
Best known by its initials ‘PAT’, Personal Assets’ stated investment policy is ‘to protect and increase (in that order) the value of shareholders’ funds per share over the long term’.
Aimed squarely at the cautious investor, this wealth preserver maintains high levels of liquidity, with substantial exposure to cash, gold bullion, UK gilts and US Treasury Inflation-Protected Securities (TIPS).
During a tumultuous year to April 2020, Personal Assets’ net asset value (NAV) per share rose 5.3%, comfortably outperforming a 19.8% fall for the FTSE All-Share Index.
Shares in the trust nudged £4.70 higher on Friday to £450.20, a high for the year.
LYON’S LIONS
Lyon pointed out that pre-pandemic, world debt to gross domestic product (GDP) levels ‘were already at record levels, leaving the economy extremely vulnerable to an extraneous shock of this nature’ and as a result, ‘corporate default risk is now very high and bankruptcies have already begun’.
During the sell-off, Personal Asset’s equity holdings held up far better than UK and global equity indices. ‘The mundane activities of selling coffee, chocolate, toothpaste and pet food demonstrated the longstanding merits of staples companies like Nestle, Unilever (ULVR) and Colgate,’ explained Lyon.
‘Elsewhere, technology companies with recurring revenues, like Microsoft, proved suitably defensive, thanks to the need for millions to work from home during lockdown.’
But the best performer was gold royalty company Franco-Nevada. ‘Gold bullion rose, proving its value as a hedge against the dire economic and monetary uncertainty unleashed by the pandemic,’ said Lyon.
NEW POSITIONS
Among Personal Assets’ new positions are Google parent Alphabet, medical devices company Medtronic and Agilent, a life sciences company with recurring revenues in chromatography and mass spectrometry.
Lyon has also bought a new holding in Visa. ‘All these companies we view as resilient businesses with strong platforms for long-term growth,’ he enthused.
‘Visa should benefit from the ongoing shift to e-payments and the fast approaching cashless society, as will our existing holding in American Express.’
The Troy Asset Management money manager also pointed out that before the pandemic struck, many UK-listed companies were already over-distributing to shareholders.
‘Dividend cuts for the UK stock market are expected to be greater than during the financial crisis of 2008/9. In a world of low interest rates, the temptation to overstretch for income is great,’ warned Lyon.
‘We select our equity holdings on a total return basis and look for companies that are able to grow sustainably. We believe investing for income will only get harder, as many dividends that have been cut or passed will be reinstated at much lower levels and only once a recovery takes hold.
‘Some may never return, making ‘value’ a treacherous pool in which to fish. We, however, are not tempted to shift the portfolio away from quality companies generating sustainable returns.’
