Autumn 2020: the funds gaining and losing their Elite Ratings
Following FundCalibre’s Autumn investment committee, a total of ten funds have gained an Elite...
Trojan Global Income
Troy Trojan Global Income is a concentrated, quality income fund, with an emphasis on capital preservation and growing its dividend over time. Like all Troy funds, the focus is on investing in high quality resilient businesses for the long term.
Our opinion
James Harries is exceptionally experienced and has a fantastic track record. He has implemented this quality income investing style extremely well. The fund has historically done an excellent job of preserving capital in difficult markets and it has also been much less volatile than its peers - yet it has still managed to deliver better long-term performance. This fund must be at, or close to, the top of the list for anyone looking for a global income fund.
Company description
Troy Asset Management is an independent, privately-owned boutique asset manager. The company was founded in 2000 by the late Lord Weinstock and Sebastian Lyon. The focus of the business has always been to ignore both benchmarks and short-term noise in favour of a long-term investing approach. The Weinstock family owns 35% of the company and they are long-standing clients. The majority of the business is owned by employees. Troy manages over £15 billion worth of assets, in a range of multi-asset and equity strategies. The firm is characterised by its disciplined patient approach and its focus on capital preservation.
Fund manager
James Harries has 25 years’ investment experience and has managed global portfolios since 2002. He previously ran the highly successful Newton Global Income fund, which grew to £4.5bn. He joined Troy in 2016 to launch this fund and has been the lead manager ever since. James graduated from Bristol university with a BSc in Politics and has a masters in finance at the London Business School.
Investment process
Troy Trojan Global Income has three main aims. The first is to provide an attractive and regular stream of income which grows in real terms. The second is to minimise the risk of permanent capital loss, and the third is to allow capital to compound through long holding periods.
The manager has a very clear idea about the sort of businesses he likes and those he doesn’t. The fund has a consistent bias to quality and businesses with low capital intensity and low cyclicality are much more likely to make it into the portfolio. The manager does not outright exclude high capital intensity and more cyclical businesses but will need a very compelling reason to even consider an investment of this type. In practice, virtually none of these businesses ever make it into the portfolio.
Initial ideas are generated from a variety of sources. If, after initial research, a stock looks interesting, the analyst responsible will undertake deeper research including a full assessment of value, a detailed risk analysis, integration of ESG factors and meetings with the company. A 30–40-page note will then cover product, industry and managerial history; competitive strategy and risk (including ESG); financial performance and capital allocation; and valuation.
If, after further research, a company still looks promising, it will be debated by the whole investment team. If it passes this debate, it will enter Troy’s formal investment universe of about 170 stocks. Depending on valuation it may still be many years before an initial investment into the stock is made.
The manager wants to fully understand the business and undertake detailed fundamental research as a result. He aims to be a long-term shareholder in businesses he has a high degree of confidence can continue to grow long into the future. There is a particular preference for resilient companies with above-average returns, but below-average volatility. Characteristics of businesses he likes include durable competitive advantage; attractive business models; strong management teams; predictable growth; and high free cash flow.
Valuation is important but it is not the most important risk to manage. The high-quality businesses preferred are usually optically more expensive. However, the team believes the market underestimates the long-term compounding power of quality business and therefore they are undervalued as a result.
ESG
ESG - Limited
Each stock is judged on its individual merits and there is no prescriptive checklist for assessing ESG factors. However, ESG analysis is a key aspect of understanding the durability and resilience of a business. The team has access to several third party ESG data providers which can aid it with its own research.
The manager places a particularly high weight on corporate governance because he believes good corporate governance is critical to successful and sustainable companies. He likes businesses with a long-term mindset and a true alignment between manager and shareholders through equity ownership.
Troy also produces broader ESG on various industries and themes. This helps the managers identify which of their companies are leaders and laggards in these areas. Tobacco stocks have been a major feature of this fund in recent years.
Risk
Troy Trojan Global Income is benchmark agnostic and highly concentrated with around 30-35 holdings. It also has a heavy style bias in favour of quality. These factors combined can lead the fund to have a large tracking error and investors should expect it to perform differently to the index given its emphasis on absolute, rather than relative returns.
The fund’s heavy emphasis on capital preservation and acyclical businesses means it has historically been one of the least volatile in the global equity income sector. It is likely to outperform a falling market but is also likely to underperform a strongly rising market.
The information, data, analyses, and opinions contained herein (1) include the proprietary information of FundCalibre, (2) may not be copied or redistributed without prior permission, (3) do not constitute investment advice offered by FundCalibre, (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a fund, and (5) are not warranted to be correct, complete, or accurate. FundCalibre shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses, or opinions or their use. The Elite Fund rating is subjective in nature and reflects FundCalibre’s current expectations of future events/behaviour as they relate to a particular fund. Because such events/behaviour may turn out to be different than expected, FundCalibre does not guarantee that a fund will perform in line with its FundCalibre benchmark. Likewise, the Elite Fund rating should not be seen as any sort of guarantee or assessment of the creditworthiness of a fund nor of its underlying securities and should not be used as the sole basis for making any investment decision. FundCalibre disclaims any responsibility for trading decisions, damages or other losses resulting from any use of the Elite Fund rating. All performance data, as well as fund size, OCF, AMC, annual income (historic), share price discount or premium, is sourced directly from FE Analytics, and will change periodically.