The £587m Personal Assets Trust is one of the most popular and well-known closed-ended funds with retail investors, due to its strong long-term track record and zero-discount policy. However, though it is genuine multi-asset portfolio, it has faced criticism over recent years due to Lyon’s cautious stance. Since the manager (pictured) took over the portfolio in March 2009 – just as the market bottomed-out after the crash – the trust has returned 75 per cent, which is half the amount of the FTSE All Share.
Performance of trust versus index since March 2009
Source: FE Analytics
Angus says, however, that the portfolio is set-up to take advantage of an inevitable correction and therefore expects the trust to once again outperform.
“Unless a new investment paradigm should suddenly emerge, it’s inevitable that Personal Assets will have a short, sharp spell of outperformance again, like we did in the past; and we shall build on that to make the most of a recovering equity market when attractive valuations once more appear,” he said.
“The only question is, when will it come? We can’t say, but in the meantime we are quietly but determinedly positive.”
“Shareholders know that we’ve been prepared to admit it when we’ve done badly; here I’m glad to give the complementary assurance that we believe in what we are doing and are convinced it will end happily.”
Several leading fund managers have warned that a correction is on the cards as the market is near its all-time high while there are still strong headwinds facing investors.
Angus says that as Personal Assets is managed like the board or Lyon’s own personal portfolio, they will continue to stick to their guns and not try and chase returns; a far cry from many investors who focus on relative instread of absolute value.
“We are interested in absolutes, not relatives. We buy investments because we believe them to be attractive in their own right, not because we think they’re the best of a bad lot,” Angus said.
That defensive positioning is shown by Lyon's 23 per cent position in cash, which has hovered around the 20 per cent mark for some time. Angus admits this is a very prudent move in this environment of huge central bank intervention and soaring equity markets.
“Cash, considered as an investment, is perhaps more controversial even than gold,” he said.
“To hold it in any quantity is seen as the ultimate bankruptcy of imagination and failure of nerve, provoking the dreaded question, ‘Surely there must be something worth buying?’ And this is particularly so today, when wealth managers and investors alike query paying fees to money managers to hold cash when interest rates are zero.”
“They fail to see what Personal Assets has proved several times in its history — that holding cash can add value. And they also fail to see that, rather than its being a cowardly cop-out, holding cash takes considerable courage.”
Personal Assets does have a strong long-term track record.
Our data for the closed-ended fund spans back to January 1995 and over that time it has returned 337.41 per cent. As a point of comparison, the FTSE All Share has returned 304.44 per cent but has been twice as volatile.
Performance of trust versus index since Jan 1995
Source: FE Analytics
As Angus points out, that outperformance has come during times when equities have fallen.
According to FE Analytics, the Personal Assets returned 1.81 per cent in 2001 when the UK equity market lost 13.29 per cent. In the crash year of 2008, its losses were limited to 3.24 per cent when the FTSE All Share lost 30 per cent.
The most recent falling market was 2011 when fears of a eurozone collapsed intensified. The trust made 8.23 per cent that year, while equities lost money.
Lyon isn’t alone in holding a high-level of cash at the moment. Angus says this is the best course of action because a huge amount of complacency has crept into the market place.
“When shareholders are clamouring for action and the market keeps on soaring skywards, any investment looks better than none. But that is when some of the worst investment mistakes are made,” he said.
“How many fund managers plunged into technology, media and telecommunications stocks in early 2000, when their run was coming to an end but their names simply had to appear in a published portfolio list?”
“How much better it would have been to have kept the cash for use when there really were un-missable bargains around.”
Angus is quick to point out, however, that the current weighting to cash will not be a permanent holding and instead it is “dry powder to deploy when value once again presents itself.”
There are signs that Lyon’s positioning is paying off, as a recent FE Trustnet article illustrated.
Due to his fears over future inflation, the manager has held large-parts of his portfolio in gold bullion, index-linked bonds and blue-chip equities. These have been among the best performing asset classes in 2014, helping the trust to returns of 7.29 per cent so far this year, while equities have been relatively flat.
Performance of trust versus index in 2014
Source: FE Analytics
Given the trust’s return profile, Angus says Personal Assets should be viewed in a very distinct way.
“Personal Assets might be compared to a rather reserved guest at a party who is very far from being a party animal,” Angus explained.
“We pace our drinking, so that as the party hots up we look dull, awkward and out of things. But because of this, we don’t get drawn into doing the silly things some people do when parties are at their wildest — and we don’t have a hangover the next day.”
Charles Tan, analyst at Cantor Fitzgerald, rates Sebastian Lyon highly and shares many of his bearish views. However, while he has the upmost respect for Lyon, Tan says the manager should have been less dogmatic in his outlook over recent years.
“My view on Sebastian Lyon is that he is very rational and is rightly cautious. However, I would say his lack of flexibility is a cause for concern,” Tan (pictured) said.
“I’m with him at this point in the cycle, but I think what makes a good manager a great manager is his or her ability to change their outlook when the information they are given changes. Like Keynes once said, “When my information changes, I alter my conclusions. What do you do, sir?””
“At this point in the cycle, you have got to be defensive. However, with the benefit of hindsight, I think he should have been more willing to be flexible a few years ago.”
Personal Assets isn’t geared and has ongoing charges of 0.91 per cent.
