Our objective is to preserve and grow the real value of our investors’ capital over the long term. Our approach combines decisive asset allocation with well-researched investment. Portfolios are constructed without any reference to benchmarks or investment fashion.

We aim to keep investors’ costs down by maintaining a very competitive fee structure and keeping portfolio turnover to a minimum. We regard high fees and excessive turnover as taxes on investment returns.

Why Absolute Returns?
Our first principle is that those who have money should concentrate on not losing it. We measure our performance against the returns available from cash in the bank, not relative to stock market indices.

For the index-driven fund manager, investment decisions are often influenced by fear of being left behind rather than enthusiasm for an opportunity. By contrast, at Troy we avoid investments we dislike or do not understand.

We consider risk in absolute terms as the avoidance of capital loss and we believe that relative investing has become a very risky business. The most widely-used UK benchmark, the FTSE All Share Index, is top-heavy in a few giant sectors and companies. These are ‘must haves’ for the relative investor but only by virtue of their size within the index. The dotcom boom-to-bust experience was a salutary example of what can happen when index-chasers force up the prices of big and fashionable companies in a self-fulfilling spiral. To us, this is like pressing harder on the accelerator the closer you get to the cliff. We will stand aside from such activity, even when it means we do not capture all the upside in an over-heated market.

Today there are numerous absolute return specialists, including hedge funds. Troy is not a hedge fund manager. We adopt a long term, long only approach to equities and do not ‘short’ or sell equities that are not owned in portfolios. We aim to provide complete transparency for our investors.

Asset Allocation
Our fund managers’ experience gives an independent perspective on the relative valuations of key asset classes, allowing asset allocation decisions to be taken with conviction. Our funds invest in equities, preference shares, fixed interest securities and cash, as permitted, with a view to enhancing long term returns and minimising volatility. New money is treated with care and consideration and not thrown into the markets at any level.

Stock Selection
We aim to invest selectively in high quality companies with attractive valuations. We believe that there are opportunities in companies of all sizes and we have an equal emphasis in our research towards small, medium and large capitalisation stocks.

We source investment ideas from stockbrokers, industry and the media but in the end it is the intellectual curiosity and long experience of our fund managers that enable them to identify quickly and engage with potentially interesting companies. We create and use research intelligently, focusing on important issues that are not addressed elsewhere. We try to meet regularly with all the companies in which we invest, particularly the smaller ones.

Our approach is conservative with attention always to the downside risk of any investment. We favour stable or growing companies with a strongly differentiated product or service and high barriers to entry. We also look for change – perhaps new management, competition or a departure from previous strategy – that might materially affect a company’s prospects. We typically avoid highly acquisitive companies and speculative investments that tend to over-promise and under-deliver.

Financially our focus is on cash flow, return on investment and capital allocation. We look for a strong balance sheet that can support a growing dividend stream throughout the business cycle. In management we seek high quality, stability, consistency of strategy and a close alignment of interests with shareholders – precisely the qualities we believe our investors expect of us.

Valuation
Our long term approach enables us to look through, and take advantage of, the short term noise generated in the markets. This means our investment decisions are often non-consensus and that we buy and sell when the herd is looking the other way.

We buy when we believe a company’s share price significantly understates its long term potential. We believe that no single valuation approach should be applied mechanically to different businesses, sectors and geographies. The projection of cash earnings is an important starting point in our analysis. Dividend yield, price to book and return on capital are also relevant valuation criteria. Reported earnings, on which the market seems obsessively focused, is often the least helpful measure.

We sell holdings when pricing fully discounts our expectations or when change leads us to reappraise our valuation, or simply when we get it wrong.