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Fund of the week: Sebastian Lyon of the Personal Assets trust was 'like a child in a sweet shop' in 2009 but now he expects a 'big correction' in the stock market

06 June 2015

The Daily Telegraph

Fund of the week: Sebastian Lyon of the Personal Assets trust was 'like a child in a sweet shop' in 2009 but now he expects a 'big correction' in the stock market.

Sebastian Lyon, who runs the popular Personal Assets investment trust, openly admits that its performance has “not been exciting” over the past couple of years. But this will not come as a surprise to the trust’s investors. Like many rival funds, it holds global shares. But its main aim is to preserve investors’ capital and to achieve this it also holds other assets, such as gold and cash. Here Mr Lyon explains why the trust has become even more cautiously positioned since the start of 2015, so much so that even Warren Buffett’s company is no longer viewed as a buy.

Why are you so cautiously positioned?

It is our job to avoid bubbles, so when stock markets are buoyant and people are more greedy we do the opposite. Markets have enjoyed a largely uninterrupted rally over the past six Of the 3,500 or so funds available to savers, there are perhaps only a handful that can be described as “wealth preservation” funds. But Personal Assets lives up to this description, with the manager, Sebastian Lyon, investing on the principle that he would sooner keep £1 than risk losing it to try to win £2. The years and the FTSE 100 has hit an all- time high, but we view this as reason for caution rather than celebration.

How much have you cut your holdings of shares over the past couple of years?

We had 75pc in shares in 2009, 45pc at the start of 2015 and 40pc now. Personal Assets is described by some as a “doomsday fund” but I think this is slightly unfair. When I see an opportunity to make money I will take full advantage, as I did in 2009, when I felt like a child in a sweet shop. But recently I have struggled to find bargains and performance has become more subdued. The whole stock market has been propped up by “QE”.

Which shares have you been selling?

The firms we like are big multinational businesses, typically with a big brand and the ability to increase prices. trust is also a reliable dividend payer, with an unbroken record stretching back to 1990. These two factors make the fund a favourite with brokers and financial advisers. Jason Hollands of Tilney Bestinvest, the fund shop, described it as “the sort of investment you want to be holding in tough times, especially during a crisis”. Mr Hollands said that investors should “take no notice” of the trust’s underperformance against its peers over the past five years (it has returned 35pc, lagging the Unfortunately these firms have become really dear to own, so we have cut exposure to the likes of Sage and Dr Pepper Snapple. We have also reduced our holding in Warren Buffett’s firm, Berkshire Hathaway, mainly on valuation grounds but also because I am concerned about the uncertainty over who is going to be his successor.

Which shares do you still like?

The tobacco firms BAT and Philip Morris are cheaper than other shares in the sector. As long as they remain sensibly valued I will hold them for many years. The other shares we own are masters of their own destiny and consistent dividend payers.

How do you protect investors’ capital?

Capital preservation has become more of a challenge in an environment where central bankers have distorted bond yields to low levels. Bonds cannot now be seen as safe, so investors who want to protect their capital have only two places left to hide, gold or cash, which make up a third of the portfolio.

When will you buy more shares?

We do have significant firepower to reinvest, but are happy to wait until stock markets correct and shares become cheaper. I think the big correction will materialise when central bankers lose their credibility.

Do you invest your own money in the fund?

Yes, and so does every board member. We all have at least £350,000 invested.

What would you have done if you hadn’t become a fund manager?

I had dreams of becoming a professional tennis player or a farmer.