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Archive for the ‘Ian Rushbrook’ Category

An invidious choice

I find it hard to disagree with these comments from Sebastian Lyon, the CEO of Troy Asset Management, writing in the annual report of Personal Assets, the investment trust to which he and his colleagues now act as Investment Adviser, following the death of Ian Rushbrook four years ago.

The secular bear market in UK and US equities is now in its thirteenth year. How much longer must we wait until we can again be fully invested (or even geared!) and reap the double-digit returns we long for? Ask the policy makers! Stocks would be considerably lower were central banks not keeping stock prices artificially high by means of zero interest rates and quantitative easing. Despite these interferences, stock markets have gone sideways during the past year. Savers have not been rewarded for taking risk and hence our cautious strategy has paid off, for now, although we are likely to lag short term rises in the market should further monetary interventions be forthcoming.

Politicians in Europe are confronted with the invidious choice between severe austerity, which is likely to lead to periodic recessions and declining tax revenues, or incautious borrowing in the hope of buying growth. Both approaches will eventually force governments to pay higher rates of interest on debts. The maths do not stack up. No wonder governments are looking to extricate themselves from an intractable problem by leaning on central bankers to pull their inflationary strings. But our greatest concern is that the European challenges that have dogged markets since early 2010 are merely the dress rehearsal for the main event – a US fiscal crisis. While the UK and Europe have at least tried to tame their budget deficits, the United States has pushed ever harder on the fiscal accelerator. Stock markets swooned last August when they got a shock preview of what might happen should the brakes be applied. Following the public disagreement in Washington over increasing the public debt ceiling, the Dow Jones Industrials Index fell 13% in seven trading days. Read the rest of this entry »

Written by Jonathan Davis

August 16, 2012 at 7:56 PM

Patience the number one requirement

It is more than 15 years since I first trawled up to Edinburgh to meet Ian Rushbrook, the iconclastic onetime Ivory & Sime partner who took over the running of the near-dormant Personal Assets Trust in 1990 and soon turned it into one of the most successful capital preservation vehicles for private investors there is. Ian featured in my book Money Makers (first published in 1998, soon to be re-issued in a new edition).  A smart young fund manager called Sebastian Lyon was one of those who read my book and liking what he read, later made a pilgrimage to Ian’s den behind Charlotte Square to learn more about the business of managing money.

Now, several years on, as CEO of Troy Asset Management, a fund management business that originated as the guardian of  Weinstock family money, he also acts as Investment Adviser to Personal Assets, following Ian’s untimely death three years ago. The trust has since gone from strength to strength, delivering NAV growth of 51.7% in the three years to the end of November 2011, outperforming the FTSE All-Share by a useful margin as a result. With shareholders funds of more than £400 million, and a succesful no-discount policy in place, shares in the investment trust have now reached the giddy heights of being included in the FTSE 250 index. Read the rest of this entry »

Written by Jonathan Davis

December 20, 2011 at 4:18 PM

The Case For The Doubters

Those who read the Q and A with Sebastian Lyon of Troy Asset Management last July will be familiar with his conservative, hairshirt style of investing. At recent meetings for investors in his funds, which now include the Personal Assets investment trust, formerly managed by Ian Rushbrook, he updated his views on the market outlook.

These are some of the key points in his presentation:

As a result of the global financial crisis, investors are living in “a phoney world” characterised by zero interest rates and asset prices that are distorted by quantitative easing, among other things;

The consequence is that few investors, even professionals, know what to think. Picking a path through this unprecedented set of conditions is like “being in a dark room looking for a black cat that isn’t there”;

In Sebastian’s view, the secular bear market which began in the year 2000 continues, meaning that the UK stock market is likely to follow a similar parth to that of the Dow Jones index between 1966 and 1982, rising and falling within a trading range (that range, in the case of the FTSE 100 index, being 3500 to 6500);

Most likely that means the equity market will experience one more low before a new secular bull market begins in a few years’ time. The trigger for the new setback is likely to be a sustained rise in bond yields;

The current cyclically adjusted equity market p/e ratio, though down from its peak, is still in the top quarter of historical experience and the dividend yield, following ten months of rising markets and many companies announcing dividend cuts, is “nearer poor value than good value”;

Given his mandate to preserve the real value of his investors’ money, and faced with this unappealing outlook, Sebastian has been buying stocks such as Diageo and Nestle, which have impressive records of growing their dividends (sevenfold in the last 20 years in the case of Nestle);

The companies he is avoiding like the plaque are those such as Cookson and British Airways, whose CEO Willie Walsh has to spend his time firefighting successive crises rather than planning for the future (BA has not paid a dividend since 2001);

Another big holding in both Personal Assets and Troy’s flagship fund is gold, something that most investment trusts have never held and many investors hate. Yet gold, which J.P.Morgan described as “money and nothing else”, is the ultimate store of value and the only sensible protection against inflation and policy errors in an era of fiscal excess;

Sebastian was keen to point out, finally, that despite the cautious mandate of his funds, he was by no means a “perma-bear”, as his successor Ian Rushbrook had never been either. He looks forward to the time (2015?) when the secular bear market has ended, gold is no longer needed in the portfolio and the funds are able to gear up to particpate in the next equity bull market. That time however is not yet here.

Comment: I am a fan of the Troy approach to fund management, not least for its emphasis on low turnover and reraswonable management fees, although I think there is a serious risk that the rebound in the US economy may well surprise this year by being stronger than cautious investors such as Sebastian expect. My own portfolio includes gold and defensive equities for similar reasons to his.

This quotation from Gerald Loeb, author of a classic book on the stock market, with which Sebastian finished his presentation is also very apt: “Profits can be made safely only when the opportunity is available and not just because they happen to be desired or needed…Willingness and ability to hold funds uninvested while awaiting real opportunities is a key to success in the battle for investment survival”. In other words, there is nothing wrong with staying in cash when no clear-cut opportunities for stock market profit appear to exist.

Written by Jonathan Davis

February 16, 2010 at 12:57 PM

Taking The Helm

When a highly regarded and well trusted investment manager dies, it leaves the stewards of that fund with a delicate dilemma. Closing the fund, on the grounds that nobody can adequately replace the talent and commitment that has gone, is a wonderful posthumous tribute to the individual concerned. But it can also be a tricky business decision, involving as it does the painful duty of waving goodbye to fees and employment for those who remain responsible for the fund, and creating potential tax bills for the investors at a time which may not be to their liking or convenience.

On the other hand, recruiting a replacement for the departed investment manager by implication must inevitably take some of the lustre from the reputation of the man (or woman) who has to be replaced. If you have spent several years basing your fund’s marketing on so-and-so’s unique or exceptional talent, it is awkward to have to admit that they are now to be replaced by someone who, you now declare, is just as uniquely and exceptionally talented as the one who went before.

In fund history, I think it is fair to say, there are few examples where the first option is the one that has been adopted. Funds do close regularly after a star fund manager has retired or died (or simply lost the plot), but it is rarely for lack of effort by the fund’s sponsors to keep the entity alive. The urge to procreate almost invariably proves stronger than the desire to declare farewell or RIP. As the cult of the star fund manager is more often than not based on flimsy footings, this is hard-headed but not necessarily irresponsible.

In recent years, Fidelity has faced an acute version of this dilemma in the UK with the retirement from active fund management of Anthony Bolton, whose special situation funds had grown to represent a significant proportion of the firm’s funds under management. As his track record is one of the few that can genuinely be regarded as exceptional, whatever measure you care to choose, it is not surprising that his successors have struggled to make the same impact and the funds have duly shrunk in size and popularity compared to their heyday.

In Edinburgh, meanwhile, the board of Personal Assets has sensibly taken their time to choose a replacement for Ian Rushbrook, the idiosyncratic genius who saved an unloved investment trust from extinction when he took it over in 1990, but who sadly died last October at the age of 68.

As was noted in this space last year, he died ironically just as his unheeded warnings about the dire consequences of the credit and housing bubbles in the United Sates were finally coming to fruition. His analysis of the impending credit crisis remains unmatched for its clarity and foresight.

In his place the board have appointed as Investment Adviser the much younger CEO of Troy Asset Management, an investment management business that started life with a mandate to look after the money of the Weinstock family and other senior managers at GEC. It has since developed its own successful family of low cost unit trusts which share the same priority of preserving investors’ capital before looking to grow it. (The tragic demise of GEC provides an object lesson, incidentally, in how the difficulty of replacing great managers after their death is not confined to the investment business).

The odds of Personal Assets Trust surviving the loss of Mr Rushbrook without enduring damage look a lot more promising than most such succession plans. For a start, although his methods are different, the investment philosophy of the new adviser, Sebastian Lyon, is very similar to that of the man he is replacing. The board of the trust has always claimed an active role in arguing out its investment strategy.

It also helps that Mr Lyon and his family have had a chunk of their own money invested in the trust for several years. There have been minimal net redemptions of shares. All the shares that were bought in and held in treasury to minimize the discount have subsequently been reissued to new investors. The shares have continued to trade close to NAV, which is one of the trust’s unusual commitments to its investors.

Most importantly, perhaps, the new investment adviser talks conservative common sense, which is what the trust’s investors like. He remains wary of bank shares and corporate bonds, preferring to put his faith in the low ratings currently accorded to companies with strong franchises, cash flows and dividend growth (Nestle being a good example of a share that in his experience has never been cheaper).

He has added gold to the trust’s portfolio in lieu of the liquidity that Mr Rushbrook famously, and some felt excessively, preferred. Equities, discriminatingly chosen, in his view, remain the most attractive asset. That still looks to me like the right stance, and one that his predecessor too would almost certainly have echoed as we move into the post credit crisis world.

Written by Jonathan Davis

July 26, 2009 at 8:55 PM