Personal Assets

I had lunch recently with a friend and we like to examine the entrails of the financial markets. He has, correctly, been bullish about equities for the past couple of years when I have been preaching doom and gloom.

However, he said that when the bull cycle ends it will happen gradually: “not with a bang, but a whimper” (TS Eliot). Well, it looks like that is where we are now. So far this year the Dow and S&P 500 are up 3%, FTSE 100 down 9%, Dax down 13%, Nikkei down 2%,  Shanghai down 22% and Hang Seng down 12%. The party’s over.

In July I bought shares in Personal Assets Trust PLC. I didn’t buy many as they cost £398.20 each. On Friday they closed at £401.00, yielding 1.4 % and at a 1% premium to NAV. They charge a management fee of 0.5%. Over the last five years the share price has gone up by 23% – a very modest performance compared to, say, Scottish Mortgage: up 146% over the same period. Incidentally, the defensive McInroy & Wood Balanced Fund is up only 38% in the last five years.

So why buy Personal Assets? Two reasons: one sensible and one a bit silly. This investment trust is super-defensive, super-cautious and is devoted to capital preservation not surfing the crest of the wave of a bull market in equities. They invest only 37.4% of the fund in equities, the majority of which are big US companies like Microsoft, Coca-Cola, Philip Morris and Berkshire Hathaway. 60.1% of the fund is in Bonds and bullion and 2.5% in cash. Like McInroy & Wood their mission is capital preservation and they have been sticking to their knitting since 1983. So if you believe that the bull market for equities is over, as I do, Personal Assets looks an attractive safety play.

The silly reason for buying Personal Assets is the quarterly report that they send out in hard copy authored by Robin Angus. Who is Robin Angus?

“Robin Angus heads the executive committee of the Personal Assets Trust (PAT), to which Sebastian Lyon of Troy Asset Management has been investment adviser since 2009. Angus has been a director of the trust since 1983 and was instrumental, with Ian Rushbrook, in its creation. He started his career at Edinburgh-based Baillie Gifford, was consistently rated the market’s best investment-trust analyst, and has been in the market for more than 30 years.” (MoneyWeek, October 2010.)

His reports, I have only had two so far, are like clutching a comfort blanket. Written in plain English they exude common sense. For example  when does Sebastian Lyon sell holdings?

”When pricing fully discounts expectations, when change leads to a reappraisal of valuation, or simply when he got it wrong.”