Troy's Lyon: We long for volatility to return

After a difficult 2013, in which Lyon's £2.3bn Trojan fund made its first ever annual loss, the manager (pictured) has bounced back this year.

The portfolio has returned 5.5% over the past six months, compared with a 4.5% return for the FTSE All Share, amid a more testing time for many managers.

In his latest update to investors, however, Lyon said more severe price moves would help him position his equity portfolio for future growth.

An investment terrain consisting of poor earnings momentum and rich valuations is not ideal to plant new equity investment seeds

He said: "An investment terrain consisting of poor earnings momentum and rich valuations is not ideal to plant new equity investment seeds. We long for a return of volatility to blow away the detritus that zero interest rates have deposited on capital markets."

The Trojan fund has returned 7.1% over the three years to 11 August 2014, compared to a flexible investment sector average of 26.9%, according to FE.

Lyon described his July activity as "pruning rather than planting" portfolio holdings.

In the past month, he has taken some profits on his holding in Microsoft, after the shareds re-rated. He has also sold a modest holding in Greggs, where he said trading has dramatically improved due to an impressive management team: "The share price and earnings multiple have duly responded."

Meanwhile Lyon's colleague Francis Brooke, who manages the £1.7bn Trojan Income fund, has prepared for more market volatility by raising his cash weighting to 10%.

He told investors: "Since the market bottomed in March 2009 the number of market corrections of over 10% can be counted on the fingers of one hand and we would not be surprised if the current modest drawdown of about 5% was extended."

Growing geopolitical risk, the collapse of a leading Portuguese bank, Banco Espirito Santo and disappointing earnings were all factors sapping investor confidence, Brooke added.