The Troy Trojan Global Income fund has been positioned "towards the cautious end of cautious" since before the global coronavirus pandemic, according to its manager James Harries, who said a torrid combination of central bank policy, fully-valued markets and elevated levels of debt led to an overweight in high-quality mega-cap US growth stocks and consumer staples.
This has fortuitously stood the manager in good stead as the Covid-19 crisis has continued to weigh on global equity markets, with the £263m fund achieving top-quartile returns over six months and one year of 3.4% and 7.1% respectively, while its average peer in the IA Global sector has lost a respective 5.4% and 1.5%, according to data from FE fundinfo.
While many stocks in the portfolio may appear expensive, Harries said the divergence in performance between the high-quality growth companies that have proven resilient, and volatile cyclicals, will remain "a persistent feature of markets for some time".
"Troy as an investment house is generally pretty cautious, but it is fair to say we were towards the cautious end of cautious going into this period," Harries said.
"Of course, we did not predict the coronavirus. We felt the combination of high valuations, elevated levels of indebtedness and trade problems between the US and China led us to that positioning.
"And there was the inversion of the yield curve, which happened before anyone had even heard of the coronavirus. It all indicated to us that the setup was one in which we should tread carefully."
The manager said there were three key reasons as to why the portfolio has had a bias to quality developed market companies for some time.
Firstly, he said all Troy funds tend to avoid capital-intensive and cyclical businesses as a rule of thumb, and instead look for firms with defensive business models and resilient cashflow.
"Cashflow has been key - this has really been priced into markets during this time of great uncertainty," he said.
Secondly, Harries and the team has been concerned that central banks have been "pulling very hard on policy levers" over the past decade in order to generate the desired level of inflation and growth, and as policy reactions have become increasingly extreme just to "generate a modicum of growth", he fears the "financial economy has decoupled from the real economy".
Finally, he said the underlying holdings within the fund have performed well due to a number of bottom-up tailwinds.
For instance, Harries said healthcare holdings such as GlaxoSmithKline and Roche have ended up benefitting from the pandemic, while a lot of consumer staples companies have managed to raise their dividends due to the resilience of their businesses models.