An interview by Patrick Cairns for the Investor’s Guild
Amplify’s “Get Rich Slowly” Strategy
In this article written exclusively for the Investor’s Guild, Patrick Cairns spoke to James Harries at Troy Asset Management, the firm recently appointed to run the Amplify Global Flexible Fund.
The Amplify Global Flexible Fund, managed by UK-based boutique Troy Asset Management, may only have launched in October last year, but the underlying strategy has a track record stretching back a quarter of a century.
“Anyone that becomes an Amplify partner has not only been through the Sanlam Multi Manager due diligence, they’re already a high-conviction manager for Sanlam Multi Manager,” explains Amplify’s Head of Distribution, Nico Janse van Rensburg.
He adds that Troy’s mandate from Amplify was to replicate as closely as possible the strategy of its flagship Trojan Fund, launched in 2001. That fund has delivered negative returns in only three calendar years in its 25-year history – 2013, 2018 and 2022. In each case, the losses were less than 4%. Since inception, it has compounded investor capital at around 7% per annum in sterling, with volatility of approximately 6%.
The primary distinction between the Trojan Fund and the Amplify Global Flexible Fund is that the latter is dollar-denominated and holds US Treasuries, while the Trojan Fund is sterling-based and primarily exposed to UK gilts and index-linked bonds.
Troy traces its origins back to the height of the dotcom bubble. British industrialist Lord Weinstock had witnessed the company he built make a series of strategic missteps after it was handed over to professional management. Expensive technology acquisitions at the peak of the market erased the company’s strong cash position and contributed to its decline.
To preserve his personal wealth, Lord Weinstock asked Sebastian Lyon to establish a vehicle that would deliver what senior fund manager James Harries describes as a “get rich slowly” strategy.
“He wanted a quality-focused home for his wealth that would not be too speculative,” Harries explains. “The basic premise we work from is therefore to not lose capital.
“We try to take long-term asset allocation decisions across equities, bonds, currencies and commodities in order to produce a decent return with a low level of volatility. We don’t want to suffer steep drawdowns, because it is quite difficult to make your way back.”
A flexible equity approach
This philosophy does not translate into a low-equity strategy. The firm’s starting point is that equities will drive most of the return.
“Equities are where the risk appetite and risk capital is deployed,” Harries notes. “The equity level in the fund has been as low as 22%, but as high as 72%.
“There isn’t a policy portfolio with a standard percentage in equity. There are times when we’ve been very cautious, and others when we’re more risk-seeking. As equity valuations fall, you should expect us to increase the strategy’s equity exposure, and as they rise we will become increasingly conservative.”
A strong focus on quality
What remains constant is Troy’s emphasis on quality.
“We want to be buying businesses we think are relatively predictable, with strong margin structures, that are well-financed and don’t have too much debt,” Harries says. “And, quite unusually for a fund like this, we build a concentrated portfolio that we hold for the long term.”
The fund typically holds between 15 and 30 stocks, each at a meaningful weighting.
“Our observation is that you should try to limit the sorts of businesses in which you invest,” Harries adds. “Over long periods of time, sustainable competitive advantages and high returns on capital tend to reside in particular businesses and sectors.
“We invest in areas like consumer staples, healthcare, and select industrials where you can take a sensible five-to-ten year view. If you buy those kinds of companies at sensible valuations, you can allow them to compound over time.”
Balancing risk through bonds and gold
The equity allocation is balanced through exposure to bonds and gold.
“Over time, the bond portfolio has flexed,” Harries explains. “It has been very low at some points, and as high as 40%.
“If equity is driving returns, generally speaking, we want an offsetting asset that also has an expected return. We have found that bonds can provide that.”
Currently, this is expressed largely through inflation-linked securities.
“We have been somewhat wary of nominal bonds for some years because we think they would be challenged in a more inflationary environment. So, we have a relatively short-dated, index-linked bond portfolio that we believe provides protection against inflation while also offsetting risk assets.”
Gold has also been a defining feature of the strategy since 2005, making up between 8% and 12% of the portfolio in recent years.
“We think it’s a good risk offset that behaves differently to the rest of the portfolio,” Harries explains. “It has compounded nicely over a long period of time, and often at different times to when equity markets have been compounding.”
Simplicity and liquidity
Importantly, Troy does not use derivatives in managing the strategy.
“We don’t want too much complexity and we also want the offset to the risk core to have a positive return,” Harries says. “Our experience is that while there are occasions when derivatives might make sense, you often end up burning premium in order to gain that risk offset, and over time it tends to drag on performance.”
The managers also place significant importance on liquidity.
“Liquidity is one of those things that isn’t important until it is,” Harries notes. “But when it matters, it really matters.
“We also want to be able to flex our allocations depending on valuations. The current opportunity set is not the only one you’ll ever be offered. Future opportunities may be more attractive, and you need liquidity to take advantage of them.”
Author: Patrick Cairns
Publication: Investor’s Guild
