Personal Assets Trust cuts equity exposure to lowest level since 2008 as manager Sebastian Lyon warns the bear market has ‘room to run’

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  • PAT has reduced its exposure to equity by around 25%, the lowest since 2008
  • US and UK government bonds make up 58% of the portfolio
  • Manager Sebastien Lyon says bear market has room to run given recession risks

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Personal Assets Trust has reduced its exposure to equities to its lowest level since 2008 due to rising interest rates and widespread global volatility.

Capital Preservation Trust told investors this week that it now allocates just a quarter of its portfolio to equities, a new low since the global financial crisis.


Personal Property Trust (PAT) It now has 57.7 per cent of its portfolio in US and UK government bonds and 8.9 per cent in gold.

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Manager Sébastien Lyon has raised the trust’s risk to yields and warned that the bear market for equities is set to run ahead

Manager Sebastian Lyons, who has run the trust since 2009, said there had been headwinds across almost all markets, adding it had been ‘a very challenging period to protect capital’.

Investors who have spent the last decade increasing their exposure to equities have suffered losses this year as the markets struggled in the face of red-hot inflation and rising rates.

In the years following 2008, bond yields were so low that equities were buoyed by the belief that ‘there is no alternative’ with investors seeking returns above modest offerings elsewhere.

Lyon told investors that this theme is now being reversed.

He said: ‘Inflation has been rising for the last 18 months and central sanctions are showing badly behind the curve. As a result, we are experiencing the most rapid tightening of financial conditions since the establishment of the Federal Reserve a century ago.’

Lyon cautioned investors that rising interest rates increase the risk of recession, and thus market declines are driven by declining valuations rather than declining profits.

He added: ‘They’re still going to come in 2023. There is room to run in this bear market.’

Personal Assets Trust reduced its exposure to equities in 2021 over valuation concerns and continued to cut by about 25 per cent over the summer. This is the company’s most conservative since 2008.

Holdings in Microsoft, Alphabet, American Express and Visa have dropped significantly, while its biggest holding is now in Unilever, which accounts for about 3.4 per cent of the portfolio. Trust sold his position in the medical device company Medtronic.

‘The original investment thesis was that Medtronic’s innovation pipeline was strong and the company would improve execution, leading to better growth in the years to come.

‘The company has since had several execution missteps, including delays on their surgical robot, an FDA warning letter and most recently, supply chain issues.’

Lyon increased the trust’s exposure to bonds during the latest selloff and acquired short-dated gilts yielding more than 4 per cent – ‘such returns haven’t been seen for more than a decade’, he said.

‘This is a material and welcome change for savers and investors. It also provides an anchor for valuation which has been missing for a long time.

The Trust reported a decline in NAV citing the ongoing global economic uncertainties and high level of inflation.

In the six months to October, its NAV per share fell 4.4 per cent from 491.95p to 470.27p, while its share price fell 28.50p to 475.5p over the same period.

Its NAV total return of -3.6 percent outperformed the FTSE All-Share Index, which returned -5.8 percent.

While returns may still be negative, the defensive nature of the portfolio has turned for good to an extent, said Dzmitry Lipsky, head of fund research at Interactive Investor.

The portfolio’s more conservative positioning means that long-term performance does not stagnate, but exhibits minimal downside volatility compared to its benchmark.

‘This is especially true where equity markets rallied and personal asset returns are muted compared to pure equity strategies that are better positioned to capture these upsides, for example, a trust that is expected to return only 12 per cent in 2021. , where FTSE gave c.18 per cent. Return. However, over the last 5 years, the downside volatility for the Trust has proved to be much lower than its benchmark and drawdowns have been less severe.’

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