The secrets of investing when inflation is high

TL;DR

Sebastian Lyon, manager of the Personal Assets Trust, discusses investment strategies for preserving capital in a high inflation and high-interest rate environment.

Transcript

foreign ER interview Our Guest today is Sebastian Lyon manager of the personal assets trust Sebastian thank you for coming in Sarah it's a pleasure good to see you we're now in this new environment of high inflation and high interest rates you are a wealth preservation trust so how are you investing today and what have been your big recent changes ... Read More

Key Insights

• 🤭 The Personal Assets Trust has been relatively quiet in making changes to its portfolio, as it was well-positioned for the current market conditions.
• ✳️ The trust reduced exposure to U.S tech stocks due to risks in growth and valuation and focused on reducing stock-specific risk within the portfolio.
• ✳️ Lyon emphasizes the importance of managing risk by avoiding leverage risk, business risk, and valuation risk. Instead, he prefers companies with consistent revenues and solid growth.
• 🥳 The trust sees value in the UK and European markets, with a focus on avoiding highly cyclical sectors and seeking opportunities in the less exciting parts of the market.
• ✳️ Gold plays a role in the portfolio as a diversifier and protection against negative real interest rates, geopolitical risks, and sovereign risks.
• ✋ The trust finds index-linked bonds and U.S Treasury Inflation-Protected Securities (TIPS) attractive for their potential to generate high single-digit returns in a higher inflation environment.
• 😮 Short-dated government bonds provide liquidity and flexibility while avoiding excessive duration risk in a bond market with the potential for rising yields.
• 🔬 Sebastian Lyon personally invests in the Personal Assets Trust, aligning his interests with those of the trust's shareholders.

Questions & Answers

Q: How is the Personal Assets Trust investing in today's high inflation and high-interest rate environment?

The trust has been relatively quiet in recent months, as it was already well-positioned for the current market conditions. The focus is on patiently waiting for valuation situations to resolve themselves and reducing stock-specific risk within the portfolio.

Q: What types of companies does Sebastian Lyon like to buy for wealth preservation?

Lyon focuses on managing risk and avoiding material risks that may lead to big drawdowns within stocks. This includes avoiding highly leveraged companies, businesses with volatile profits, and profitless and speculative companies. He prefers companies with consistent revenues, such as software companies or those that sell essentials or little luxuries.

Q: What is Lyon's view on the UK market and its cheaper parts?

While the UK market performed well last year, Lyon remains cautious about highly cyclical parts of the market, such as mining and banks. However, he believes that the UK market, along with Europe, may become more attractive in the next five years, leading to a more balanced portfolio allocation.

Q: Why does the Personal Assets Trust hold gold in its portfolio?

Gold serves as a diversifier and provides protection in a world of negative real interest rates and greater geopolitical and sovereign risks. Holding physical gold in an allocated account allows for low-cost protection and has historically performed well during periods of uncertainty.

Summary & Key Takeaways

• Sebastian Lyon believes in patiently waiting for valuation situations to resolve themselves before making changes to his portfolio.

• Recent changes include reducing exposure to U.S tech stocks due to risks in growth and valuation, as well as reducing stock-specific risk within the portfolio.

• Lyon emphasizes the importance of managing risk by avoiding leverage risk, business risk, and valuation risk, and instead focuses on companies with consistent revenues and solid growth.