Charlotte Yonge, newly promoted co-manager of Troy’s flagship multi-asset strategies, says ‘stagflation’ will be the ‘biggest macro risk’ for her team over the coming year.  

Yonge runs the firm’s £5.1bn Trojan open-ended fund and £1.6bn Personal Assets Trust (PNL ) alongside Troy’s founder and chief investment officer, Sebastian Lyon, having been deputy manager since 2018. 

The all-weather funds invest for the long run across a broad range of asset classes – primarily developed market equities, bonds, gold-related investments and cash. 

Shareholders in the conservatively-managed Personal Assets Trust have enjoyed a fairly smooth run since Troy took over in 2009. The trust has a long-standing discount control mechanism in place, ensuring the shares trade close to net asset value (NAV), while the maximum drawdown, or biggest sustained fall, in the share price since has been just 12%. 

Talking to Citywire earlier on the same day as Donald Trump’s tariff announcement on 2 April, Yonge said the ‘biggest challenge’ to maintaining this level of stability in 2025 will be ‘inflation and how the market deals with it’.  

In Yonge’s view, tariffs, deglobalisation and ‘the move into a much more nationalised, siloed manufacturing but also domestically protective environment’ will all likely contribute.

‘If we go into an environment where inflation’s a problem, but also growth is a problem – so effectively stagflation – then central banks will have a tough decision to make,’ she said. 

‘They’ll have to choose whether they prioritise controlling inflation and therefore raising interest rates, or addressing the fallout from a lower growth environment, which is the other half of their dual mandate and effectively means employment.

‘We expect that if employment becomes a major issue, they’ll have to keep rates low to incentivise growth and stimulate the economy, and that’s going to be difficult because they’ll have to balance inflation at the same time.’

Yonge – who during the interview revealed she happens to be a descendent of one of my favourite Victorian authors, also called Charlotte Yonge – added that today’s market concentration around US tech stocks will continue to be a concern and brings ‘fragility’ to equity markets.

The period since our interview has, of course, seen a major equity market fall before a significant rebound. From Trump’s ‘liberation day’ press conference on 2 April to today, the S&P 500 has actually fallen less than 5% in dollar terms. 

In Personal Assets’ latest factsheet released during the tumult, Yonge and Lyon reiterated the view that lower growth and higher inflation point towards the risk of a 1970s-style stagflationary economy, which is ‘potentially challenging for stocks on high valuations’.

‘Inflation protection’ 

A significant chunk of the trust’s portfolio is already invested in what Yonge calls ‘inflation protection’. 

The Personal Assets Trust holds 31% in US Treasury inflation-protected securities (TIPS) and 2% in equivalent UK government inflation-linked bonds, according to the March factsheet. Meanwhile, the 7% held in gilts and 14% in US Treasuries are both short-dated, so they have low exposure to any interest rate changes. 

In PNL’s annual report for 2024, Lyon cited stickier-than-expected inflation as the reason for ‘the secular bear market in bonds’ and the trust’s overweight to US Tips which offer real positive yields. 

But despite forecasting rising inflation, Yonge says the trust doesn’t have plans to further up the proportion of inflation-protected bonds in the portfolio just yet. 

‘At the moment, if you look at five-year breakevens in the US, they’re saying inflation of around 2.5% – which suggests it’s going to be roughly at target for the next five years. So, as of right now, the market’s inflation expectation is still too low,’ she said.

‘If that breakeven went much higher, if the market starts to price just a reasonable level of probably high single-digit inflation, we think that might be too high,’ Yonge added. Troy would then look to make changes. 

Five-year ‘breakevens’ – often seen as the market’s expectation of inflation based on the price difference between conventional and inflation-linked bonds – in the US have actually fallen since to around 2.35% yesterday. 

Should we be worried about gold? 

At the end of last year, Lyon told Citywire he’d be ‘nervous’ if the price of gold ‘went above $3,000’ an ounce. 

In March it did just that, and since last summer Personal Assets has been modestly reducing its holding. It currently invests 12% in gold bullion. 

According to Yonge, the trust has been taking profits to ‘size the risk’ of a sudden downturn but not because of any fundamental concerns about the ‘underpinnings’ of the rally, which has seen gold surge to record territory of around $3,225. 

In February 2022, central banks started to purcase gold in record levels after Russia’s foreign reserve assets were effectively seized. In Yonge’s words, this was driven by ‘a real loss of confidence in the dollar as the world’s reserve currency’, leading to ‘a pretty seismic shift in the other direction’. 

‘We think the underpinnings for gold are strong,’ she said. ‘Particularly as central bank buying tends to be multi-year in nature. Central banks don’t move in and out, they tend to reallocate on a long-term basis...

‘Also, the facts since last year have obviously changed with tariffs. But it’s important to note that the last time we had a big correction in the gold price was 2013, and that was when interest rates were zero and after a big speculation into investment into gold. This led to lots of ETF buying, which is much less sustainable than central banks.’ 

The trust has no immediate plans to start selling down gold further. 

‘Very ready’ on equities

Developed market equities make up about 31% of the trust’s portfolio, with top holdings in Unilever, Visa, Alphabet, Heineken and Nestle – all of which are Citywire Elite Companies. 

Though the trust’s conservative approach means it usually looks to hold assets for about 10 years, the recent slump in US equities has led to a slight increase in portfolio activity. 

Its biggest acquisitions over the last 12 months were Canadian National and Adobe.

Commenting on the purchases, Yonge said: ‘If we can get something at a valuation where we think the downside is relatively limited and protected with a margin of safety, then that’s where we start acting. We’re at just over 30% in equities today. When Covid struck we were at a similar level, and went from 30% to 45% in the space of just a few weeks.

‘We’re very ready and well positioned in terms of our liquidity to move quite dynamically if prices change.’