Among the biggest proponents of a bull market include Schroders’ Richard Buxton, who told FE Trustnet in an interview last year that a decade-long bear market has come to an end.
However Brooke (pictured), who heads up the five crown-rated Trojan Income portfolio, says that the growing confidence among equity investors is misplaced and that a correction is more than likely in the near-term. "A lot of people have been calling a new market, but I’ve heard this a lot of times in the last few years," he explained.
"We are driven by valuations and we’ve seen a lot of very highly rated stocks fall significantly recently. For me, this is a reminder that the stock market has gotten ahead of itself."
"It’s not even bad news that is causing some stocks to fall – even a slight setback is enough to see losses of 10 or 15 per cent. [Yesterday], a spike in Spanish yields was enough to see the markets fall by more than 1 per cent."
"Yes there is improving confidence, but I think this confidence is still fragile."
Brooke points to Aggreko, which is down by more than 10 per cent in the last week, as an example of a stock that has fallen unfairly.
"I’m a huge admirer of it, but it has become extremely expensive. The first sight of a slow-down, or even less stellar numbers, and it has fallen. This is the kind of thing that makes me nervous."
"I’m not saying the markets are going to fall back to the lows, but I’d expect volatility to pick up."
Brooke’s Trojan Income fund, which was soft-closed last week, has been defensively positioned for some time now.
Part of this is down to his wariness of macro risks and valuations, but the manager says the fund is always likely to lag its FTSE All Share benchmark in a fast-rising market.
He prefers to deliver above-average returns with below-average volatility. According to FE data, this style has worked very well for Brooke.
Trojan Income is up since 55.37 per cent over five years, significantly outperforming both its sector average and benchmark, with less volatility.
It is a top-decile performer in its sector over this period. Only two UK Equity Income funds – Unicorn UK Income and JOHCM UK Equity Income – have returned more, and both have been significantly more volatile.
Trojan Income has been the second most stable fund in its entire sector over this period.
The fund is also a top-quartile performer over three years and since its launch in September 2004.
Performance of fund vs sector and index since launch
Source: FE Analytics
"It’s when the fund looks vulnerable that we tend to do well," Brooke continued. "If you look back to 2005 and 2006 when the markets were very strong, we didn’t really keep up."
In 2008, Trojan Income was the best-performing fund in the sector, with losses of just 12.14 per cent. By contrast, the average UK Equity Income portfolio was down 28.54 per cent, and the All Share was down 29.93 per cent.
"If you invest in this fund, you have to understand that we perform very differently in certain markets," he added.
While the manager remains defensively positioned, with very little in cyclical sectors, Trojan Income has kept up with the markets during the recent surge.
"We didn’t really participate in the rally towards the end of last year, but we’ve been better so far this year," he said. "We were up around 5.9 per cent in January, which meant we captured most of the upside."
"Over rolling one-year periods, we’re still there or thereabouts. I don’t think many of our investors are unhappy with 16 or 17 per cent."
Performance of fund vs sector and index over 1yr
Source: FE Analytics
"However, if we were to get a bit more volatility, that’s where I’d expect us to really come in to our own."
"From an income perspective, the fund’s dividend increased by 4 per cent last year, which I’m very happy with," Brooke added.
According to FE data, Trojan Income is currently yielding 4.22 per cent, while the closed-ended equivalent – the Troy Income & Growth trust – is yielding 3.5 per cent.
Both portfolios have significant overweights in consumer products – including tobacco – and utilities. Top-10 positions include British American Tobacco (BAT) and Centrica.
The trust has an ongoing charges figure of 1.22 per cent and is currently on a premium of 1 per cent.
Trojan Income is available for a minimum investment of £1,000 and has a total expense ratio (TER) of 1.05 per cent until 1 May this year. After that date, investors will have to use a platform, or fork out a minimum of £250,000, on top of a 5 per cent initial charge.