While Brooke believes there are a number of headwinds still facing markets, and as a result remains defensively positioned, he thinks the scene is likely to change very quickly. "We remain of the view that the draining but essential deleveraging headwinds will hold back the rate of economic recovery but that once these ease, the improvement could be rapid," said the manager of the £772m Trojan Income fund.
Brooke has already hinted at a change in his investment style, adding to some of his more cyclical positions this August such as Newcrest Mining, insurance brokers Jardine Lloyd Thompson and property company London & Stamford.
The manager, who also heads up the Troy Income & Growth Trust, says he is refusing to get carried away however, and is biding his time before he frees up his cash weighting.
"All sectors of the market made progress over August, a change to the pattern of the year thus far which has been marked by strong positive performance by consumer goods while large cyclical sectors as mining lagged," he commented.
"The single indisputable change in the markets has been the fall in Spanish and Italian bond yields from the critical levels of 7.5 per cent and 6.5 per cent respectively in July, to well below 6 per cent in both cases. This has provided some respite for markets, however temporary that may prove."
In a recent interview with FE Trustnet, Brooke said a yield of 5 per cent and a price-to-earnings ratio of under 10 in the FTSE All Share will give the green light for a buying opportunity in UK equities.
Brooke’s portfolio is not the only fund under Troy that is ready to pounce on a recovery. Gabrielle Boyle’s Trojan Capital fund has 13.1 per cent in the money markets, while the group’s flagship £2.2bn Trojan fund – managed by FE Alpha Manager Sebastian Lyon – has 27.8 per cent in cash and cash equivalents.
Troy confirmed that one of the reasons why Lyon’s fund was moved from Mixed Investment 40-85% Shares into the Flexible Investment sector – where it is now allowed to invest up to 100 per cent in equities – earlier this year was so that the manager wasn’t constrained once risk assets became more attractive.
A high weighting to cash reduced both Lyon and Brooke’s downside risk during last summer’s sell-off, when both managers significantly outperformed their peer group.
Performance of funds vs sector over 3-yrs
Source: FE Analytics
According to FE data, both Trojan and Trojan Income are top-quartile performers in their respective sectors over three years, with returns of 40.1 and 42.92 per cent.
Fellow FE Alpha Manager Martin Gray’s sector-leading CF Miton Special Situations and CF Miton Strategic portfolios are among the few funds with more exposure to cash than Lyon. According to FE data, they both have more than 35 per cent in money markets.