Today’s markets are shaped by forces that feel both familiar and unsettling. Equity indices, particularly in the United States, have become ever more concentrated in a narrow group of companies. The top ten now account for more than 41% of the S&P 5001, higher than anything seen in more than a century, surpassing the extremes of the dotcom boom and even the railroad era of the nineteenth century. The strength of the S&P 500 rests heavily on this small group of companies, leaving the wider market looking much less robust.
A portfolio that falls 50% needs to rise 100% just to break even.
The asymmetry of losses
Against this backdrop, strategies focused on capital preservation can play a vital role in your portfolios. Capital preservation simply means protecting investors from permanent loss of capital. Our approach is founded on a principle that avoiding major setbacks is the most dependable path to grow your wealth over the long term. Gains can compound steadily, but losses can set investors back disproportionately. A portfolio that falls 50% needs to rise 100% just to break even. This asymmetric reality is why we pay attention first and foremost, to the downside risk of any investment.
Taking the right risks at the right time
Capital preservation is not about avoiding risk entirely; it is about taking the right type of risk at the right time. We own resilient, high-quality businesses at sensible valuations and complement them with assets that diversify and defend the portfolio when markets inevitably shift. While equities remain central to our approach, we balance them with gold-related investments, government bonds, short-dated Treasury bills, cash and index-linked bonds, each chosen to provide diversification, optionality or inflation protection. This discipline becomes even more important in periods of exuberance, when prices stretch away from fundamentals, allowing us to adjust allocations as valuations and economic conditions evolve. By maintaining a strict focus on quality across each asset class and taking a long-term approach, we seek to navigate market fluctuations with discipline and avoid short-term, reactive decisions.
When enthusiasm outpaces reality
At Troy, our thinking has long been shaped by observing how investors behave during cycles of enthusiasm and disappointment. When the firm was founded 25 years ago, markets were gripped by excitement over the promise of the internet. The equity bear market that followed, from 2001 to 2003, stands as a reminder of how quickly narratives can reverse when expectations become too elevated. While no two periods are identical, the similarities present are difficult to ignore. Today’s optimism around artificial intelligence mirrors some of the same patterns: a belief that a single innovation can rewrite the investment rulebook, and a preference for buying what is biggest irrespective of value.
This elevated concentration, paired with high valuations, is precisely the kind of environment in which capital preservation is likely to earn its keep.
AI may well reshape industries for decades to come, as the internet once did, but markets are prone to over-extrapolate in the short term. When the largest companies command premium valuations and passive portfolios funnel ever more money into the same names, diversification becomes less effective than many investors assume. An index or otherwise that appears diversified may, in practice, be heavily exposed to a single theme. This elevated concentration, paired with high valuations, is precisely the kind of environment in which capital preservation is likely to earn its keep.
Building portfolios that endure
Investor behaviour is also echoing conditions seen in earlier cycles. Retail trading activity has risen sharply, with higher turnover, greater use of leverage, and a renewed appetite for high-volatility strategies. Meanwhile, traditionally steady, high-quality companies in defensive sectors have rarely been more overlooked. Somewhat paradoxically, this has led our equity allocation to rise, as widening valuation differences create opportunities in the types of durable businesses we favour.
The broader macroeconomic picture adds further complexity. Long-dated bond yields have climbed higher across developed markets, with the UK 30-year gilt yields reaching levels last seen in the late 1990s. Inflation remains elevated and monetary policy is no longer operating with full independence in some economies, with political priorities and fiscal constraints increasingly shaping central bank behaviour.
These structural shifts, combined with central bank buying, have propelled gold into a robust bull market in 2025. While its recent strength introduces some short-term risks, the structural backdrop of debt, currency uncertainty, and geopolitical tension supports its role as a diversifier that helps to preserve purchasing power. Gold remains a rare store of value in a world of rising uncertainty. We therefore continue to see gold as a core holding going forward for capital preservation.
In the end, capital preservation is not about caution for its own sake. It is about building portfolios that endure, ones that can hold their ground when conditions change. In a market defined by concentration, speculation, and shifting macroeconomic forces, the discipline of protecting the downside is what gives investors the best chance of compounding steadily over time.
[1] Source: Bloomberg, 31 December 2025.
The information shown relates to a mandate which is representative of, and has been managed in accordance with, Troy Asset Management Limited’s Multi-asset Strategy. This information is not intended as an invitation or an inducement to invest in the shares of the relevant fund. Performance data provided is either calculated as net or gross of fees as specified in the relevant slide. Fees will have the effect of reducing performance. Past performance is not a guide to future performance. All references to benchmarks are for comparative purposes only. Overseas investments may be affected by movements in currency exchange rates. The value of an investment and any income from it may fall as well as rise and investors may get back less than they invested. Neither the views nor the information contained within this document constitute investment advice or an offer to invest or to provide discretionary investment management services and should not be used as the basis of any investment decision. There is no guarantee that the strategy will achieve its objective. The investment policy and process may not be suitable for all investors. If you are in any doubt about whether investment policy and process is suitable for you, please contact a professional adviser. References to specific securities are included for the purposes of illustration only and should not be construed as a recommendation to buy or sell these securities. Although Troy Asset Management Limited considers the information included in this document to be reliable, no warranty is given as to its accuracy or completeness. The opinions expressed are expressed at the date of this document and, whilst the opinions stated are honestly held, they are not guarantees and should not be relied upon and may be subject to change without notice. Third party data is provided without warranty or liability and may belong to a third party. Although Troy’s information providers, including without limitation, MSCI Solutions LLC and its affiliates (the “ESG Parties”), obtain information from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or completeness of any data herein. None of the ESG Parties makes any express or implied warranties of any kind, and the ESG Parties hereby expressly disclaim all warranties of merchantability and fitness for a particular purpose, with respect to any data herein. None of the ESG Parties shall have any liability for any errors or omissions in connection with any data herein. Further, without limiting any of the foregoing, in no event shall any of the ESG Parties have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. All references to FTSE indices or data used in this presentation is © FTSE International Limited (“FTSE”) 2026. ‘FTSE ®’ is a trade mark of the London Stock Exchange Group companies and is used by FTSE under licence. Issued by Troy Asset Management Limited, 33 Davies Street, London W1K 4BP (registered in England & Wales No. 3930846). Registered office: 33 Davies Street, London W1K 4BP. Authorised and regulated by the Financial Conduct Authority (FRN: 195764) and registered with the U.S. Securities and Exchange Commission (“SEC”) as an Investment Adviser (CRD: 319174). Registration with the SEC does not imply a certain level of skill or training. Any fund described in this document is neither available nor offered in the USA or to U.S. Persons.
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