The £586.9m investment trust reported a NAV per share fall of 4.9% to £334.75 compared with the FTSE All-Share’s rise of 5.8%.
PAT’s share price fell by £20.40 during the six months to 31 October to £336.60, putting it at a 0.6% premium to NAV.
Lyon said that present market conditions warranted a substantial degree of liquidity, and at the end of the period PAT held effective liquidity of 48.5% of shareholder funds, excluding an additional 11.3% in gold bullion, deemed by the Board to contribute to liquidity.
Lyon said in spite of the recent weakening of the gold price, he held his conviction in the size of position.
“Just because an insurance policy does not pay out for one year in thirteen it does not mean we should not hold it. The opportunity cost of holding gold is now low. Negative real interest rates are here to stay.
“Beggar-my-neighbour policies, reminiscent of the 1930s, instigated by central banks to keep their currencies competitive will lead to an on-going debasement of paper currencies. The rigging of financial markets by central banks will not end well. Gold, therefore, is not a short-term trade but long-term portfolio insurance.”
In addition to his position in gold and a weakness in index-linked bonds, the manager attributed the trust’s underperformance to the drag from holding cash in a rising market and “lacklustre” performance from certain stocks, namely Coca-Cola, BAT and Unilever.
“This is not to say that these strong franchises have deteriorated, but because for the time being there is greater enthusiasm for higher risk, recovery-related sectors such as airlines, autos, banks and housebuilders," he explained.
"Such sectors hold little appeal for us as long term investors because they have a history of creating little value over the cycle. We hope, instead, for opportunities to add to our existing holdings at more attractive valuations.”
Self-proclaimed contrarian investor Lyon said while 2009 and 2010 presented a number of “outstanding” opportunities, today’s environment is a different story, calling it a “barren landscape” by comparison and expressed his bearish stance.
“By not permitting markets to function properly, central banks are sowing the seeds of the next crisis. Try as they may, they cannot rig the markets forever; and finding a way to escape from the unconventional policy that has prevailed since 2009 will prove challenging. Central banks are in a trap of their own making.
“Fed Chairman Ben Bernanke's merest hint of a wish to 'taper' QE in June sent bond and equity markets into a spin, exposing the vulnerability of all asset markets to a halt in monetary stimulus. Credibility is hard won and easily lost. Like Goethe's Sorcerer's Apprentice, central banks risk losing control of the excess liquidity, ultimately leading to currency crises and higher levels of inflation. We need to prepare for such an eventuality, even though others are partying like it's 1999.”
