Return to form for Rothschild’s RIT Capital Partners
The trust has a strong following with investors but has experienced poor performance in recent years. Following a reshaping of investments and personnel, it’s reported a good set of interim figures. With the discount still large by historical comparison, could now be the opportune time to invest?
RIT Capital Partners (LON:RCP) is a conservatively run trust focused on capital preservation, i.e. on not losing investors money. It provides investors with exposure to a diverse range of international investments through investing across the world, and in to a variety of different asset classes.
Originally established as Rothschild Investment Trust, the Chairman, Lord Jacob Rothschild has an 18.15% beneficial interest in the trust worth around £337 million. As this represents the bulk of his wealth, it is a huge comfort to shareholders that the financial interests of the Chairman are so aligned with theirs.
Whilst over the very long term it has performed well, as you can see from the graph below produced by RIT, in recent years since the advent of the financial crisis, though it has produced positive returns overall and hasn’t lost investors money, it has undershot the performance of both its peers and its index (see metrics table at the foot of this article).
Last autumn they hired a new investment director Ron Tabbouche, recruited from GAM, the leading Swiss asset manager. He has reshaped the portfolio and reduced the number of holdings.
Under the bonnet
RIT invests in listed and unlisted investments. It manages money both internally and with external managers. Around 15% is self managed in equities in the UK and internationally, with another 46% managed via external fund management houses.
RIT invests around 14% in unquoted private equity funds and 10.5% in a variety of other unlisted investments in businesses such as the equally wealthy Rockefeller’s US based wealth management business, and a stake in Dropbox, the cloud computing business.
It is these holdings that result in the trust not experiencing the whole benefit of a strongly rising market, because the valuations of unlisted businesses don’t move in unison with public markets.
RIT also has small investments in directly owned property and commodities. They have a little bit of exposure to Government and Blue Chip Company issued debt too (a list of the investments can be found at the foot of this article).
Ron Tabbouche has increased the company’s exposure to both the US market and to Japan. The US now accounts for 47% of assets, which is down a little since December 2012 but up by a third since quarter one of 2011. The allocation to the UK is 15% as the chart below illustrates, again down a wee bit since the end of last year.
At the level of the NAV (net asset value) which is simply the value of the trusts underlying investments, the increase on a total return basis (including any increase in value plus income/dividend) was up
16.9%. The share price was up by 10.3% but on a total return basis after including April’s dividend that is an increase of 11.5% since the start of the year.
RIT accredit the outperformance in part to the allocation to Japan and the US.
RIT reported a ‘participation rate’ in the market of 80%. This is a reference to the fact that as they hold both listed and unlisted investments, only the listed ones can benefit from a rising (or falling) stock market.
Commenting on the results, Lord Rothschild, Chairman of RIT Capital Partners plc, said: “Our quoted equity book has outperformed markets while our reading of foreign exchange markets has contributed to our profits … we have been consolidating our investments in third party managed funds and have increased our holdings in individual stocks where we have conviction. We have reduced holdings in emerging markets and have increased positions in the improving US economy.
As recovery still relies so heavily on central bank creation of money, the search for quality has been our main focus. We continue, even so, to research and identify companies and special situations that would benefit from the much-needed transition from growth created by printing money to one of more sustained growth …”
The ongoing for RIT is higher than that of many of its peers at 1.3%. In fact it is likely to be higher than this because it invests in private equity funds that have a higher charging model that RIT.
It might be slightly unfair though to compare RIT with its peers in the AIC Global Growth category, RIT is managed more like a Multi-asset fund-of-funds basis, and these types of structures commonly have charges in excess of RIT’s.
RIT Capital Partners joined our buy list on 8th June 2012 when the share price was 1,112 pence. Since then it has paid dividends of 42 pence. This represents a total return of just over 14% (Friday’s share price of 1226 pence + 42 pence dividends). During this time the FTSE 100 has increased by 19%.
The important question for investors though is what are the trusts’ prospects going forward and where does it fit in their portfolio, if it fits anywhere at all?
With its conservative investment style bent, Investors in this trust aren’t expecting an investment fund that is necessarily going to deliver the highest returns in the Global Growth sector. What they seek is tempered exposure to a diverse basket of international multi-asset investments. By and large RIT Capital Partners has succeeded in delivering this.
As with all risk asset investments there can be no guarantee that this will continue going forward, but by investing in this trust not only are you investing alongside its Chairman and largest shareholder, with his suitably aligned financial interest, but you also gain access to his contacts book. This has delivered new alliances with family wealth management firms such as Corsair Capital, the Edmond de Rothschild Group and Rockefeller & Co. These alliances are already leading to interesting private and public equity opportunities according to Lord Rothschild, and this can be expected to develop further, assisted by the demographic profile of an ageing wealthy populous in the Western world.
Although we believe discounts and premiums in most cases shouldn’t be a reason for long term investors to be put off a trust, the fact that RIT sits on a discount that is both in excess of its 12 month and longer-term average should be of some comfort.
RIT Capital Partners remains a firm member of the WhichInvestmentTrust.com buy list.
RIT Capital Partners Investment Trust Metrics (August 2013)
|Share Price||1,126 pence||Dividend Yield||2.30%|
|Total Assets/Market Cap (Million)||£2,271m / £1,856m||Gearing||0% (has net cash)|
|AIC Sector/Date Founded||Global Growth / 15/06/1988||Ongoing Charge||1.3%|
|Discount to NAV||-12%||12 Month Average Discount to NAV||+-%|
|Share Price 1, 3, 5 & 10 years||+2%||+12%||+10%|
|Global Growth Sector Share Price 1, 3, 5 & 10 years||+21%||+42%||+48%|
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