RIT Capital Partners 22 March 2023
Disclosure – Independent Investment Research
This is independent research issued by Kepler Partners LLP. The analyst who has prepared this research is not aware of Kepler Partners LLP having a relationship with the company covered in this research report and/or a conflict of interest which is likely to impair the objectivity of the research and this report should accordingly be viewed as independent.
To deliver long-term capital growth, while preserving shareholders’ capital; to invest without the constraints of a formal benchmark, but to deliver for shareholders’ increases in capital value in excess of the relevant indices over time.
RIT Capital Partners
J. Rothschild Capital Management
Association of Investment Companies (AIC) Sector
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
(Discount)/ Premium (Cum Fair)
Daily Closing Price
RIT Capital Partners (LON:RCP) aims to generate long-term capital growth and protect shareholders’ capital. The managers invest in a broad range of asset classes, both directly and through third-party managers, which are expected to deliver returns in a range of different market conditions. As well as portfolio construction helping to reduce risk through diversification, the team can bolster risk management through various hedging strategies. It is this approach, and the underlying funds that RCP is exposed to, that makes RCP a very different beast from many other multi-asset funds.
Overall, RCP has tended to exhibit relatively defensive qualities. RCP provides a statistic that, since inception, the trust has participated in 74% of market upside, but only 41% of market declines. The last three years have been relatively uncharacteristic of RCP’s historical NAV returns. In 2020 and 2021, the trust outperformed during strong years for equity markets, but it also performed in line with the market during the challenging conditions of 2022. We understand that much of the outperformance was attributable to the private investments’ sleeve of the portfolio, but the retrenchment during 2022 has been more broadly-based. Given that the majority of private assets are still valued as at 30/09/2022, there is potential for the NAV to fall further.
The KID Reduction in Yield is 4.44%, including 3.3% due to historic performance fees. RCP announces NAVs monthly and the shares currently trade at a discount of c. 19% to the 31/12/2022 NAV, which is significantly wider than the historical average. As we note above, part of this discount may reflect an expectation that the NAV will fall when private asset valuations are updated to 31/12/2022.
We like to break the AIC Flexible Investment sector into subsectors, and consider RCP a ‘protective diversifier’, alongside Capital Gearing, Ruffer and Personal Assets. That said, compared to this group, it has a much higher equity exposure and does not have an absolute return mandate.
RCP has a historical tendency to underperform rising markets, but perform well in relative terms in falling markets. The period since the start of 2020 has been uncharacteristic, and RCP has been more volatile and had a higher beta than has been the case historically. We do not think this represents a significant lasting change to what RCP offers, but it does serve to highlight that risk exposure in the trust is much higher than that of the other three protective diversifiers.
In our view, 2022’s retrenchment has to be seen in the context of the previous two years, where private investments added approximately 26% to total NAV. It is this same exposure that has contributed to a weaker performance by RCP than one might have expected in 2022. That said, with most private fund holdings still being marked at 30/09/2022 valuations, there is potential for the NAV to fall further, or potentially rise, as valuations in this part of the portfolio catch up. Going forward, RCP offers a highly-differentiated multi-asset offering, which will complement many portfolios.
- Highly-diversified portfolio, offering access to a full range of asset classes and many soft-closed or inaccessible managers
- Long-term performance track record, which has seen the trust protecting capital well in falling markets and delivering strong cumulative returns
- Unique approach, with very few comparators in either closed or open-ended fund worlds
- Monthly NAV announcements mean it is hard to ascertain what the current discount (or premium) really is
- Higher costs than a typical fund, but – then again – this is not a typical fund
- Opaque portfolio may not give granularity of underlying exposures that some investors may want