Fund Profile

RIT Capital Partners 19 June 2019

Disclaimer

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.

Overview
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Overview

RIT Capital (RCP) has twin objectives: to generate long-term capital growth, and to protect shareholders’ capital. To this end, this self-managed trust invests in a broad range of asset classes and managers, each exhibiting differentiated returns. This, along with judicious management of risk (including currency) exposure, is how the trust aims to protect its investors in troubled economic environments.

RCP now has net assets of close to £3bn. Having gone through various stages of evolution, it now has a senior management team that allocates and invests the trust’s capital. Lord Rothschild, whose family owns 21% of the trust, has this year announced he will step down as chairman of the trust, marking the final step in his succession planning which has been progressing over many years.

The managers have four basic categories of investments: listed equities, private investments, absolute return and credit, and real assets. For a while now, the managers have been cautious on the outlook for equity markets, and so have been dialing back risk. As at the end of 2018, exposure to listed equities was 47% (the five-year range has been 35% - 70%). In reality the trust typically has a lower net exposure to equities, the difference being shorts (within hedge funds), any derivatives exposure and liquidity.

RCP has long been a proponent of investing in private, unlisted companies on a minority basis – which is now becoming much more popular in the closed-end fund space. As we discuss below, it is one of the “six cylinders” that the managers hope to drive performance through, and has increased as a proportion of the portfolio over the year from 22% to nearly 26%.

One of the distinctive features of the trust as an investment opportunity is the network of contacts that Lord Rothschild and the Executive Committee has developed over the years. This means that RCP can often obtain access to managers others can’t, either in closed funds or employing managers to run mandates solely on their behalf. Indeed, we understand that nine out of the team’s top ten current third-party managers are closed to new money.

The portfolio is currently cautiously positioned, which helped it deliver a small positive total return last year, when almost all asset classes delivered negative returns. Over five years, RCP has comfortably beaten its absolute performance target of RPI +3%. Against the MSCI AC World Index, the NAV has struggled to keep up. However, this has to be seen in the light of the lower exposure to equities of the trust and, indeed, its raison d'être – which is to protect wealth as much as grow it. The trust has delivered it’s performance with volatility of 5.6% over five years, relative to the benchmark volatility of 9.2%. Against peers in the flexible investment trust and open-ended peer groups, RCP has handsomely outperformed.

The trust has been trading on a premium to NAV since 2015. Demand for its shares has been strong during recent turbulent market and political conditions. The current high single digit premium (8% at the time of writing) reflects the current uncertain environment, and the attraction of a vehicle which aims to protect capital in difficult times, but grow capital in better times. It is worth noting that any sudden shock, either to RIT Capital itself, or global markets, could see this premium evaporate overnight, and thereby compound any NAV losses for shareholders.

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Fund History

06 Jul 2022 A game of two halves
In the second article of our series on the AIC Flexible Investment sector we see how performance has stacked up during two years when markets were poles apart...
25 Mar 2022 Fund Analysis
RCP continues to deliver good risk adjusted returns…
21 Jul 2021 Every which way but loose
We break down the AIC Flexible sector into more useful segments…
16 Jun 2021 A better class of travel*
Sharing many features of a traditional family office, investment trusts offer ordinary investors a cost-effective solution to managing family wealth...
30 Mar 2021 Fund Analysis
RCP continues to deliver on its aims of long-term capital growth while preserving shareholders’ capital...
29 Apr 2020 On solid ground
Our analysis of discounts highlights trusts which are likely to offer significantly less discount downside from the current level…
01 Apr 2020 Mind the gap
Discounts have yawned across trusts investing in private companies, but appearances can be deceptive and as COVID-19 unfolds it pays to take care…
30 Jan 2020 Is it time to run away?
With a sense of complacency in the air, our analysts debate the best ways to shore up your portfolio's defenses...
19 Jun 2019 Fund Analysis
Aiming to deliver long-term capital growth, while preserving shareholders’ capital...
27 Jun 2018 A winning combination
New research from Cass Business school helps explain why closed-ended funds have outperformed their open-ended peers in the major equity sectors since 2000...
13 Apr 2018 Fund Analysis
We review a trust designed to protect the wealth of the Rothschild family but open to all, which places a strong emphasis on capital preservation...
09 Mar 2018 Fund Analysis
This trust, designed to protect the wealth of the Rothschild family but open to all, places a strong emphasis on capital preservation...
09 Feb 2018 The madding crowd
Recent volatility could be a taste of things to come, so we examine trusts that offer capital protection...
14 Aug 2017 Fund Analysis
This trust, designed to protect the wealth of the Rothschild family but open to all, places a strong emphasis on capital preservation...
16 Mar 2017 Having your cake and eating it too?
We look into the new fad of trusts paying their dividends out of capital and analyse whether or not it really is a sustainable strategy...
08 Mar 2017 End of the road...
With correlations between asset classes on the rise, we take a closer look at the role trusts in the IT Flexible Investment sector can play within a cautious investor's portfolio...
03 Feb 2017 Analysis: What next for European ITs?
Our analysis shows that European investment trusts have in recent years delivered strong returns to investors from their current discount, but risks abound in 2017...
28 Jul 2016 Funds for heavy weather
Investment trusts for a world without certainty...
27 Jun 2016 Broken Britain
As the UK enters a period of uncertainty the like of which has not been seen since the Suez Crisis, we highlight four trusts which have little exposure to our unfolding catastrophe....
31 May 2016 Why RIT Capital's approach is good news for Alliance Trust
Analysts at Winterflood Securities think shareholders should welcome the proposed merger between RIT Capital and the struggling Scottish giant...
03 May 2016 Mark Dampier: Today's housing market is "complete and utter insanity"
We meet the UK's best known financial adviser who thinks, sooner or later, something must break...
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