Net assets have reached an all-time high at capital preservation-focused investment trust RIT Capital Partners (RCP), topping £3bn for the first time as of 30 June 2019.
Having preserved capital during a turbulent 2018, the portfolio’s winning strategy enabled it to generate healthy returns over the first six months of 2019 too, although founder Lord Rothschild strikes a cautious tone in his commentary today.
WHAT MAKES RIT CAPITAL PARTNERS DIFFERENT
RIT Capital Partners has long been synonymous with Lord Rothschild, whose family remains the biggest shareholder with a 21.35% stake. Rothschild steps down as chairman on 30 September to take up the role of president of RIT, but this hasn’t unduly rattled investors as the trust continues to trade at a premium to net asset value (NAV).
One of Shares’ current Great Ideas, this is a unique investment vehicle with the stated objective of long-term capital growth while preserving shareholders’ money through market cycles, investing in a widely diversified and international portfolio across a range of asset classes, both quoted and unquoted.
HALF YEAR HIGHLIGHTS
During the half year ended 30 June, the progressive dividend paying trust generated a net asset value (NAV) per share total return of 8.5%. That was healthily in positive territory and ahead of inflation, albeit behind the 16.3% rise in the MSCI All Country World Index, although this shouldn’t come as surprise given the diversified nature of RIT Capital Partners and its comparatively low equity exposure.
Single stocks performed well and RIT Capital Partners achieved strong returns from its China-related investments, while also deploying additional capital to new private investments including a $50m investment into US-based logistics business KeepTruckin and other investments in early stage growth companies and funds in the US and Asian markets. Exposure to absolute return and credit assets continued to generate returns, while gold-related investments appreciated during June.
Rothschild explains: ‘The last decade has seen a confluence of factors which have benefited companies’ earnings to an unprecedented extent. Lower cost of capital, reduced taxes, stagnant wages and the influence of globalisation contributed to record profit margins.’
Yet he also warns: ‘These positive factors are, however, unlikely to be sustained. Trade wars, the weakening of economic growth and the risk of recession are of concern, particularly at a time when stock markets have reached all-time highs.’
Against this backdrop, Rothschild and his team are seeking to invest in situations that ‘either give us a degree of protection in potentially deteriorating conditions or in areas where structural growth rates are sufficiently high for valuations to hold their own or indeed prosper.
‘We seek to identify and to invest in companies with strong balance sheets, attractively low valuations and which are likely to exceed GDP growth rates.’
He also stresses that many of the fund’s recent private investments are ‘designed to benefit from some structural protection. Outside of equities, we look for uncorrelated strategies which are not dependent on economic growth and which we expect to produce positive returns.’
FORMIDABLE LONG-RUN RECORD
Over the last five years, RIT Capital Partners’ net assets have burgeoned by more than £1.1bn (before dividends). Furthermore, £10,000 invested in RIT at inception in 1988 would be worth around £360,000 today with dividends reinvested. The same amount put to work in the MSCI All Country World Index would have grown to circa £85,000.
As Numis Securities comments: ‘The diversified nature of RIT’s portfolio and its low equity exposure mean that the NAV is unlikely to keep up with equity indices during bull markets, as was the case during the first half of 2019. On the other hand, the capital preservation benefits of RIT’s approach came to the fore in 2018 when it achieved a positive NAV total return. We believe that the fund’s emphasis on capital protection fits well with the risk tolerance of many private investors.’
