RIT Capital Partners – March 2023 Update

• The trust is widely diversified and invests across a range of different asset classes in private and public markets
• The trust's managers aim to capture some market rises and offer some shelter to investors' capital when markets fall
• The trust has provided attractive levels of growth over the long term, although past performance is not a guide to the future

How it fits in a portfolio

RIT Capital Partners aims to deliver long-term growth, while offering some shelter to investors' capital when stock markets are weaker. The trust's managers do this by investing in a range of assets, such as individual company shares, private investments, equity and bond funds, real assets, including property and gold, currencies, and absolute return funds.

The trust could be an option for some modest long-term growth or provide exposure to areas of the market that are difficult to access for retail investors. Investors in closed-ended funds should be aware the trust can trade at a discount or premium to Net Asset Value (NAV).

Manager

RIT Capital Partners launched in 1988 and is managed by J. Rothschild Capital Management (JRCM), making it one of the only self-managed trusts in its sector. It is made up of two committees and an experienced investment department to ensure everything runs as efficiently as possible.

JRCM's executive committee, led by CEO Francesco Goedhuis, is responsible for looking after the day-to-day management of the trust. The investment committee works closely with the broader investment team who source opportunities for the trust and generate recommendations for potential investments.

They meet on a weekly basis to discuss the suitability of the recommendations and make final decisions on what the trust invests in and its overall risk profile.

Ron Tabbouche, Chief Investment Officer, is a member on both committees and joined RIT in 2012. He was previously Head of Investments for Managed Portfolios at GAM. He has experience of running large investment strategies across a range of different investment types. Tabbouche can call upon the support of the in-house investment department for ideas, challenge or analysis, but can also use external investment managers to take charge of part of the portfolio and invest on the trust's behalf.

We like the fact the trust is run by an experienced team and has the ability to call upon the support of external managers for additional insight and expertise.

Process

The investment team uses a distinctive 'six cylinder' framework to manage the trust and determine what they invest in. The idea is that different cylinders can drive the trust's performance, depending on the economic picture, providing more consistent returns over time.

The first cylinder is used to help form a wider economic view, determine what level of risk can be taken and how the trust should invest. During times of uncertainty and volatility the investment team is more cautious which is reflected in the way the trust is currently invested.

The second cylinder focuses on investing with external equity managers. The team allocate a part of the trust, at the end of December 2022 around 28%, to professional managers who invest in a portfolio of shares on the trust's behalf. This includes some share based 'hedge funds', which are used to provide additional diversification. The amount invested here at the end of 2021 was around 32%. In order for the team to justify paying external fees each manager must demonstrate high specialist expertise, show they are long-term focused and have high conviction in their views. Most of these managers aren't available to other private investors which adds a potential advantage to the trust.

The third cylinder is made up of individual company shares picked by the in-house investment team. They source opportunities and form recommendations which are presented to the investment committee. At the end of December 2022, around 7% of the trust is invested in single stocks. At the end of 2021 the amount was around 10%.

Having an experienced in-house investment team means they can comb through a wide investment universe, without paying external management fees. This also gives the team greater ability to provide challenge to the external managers that are used in the trust.

The fourth cylinder invests in different currencies including the US dollar, euro, Japanese yen and pound sterling. Currency positioning is used both to enhance returns, and to manage risk, for example by reducing the effect of a strengthening pound.

The fifth cylinder is made up of alternative investments that tend to perform differently to company shares and therefore provide true diversification. Roughly 22% of the trust was invested in alternative investments such as absolute return funds, real assets and emerging market debt at the end of December 2022. While investing in emerging markets can increase diversification within the trust, it can also increase risk. At the end of 2021 the amount invested in these assets was around 19%.

Lastly, the sixth cylinder focuses on private investments - companies that are not currently listed on the stock market. These tend to be more difficult to buy and sell than listed shares. Private investments have always been a core feature and at the end of December 2022 made up around 41% of the trust. At the end of 2021 the amount invested in these types of asset was around 37%. The in-house team only invest in exceptional companies which they feel offer compelling long-term growth potential and they think that private markets can offer a more attractive way to invest in fast-growing companies before they reach public markets.

Gearing (borrowing to invest) and derivatives can be used by the trust, which can magnify any gains or losses. Investors should be aware that if used, each one increases risk.

Culture

The driving culture at RIT is its long-term focus, and alignment with shareholder interests. A key factor in how they achieve this is through the long-term investment by the Rothschild family, currently around 21% of the trust. Lord Rothschild has made it clear that this is a core family holding and they intend to remain significant shareholders. This type of generational interest has been integrated throughout RIT's culture and has encouraged shareholders to hold the trust across their own generations, sharing the long-term view.

ESG Integration

In recent years, Environmental, Social and Governance factors (ESG) have been an increasing focus for RIT. In February 2021, JRCM became a signatory to the UN Principles for Responsible Investment (PRI). In November 2021 JRCM published its responsible investment framework and policy, outlining its principles of responsible investment, and setting out how it implements these principles in its investment activities. We think this is positive and are pleased to see progress made in this area.

Cost

The ongoing charges figure over the trust's financial year to 31 December 2022 was 0.89%. In addition, there are charges relating to the external investment managers that are used by the trust. These equated to an additional fee of 0.88% over the 12 months to 31 December 2022. These costs exclude any additional performance related fees for the period.

Investors should refer to the latest annual reports and accounts and Key Information Document for details of the risks and charging structure.

If held in a SIPP or ISA the HL platform fee of 0.45% (capped at £200 p.a. for a SIPP and £45 for an ISA) per annum also applies. Our platform fee doesn't apply if held in a Fund and Share Account.

As investment trusts trade like shares, both a buy and sell instruction will be subject to our share dealing charges within any HL account.

Performance

RIT Capital Partners has a strong long-term track record. It's outperformed both its benchmarks over the long run, though over the past 10 years to the end of February 2023, the trust has lagged global equity markets, having returned 100.28%* versus 193.67% for the FTSE World. It did outperform their inflation comparators though, with UK Retail Prices Index (RPI) + 3% and Consumer Prices Index (CPI) +3% returning 93.01% and 72.05% respectively over the same period.

Historically the trust has used UK RPI +3% per year as a long-term performance comparator, however it has taken the decision to change this to UK CPI +3% per year going forward.

Over the 12 months to the end of February 2023, the trust has underperformed, losing 19.37%. This compares to gains of 2.97% for the FTSE World, 15.22% for UK RPI +3% and 11.86% for UK CPI +3%.

The trust does not aim to beat its benchmarks over the short term. Instead, it focusses on long-term returns and tries to show strength when stock markets are weaker and provide modest growth over the long term. Equity markets have been strong over most of the past decade, and the trust has tended not to rise as quickly in this environment.

2022 was a challenging year for investors due to the high inflation and interest rate rising environment, with the trust struggling as a result. The company shares held in the fund, both directly and via external managers, lost value and were one of the drivers of the overall losses. Investments in China in particular hurt performance. Private investments were another contributor to the losses as their values were marked down to reflect the falls in similar, publicly listed, assets. One of their hedge fund investments, Eisler Capital, had a particularly poor 2022, losing 17.7% and was sold towards the end of the year.

It wasn't all bad though. The managers changed some of their company share holdings, shifting to having a greater focus on companies that could benefit from a higher inflation environment. This shift helped to reduce the losses from this section of the trust. Non sterling currency exposure also helped to contain the losses for the trust.

The overall performance of the trust was also impacted by a notable shift in share price, which moved from a discount to NAV of -1.6% at the end of 2021 to -11.0% at the end of 2022. This compounded the overall losses for the trust. This discount has widened further since and at the time of writing (1 March 2023) the trust traded at a discount to NAV of -21.23%.

Annual percentage growth

Past performance isn't a guide to the future. Source: *Lipper IM to 28/02/2023.

FIND OUT MORE ABOUT RIT Capital Partners, INCLUDING CHARGES

VIEW RIT Capital Partners KEY INFORMATION DOCUMENT

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