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RIT Capital Partners plc: October 2020 update

Investment Analyst Josef Licsauer shares our analysis on the manager, process, culture, cost and performance of RIT Capital Partners plc.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • Trust is widely diversified and invests across a range of different asset classes
  • The team behind the trust feels diversification is crucial within the current climate
  • They aim to capture some market rises and offer some shelter to investors' capital when markets fall
  • Trust is looking to increase dividends by 2.9% compared to last year

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 become a conservative element of a broader portfolio. Investors in closed-ended funds should be aware the trust can trade at a discount or premium to 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, has been together for seven years and the committee members are 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 after joining 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 unique six cylinder framework to manage the trust and determine what they invest in.

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, currently around 40%, to professional managers who invest in a portfolio of equities on the trust's behalf. 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. Currently10% of the trust is invested in single stocks.

Having an experienced in-house investment team means they can comb through a wide investment universe, without paying external management fees and add additional challenge to both investment decisions and external managers.

The fourth cylinder invests in different currencies including the US dollar, euro, Japanese yen and GBP sterling. The trust typically invests more in the US dollar but over the years it has played a diminishing role as a haven currency. Combining that with the current uncertainty in the US the team have reduced their exposure. Similarly the continuing volatility around sterling has seen a reduction in their position.

The fifth cylinder is made up of alternative investments that tend to perform differently to company shares and therefore provide true diversification. Roughly 30% of the trust is invested in alternative investments and includes hedge funds, absolute return funds and emerging market debt. Investing in emerging markets increases risk.

Lastly, the sixth cylinder focuses on private investments - companies that are not currently listed on the stock market, and tend to be more difficult to buy and sell than listed shares. Private investments has always been a core feature and currently makes up around 25% of the trust. The in-house team only commit capital to exceptional investments which offer compelling long-term growth potential. Currently this part of the trust is skewed towards technology as the team thinks it offers good long-term opportunity.

Gearing and derivatives can be used by the trust and 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 but also the aim to align objectives and aims with shareholder interests. A key factor in how they achieve this is through the long-term investment by the Rothschild family, currently 21% of the trust. Lord Rothschild has made it clear that this a core family holding and they will never look to sell. 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.

In recent years, environmental, social and governance factors (ESG) has become a standing item of consideration for RIT. There has been discussions around how it should be integrated in the investment process and is currently in line with the investment trust sector. It is not a core focus quite yet.

Cost

The ongoing annual charge over the trust's financial year to 31 December 2019 was 0.68%. Investors should refer to the latest annual reports and accounts and Key Investor Information 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 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.

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 its returned 98.3% against the FTSE World index’s gain of 198%. Over this time it's outperformed the RPI + 3% index’s gain of 73.2%*. At time of writing (05/11/20) the trust is trading at a 7.12% discount to the net asset value (NAV). Past performance is not a guide to future returns.

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

Over the past year the trust's performance has disappointed falling by 11.5% compared with the FTSE World index’s gain of 5.2% and the RPI 3% index’s gain of 3.5%*. The combination of Brexit uncertainty, tensions between the US and China and impact of the coronavirus has caused the trust to struggle. Emerging market debt specialists were one of the worst performers over this period.

In addition, value-focused investments, specifically in the UK and Japan, detracted from performance. Value investing has recently been out of favour, but investment styles come in and out of favour. We think investors should have exposure to a range of different approaches in a well-diversified portfolio.

In contrast, there has been some strong pockets of performance, including Asia and bio-tech specialists, which have benefitted from the increased demand for a vaccine, stronger reliance on health care and demand for e-commerce services. Similarly, some individual companies performed well, namely Google, Disney and Visa Inc. The trust's investments in real assets were also strong, particularly gold which is an important diversifier against uncertain and unstable markets.

RIT Capital Partners plc performance over 10 years

Past performance isn't a guide to the future. Source: *Lipper IM to 30/09/2020.

Annual percentage growth
Sep 15 -
Sep 16
Sep 16 -
Sep 17
Sep 17 -
Sep 18
Sep 18 -
Sep 19
Sep 19 -
Sep 20
RIT Capital Partners PLC 18.7% 13.2% 6.8% 6.6% -11.5%
FTSE World 31.2% 15.4% 14.2% 7.9% 5.2%
UK Retail Price Index + 3% 5.0% 6.9% 6.3% 5.4% 3.5%

Past performance is not a guide to the future. Source: *Lipper IM to 30/09/2020.


FIND OUT MORE ABOUT RIT Capital Partners INCLUDING CHARGES

RIT capital partners Key information document

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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