Five years ago, Jacob Rothschild stepped back from direct involvement in RIT Capital Partners (LSE: RCP), the £4 billion trust effectively controlled by his family. Straightaway, its performance lagged without his magic touch.
On at least one occasion, RIT seemed to have turned the corner, only to fall back again. The shares retreated from trading at a premium to net asset value (NAV) to a discount of more than 30%.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The principal driver of 2024’s performance was a 16% return from quoted equities, which comprise 46% of the portfolio. Meanwhile, private equity turned the corner after two difficult years, says Fanari, with a return of 5% from a 33% allocation. And uncorrelated strategies – principally absolute return funds and credit, which account for 24% of the portfolio, returned 4.5%.
RIT looks for exceptional companies
The trust’s allocation to quoted equities and private equity have been brought into the middle of their target ranges over the last couple of years. Both segments comprise a mixture of direct investments and exposure to funds with specialist managers on favourable terms.
The US accounts for 58% of equity exposure, but there is a hefty exposure to Japan (17%) and China (17%). Mid-caps and small-caps (15%) are also an important area of focus.
“The Russell 2000 index contains many exciting companies, but is only at its median valuation of the last 20 years,” says Fanari, “while our Japanese investments trade at a modest 11 to 13 times earnings with corporate governance reform still at an early stage.”
In private equity, RIT looks for “exceptional companies you can’t find in public markets” via private funds from “the world’s best-performing managers”, such as Thrive and Greenoaks. Direct private investments include SpaceX (0.7% of the portfolio) – “an exceptional company from which we foresee significant returns”.
“The average annual return from private equity over the last ten years has been 15%,” says Nicholas Khuu, the trust’s chief investment officer, “and we are moving back in that direction.”
Mitigating risk
Uncorrelated strategies are intended to mitigate RIT’s exposure to equity risk. The allocation is at the bottom end of the target range, but “we have the potential to lean more heavily into credit in the event of a recession”, says Khuu. The exposure to gold – 3% of the portfolio – was increased in the first quarter.
RIT hedges the portfolio using S&P 500 puts. “We don’t hedge all the time as that would eat into returns,” but hedges were increased in the first quarter. Currency hedges are also used to increase exposure to sterling to 55%-60%.
A 10% increase in the dividend means that the shares now yield 2.4%. Ongoing charges are a very reasonable 0.76% of net assets. With private-equity performance likely to pick up, there is every chance of returns getting back to the 10.5% mark that has been the average annualised return since inception in 1988.
RIT bought back 8% of its share capital in 2023-2024 and continues to do so. That’s “the best decision we can make”, says Fanari “though it doesn’t close the discount. Only performance can do that”.
Fanari’s confidence is shown in greatly improved portfolio disclosure, better communications and increased engagement with investors. “We are able to be nimble if we see opportunities and prepared to be tactical to protect the downside,” she says. For those nervous about stock market risk, but wanting better exposure to long-term upside than that provided by the more defensive trusts, RIT could once again be the ideal investment.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
Oracle’s shares surge as OpenAI deal boosts outlookGains of 36% in a day for Oracle’s stock made co-founder Larry Ellison briefly the world’s richest man
-
Review: Puerto Rico – embrace the spirit of BoricuaTravel Natasha Langan discovers why the indigenous name for Puerto Rico has come to define this Caribbean island’s vibrant culture
-
UK bank stocks are no bargain – here's a safer alternativeOpinion Britain's banking sector faces severe political risks. Switch into this global financials trust instead, says Max King
-
How multi-asset trusts can help you deal with volatilityMulti-asset trusts help navigate global uncertainty and provide investors with an added layer of protection through diversification
-
How to find value in global equity marketsGlobal equities beyond America’s pricey market are bargains, says Rupert Hargreaves
-
Emerging market stocks deliver strong growth at a bargainEmerging markets offer access to some of the world’s most compelling investment themes – here's how to gain exposure
-
Why MoneyWeek likes investment trustsInvestment trusts offer benefits that other forms of fund cannot match, says Rupert Hargreaves
-
Law Debenture’s portfolio should deliver strong returns from unloved stocksLaw Debenture is a unique trust with a value-focused strategy that is doing well despite the weak UK economy
-
European bank stocks bounce backOpinion European bank stocks were part casualty and part cause of Europe’s lost decade. Now it’s clearly turned the corner, says Cris Sholto Heaton
-
The flaw in Terry Smith’s strategy at FundsmithOpinion Fundsmith has invested in some excellent companies, but it has struggled to decide when to sell, says Max King
