Merryn's Blog

Keep hold of this investment trust

One of the investment trusts in our model portfolio hasn’t been doing too well. But it’s made some major changes in the past year, and it’s one to keep hold of for now.

A note comes from Alan Brierley at Canaccord Genuity. Alan is one of the advisers to our investment trust portfolio, and a man to listen to on these things.

It is about RIT Capital one of the holdings in our core portfolio. We initially chose RIT because of its emphasis on capital preservation in an environment such as this, hanging on to what you have in real terms is something of a challenge even before you start trying to make any more.

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However, while readers who bought when we set up the portfolio last June aren't out of pocket, that focus hasn't done RIT any favours in the last few years.

Instead, thanks to the fund's relatively low level of equity holdings, its net asset value (NAV) has lagged nastily against the market as whole, and the fund now trades at a discount of 9% to that NAV.

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It is also worth noting that this underperformance doesn't come particularly cheap. The publicised ongoing charges are around 1.02%, but that doesn't include the costs that come with the fund's investments in other funds (RIT is in part a fund of funds). Add those in and you get more like 1.7% - and there's a performance fee too.

However, on the plus side, Alan notes that the company has made some major changes in the past year. A new investment director has been appointed; the quoted equity exposure has risen to 61% of assets; new investments are focused on the US and Japan; and the dividend policy has been reviewed a 28p dividend was paid "with the expectation for this to be maintained or increased moving forward." That gives RIT a yield of 2.3%.

We are reasonably happy with the repositioning, if not entirely impressed with dividend policy the 28p isn't covered by revenues, so this just returns investors capital to them whether they want or not so there is no obvious reason to change our view on the trust at the moment. We decided to keep it in our portfolio when we reviewed earlier this year, and we will look at it again in July.

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