Tabbouche took over as investment director of the trust in 2012, but Lord Rothschild remains active in its running through his position on the board and as a large shareholder.
The appointment followed a period of dull relative performance, and the manager says that focusing the portfolio on its highest-conviction positions should help it generate alpha in the long run.
“We are much more concentrated,” he said. “We have taken our best ideas and said ‘If we believe in them we want to back them’, and that goes for stocks, funds and our managers.”
Tabbouche says he has raised his allocation to the managers he has a high conviction in to 3 to 3.5 per cent, adding that the portfolio remains diversified but has a better chance of delivering strong returns if its selections are right.
The portfolio is focusing on key themes of technology, Japan, emerging markets, uncorrelated strategies and trusted external managers, Tabbouche explains.
RIT Capital Partners has an outstanding long-term track record, but performance has been dull over the last few years.
The trust’s emphasis on protecting capital and the diversification in its asset base allowed it to outperform in 2008 and again in 2011, the last two years equity markets finished down.
However, in share price terms it lost 5.37 per cent in 2012 while NAV was more or less flat. The trust has lagged behind equities in share price terms in 2013, too, although Tabbouche says that when final NAV results are published for the year, an improvement could become apparent.
Performance of trust vs sector and benchmark over 5yrs
Source: FE Analytics
The trust aims to both protect and increase the value of investors’ capital, which the manager admits seems like a contradiction at first sight.
“We all know that to grow one’s capital one has to take risk, and if one wants to preserve capital one needs to not take risk,” he said.
However, the diversified nature of the £2bn trust allows it to provide the best of both worlds, Tabbouche claims.
The fund invests in public and private equities, forex, with macro strategies and stockpicking largely in tech sectors.
Recent private equity investments include Dropbox, whose valuation has more than doubled since 2011. The company is expected to go public at some point.
The private equity portfolio is relatively young, the manager says, which explains why there has been little movement in recent years, contributing to the sluggish NAV returns. Patience is a core value of the management team, he adds.
Lord Rothschild remains an important driver behind the portfolio’s forex and macro positions.
Tabbouche says that the diversification into such areas is vital to ensure that the trust isn’t driven solely by equity markets.
“We don’t want market direction to be the over-riding feature that determines performance,” he said.
The portfolio had a 57 per cent net equity exposure throughout last year, he explains, and the final results will show “healthy participation” in equity market gains of 22 per cent.
The trust is in a closed period prior to annual results being published, meaning that he cannot give any clues as to the actual figures.
The portfolio buys puts to protect itself on the downside, which detracted 90 basis points from 900 of alpha last year.
The first theme the trust looks to play is technology.
“We think it’s at a very disruptive stage,” Tabbouche said.
The managers have seeded a hedge fund manager who used to work for Duquesne Capital’s Stanley Druckenmiller, and work closely with him on individual stock-picks.
They are also aiming to profit from the renaissance in Japan, which they say has further to run. Many companies in Japan are still trading on a price/book of one, the manager points out, while structural reforms are likely to bear fruit.
Emerging markets still offer a huge number of opportunities to generate alpha, he adds, despite the gloomy situation of the main indices.
“We are focused on frontier markets, domestic China, Mexico and Russia,” he said.
Uncorrelated strategies include not only private equity, but also distressed debt and credit-based hedge fund strategies.
The trust is also continuing to back core managers in which it has had a high conviction for many years and which are mostly hard-closed to new investors, including Viking, Egerton, BlackRock European Hedge and Brant Point.
Winterflood analysts are backing the manager’s efforts to turn the trust around and say the current discount of 6 per cent represents an opportunity.
“RIT Capital Partners has a strong long-term performance record, which has resulted in the trust trading on a premium for extended periods,” they said.
Share price and NAV of trust over 5yrs
Source: FE Analytics
“However, recently the fund has lagged behind the strong market conditions as a result of its defensive positioning.”
“This fund is differentiated from most of its global peers by its emphasis on top-down investment and it also provides access to a number of highly regarded external managers.”
The trust has a dividend yield of 2.2 per cent and has ongoing charges of 0.62 per cent plus a performance fee.
