Cade (pictured) says that there is little value in the investment trust sector as a whole, but RIT Capital partners is an exception.The management’s ability to defend capital and the fact it is trading on a much wider discount than it has done in the past means investors should consider buying into the closed-ended fund, he explains.
“One I saw today which is good value is RIT Capital Partners,” he said. “It is trading on a 9 or 10 per cent discount when, in the past, it has often traded at asset value or on a premium.”
“It had a good year last year, not as well as the equity market itself. However, it is run like a family business or something like Personal Assets, as it is trying to protect capital.”
“They try to grow capital over the long-term, but by no-means are they trying to match the market, as they are looking for protection more than anything else and they have a very good long-term track record of doing that.”
“They had a very good year last year, making some good additions to the team. It is the standout value play for me and it is relatively defensive,” he added.
RIT Capital Partners, which is chaired by Lord Jacob Rothschild, is a diversified portfolio, with the management investing across all the major regions and asset classes.
It has underperformed recently, falling behind its MSCI World Index benchmark over rolling one-, three- and five-year periods. This can be partly attributed to the fact it is not fully invested in equities.
However, according to FE Analytics, the trust has returned 141.41 per cent over 10 years, beating the index by more than 30 percentage points.
Performance of trust vs index over 10yrs
Source: FE Analytics
As Cade points out, RIT Capital Partners has a decent track record of protecting capital in falling markets.
Our data shows that it lost less than the index in the crash year of 2008, while in 2011 when its benchmark lost 5 per cent, the trust returned 2 per cent.
Data from Numis also shows that since its launch in 1987, it has participated in 70 per cent of market upsides but only 38 per cent of market downsides.
Cade says that with valuations across developed market equities looking toppy, now would be a very good time to get exposure to RIT.
“In that sort of environment [a correction], I would expect it to outperform significantly. However, even if markets keep going up then they can add value through parts of the portfolio like their private equity exposure. They hold Dropbox, for instance, which is likely to IPO soon.”
RIT has around 25 per cent in unquoted assets, while close to half of its portfolio is in externally managed listed equities. The managers also have a proportion of their assets in absolute strategies via hedge funds, government bonds and currencies.
A number of fund managers have voiced concerns about the state of markets recently.
Performance of index over 5yrs
Source: FE Analytics
The FTSE All Share has posted almost uninterrupted gains since the period after the financial crash and the likes of Martin Gray, Tom Becket and Iain Stewart are worried that there is far too much complacency creeping into the market. They say that markets are now very prone to a correction as a result.
Peter Walls, manager of the five crown-rated Unicorn Mastertrust fund, is another who is worried about the chances of a sell-off.
He told FE Trustnet last year that he had bought RIT and other trusts like it in order to build layers of defence into his portfolio.
The manager says this is a very good trust for investors who want to hedge risk.
“The discount, at the time, was very attractive,” he said. “Its performance in 2012 hadn’t been good, but it had before that consistently traded at or above NAV as a lot of private investors wanted to channel the expertise of Jacob Rothschild. However, as is so often is the case, if performance is rocky, then people tend to be a bit unforgiving.”
“While it was at an attractive discount, I also wanted to build a bit more defence into the portfolio,” he added.
Walls says that there are still a lot of risks facing the market and because of that, RIT Capital Partners will be staying in his fund.
“Markets can remain irrational for a very long time. There is still the case for markets to keep going ahead, but we are now reliant on earnings growth, as a huge amount of the rally has been driven by re-ratings.”
“We still have that to worry about, but then there is still a lot of cash sloshing about. For me, having a few counters in my portfolio to help my discount downside risk is a good idea,” he added.
RIT Capital Partners is 5 per cent geared and has ongoing charges, including a performance fee, of 0.65 per cent.
