The £2.3bn trust is closely associated with the Rothschild family, with Lord Jacob Rothschild – who has a significant personal holding – also its chairman. Its manager Ron Tabbouche has been at the helm since 2012.
The trust’s focus on uncorrelated returns and downside protection has made it relatively unpopular in recent years, but with many forecasting a more difficult period for equity markets, Lovett-Turner thinks now is a good time to invest.
“The net asset value [NAV] return is always likely to lag equity markets during strong rallies, as has been seen in recent years, due to a significant part of the portfolio being invested in unquoted assets,” Lovett- Turner said.
“However, over the last year the NAV, up 7.8 per cent, is marginally ahead of the markets (7.2 per cent MSCI AC World) and RIT has an exceptional performance record over the long term.”
Performance of trust and index over 15yrs
Source: FE Analytics
Tabbouche holds a mixture of quoted and unquoted investments, credit, government bonds, currencies and alternative assets from around the world, though has a bias toward developed markets.
Holding such a broad spread of assets has led to it having a low correlation to risk assets, illustrated by its 0.52 correlation to the MSCI World index over a 15 year period.
Such a low correlation has allowed RIT Capital Partners to stay ahead during periods of market weakness.
For example, in 2011 and 2008 the trust delivered top-quartile returns in its IT Global sector, though in rallying markets it’s fallen behind.
According to FE Analytics, the style has been out of favour over the past three years, with returns of only 7.92 per cent well short of the 49.25 per cent return of the MSCI World index.
Performance of trust and index over 3yrs
Source: FE Analytics
However, as Lovett-Turner suggests, performance has improved recently, which he thinks could be a sign of things to come.
“We believe that this is an attractive entry point for investors given that the fund has often traded at a premium in the past,” he said.
While its discount – currently at 5.2 per cent – is at its lowest in 12 months having risen to more than 10 per cent in August 2013, Lovett-Turner says this is an attractive entry point for investors given that the trust has often traded at a premium.
According to FE Analytics, it has traded on a premium of as high as 16 per cent within the past five years.
Discount/premium of trust since 2009
Source: FE Analytics
The trust continues to benefit from the experience and contacts of Rothschild while a number of recent management changes have meant a more disciplined investment process, Lovett-Turner says.
Its private investment portfolio includes names such Metron, Chart Show and, more recently, Martin Currie.
Tabbouche currently holds 40 per cent in North American equity markets with its next biggest geographical bet the UK equities, at 19 per cent.
Absolute return and credit investments now account for approximately 15 per cent of assets, with the rest in VCTs, unlisted equities and real estate.
In a recent note to investors, Rothschild said the trust’s priority is finding investments that have not been inflated by the accommodative monetary policy introduced in the wake of the financial crisis.
This, he says, has become very challenging.
“We have become uncomfortable in participating in liquidity fuelled markets and are sceptical as to whether the current degree of investor complacency can be maintained,” he said.
“Almost every asset class is highly priced by historical standards at a time when the precarious geo-political situation in the Middle East and Russia could undermine the fragile economic recovery which central bank policy has helped to bring about.”
Rothschild says that during 2014 currency allocation has been a major challenge. A greater allocation to a strengthening sterling has helped the trust, though certain stocks have been adversely impacted.
“We increased our sterling exposure to a level higher than at any time in recent history; however its appreciation since the start of the year has affected our company's NAV given the global nature of our investments,” he said.
“Mindful of the Bank of England's continued hawkish stance we will maintain our relatively high level of exposure to sterling, a portion of which is held through options as we see risks ahead which may cause a reversal of the currency's upward trend.”
Ben Williams, investment manager at Saunderson House, says he has recently been trimming exposure to the trust.
While he thinks the discount could narrow further, Williams is uncomfortable with the weighting to sterling.
“We have been trimming positions to the trust as the discount has narrowed, thinking now is a good time to take profits,” he said.
“It has quite a high allocation to sterling – around 54 per cent – and I think it [sterling] is looking a bit overvalued and while it may continue for some time, it just looks expensive.”
The RIT Capital Partners trust is 17 per cent geared and has ongoing charges of 1.27 per cent, excluding performance fee.
