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The long-term trust available on a discount

22 September 2014

Canaccord Genuity’s Alex Whiting says now is the perfect time to buy RIT Capital Partners.

By Jenna Voigt,

Editor, FE Investazine

An uneasy outlook for the global economy coupled with a move to a discount makes now a good time to buy into the £2.1bn Rothschild Investment Trust, according to Canaccord Genuity’s Alex Whiting.

Whiting, an investment director at the wealth manager, says lacklustre performance of late has dragged the trust down to a 3.1 per cent discount, giving investors a good opportunity to buy a solid trust at a knockdown price.

“Performance in recent years has not been as good as the long-term track record and the shares have drifted to a discount, which is unusual in recent times but also provides an opportunity to invest,” Whiting said.

“The trust is approximately 20 per cent owned by Lord Rothschild and his family and therefore benefits from his knowledge, experience and contacts.”

Whiting’s views echo those of Numis Securities’ Ewan Lovett-Turner who last month told FE Trustnet the trust was a good buy.

The current 3.1 per cent discount has come in from the trust’s one-year average discount of 6.17 per cent. Earlier this year the discount narrowed to as little as 1.71 per cent before widening again.

Whiting says the asset breakdown of the trust is “disparate and flexible” and points out that Lord Rothschild recently indicated a more bearish view of the market. The trust has historically performed well in difficult markets, so Whiting thinks this is even more of a reason to buy in on a discount.

“Lord Rothschild’s comments in the recently announced half-year results [are] suggesting caution: ‘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.

“With an excellent track record of sailing through stormy seas, the trust should be seen as a long-term investment opportunity.”

The trust’s medium term numbers are certainly disappointing, having delivered an abysmal return relative to the IT Global sector and MSCI World index over three years – just 18.89 per cent.

However, over the longer term the trust has outstripped both measures significantly.

Since the start of FE data in July 1995, the trust made 760.98 per cent, more than doubling the returns of the sector and nearly tripling the returns of the MSCI World index.

Performance of trust, sector and index since 1995

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Source: FE Analytics


As Whiting highlights, the trust has a history of performing better than its peers in turbulent times, as shown by its performance in the financial crisis of 2008 and the down markets of 2011.

In the credit crunch, RIT Capital Partners lost 14.21 per cent, less than half of the average trust in the sector which fell 30.13 per cent. The MSCI World index fell 17.92 per cent that year.

In 2011 the trust managed positive returns of 2.42 per cent while the index was down 4.84 per cent and the sector dipped 8.32 per cent, according to FE Analytics.

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Source: FE Analytics


So far this year, RIT Capital Partners has picked up 12.58 per cent, doubling the returns of the index and nearly tripling the returns of the IT Global sector. The trust has ongoing charges of 0.97 per cent.

“The investment objective of the trust is ‘to deliver long-term capital growth, while preserving shareholders’ capital’,” Whiting said.

“In addition to this, the shares also currently deliver a net 2.2 per cent yield per annum. This is borne out by the long-term performance of the trust.”

The trust is not benchmark-constrained, though it does measure its performance against the MSCI World index, aiming to deliver for shareholders increases in capital value in excess of the relevant indices over time.

RIT Capital Partners is fairly evenly diversified in terms of regional exposure, though the highest geographical weighting is to North America, at 37 per cent.

The next highest weightings are to emerging markets and the UK, at 20 per cent.

Seven funds in the IMA universe hold the RIT trust in their top bets, including the JP Morgan Multi Manager Growth fund and the Investec Managed Growth portfolio.

In line with Canaccord’s own wary views of Europe, the trust has just 9 per cent exposure to the continent.

In a recent note to investors, Canaccord Genuity chief investment officer Nigel Cuming said the firm has done a U-turn on its exposure to Europe in light of disappointing economic data from the region.

“The UK is now forecast to growth at 3.5 per cent this year and this compares very favourably with Europe where recent economic data has been very disappointing with Italy falling back into recession,” he said.

“Growth is non-existent and with deflationary forces gaining momentum, one wonders what it will take to prompt the ECB to take further supportive action by embarking on quantitative easing. Given that the Ukrainian situation is clearly a large negative for the economy, there is a very real danger that things could get much worse.”

“Therefore, any inclination that we had previously to increase European exposure at the expense of our US holdings on a relative valuation basis has been replaced by a decision to reduce it.”

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.