RIT Capital Partners: December 2021 update
- The trust is broadly diversified and invests in a range of different asset classes
- He has a long-term approach and can invest in private markets, as well as public markets such as company stocks.
- Managers of the trust aim to capture certain market rises and provide shelter to investor capital when markets go down
- The trust has provided attractive levels of long-term capital growth, although past performance is no guarantee of the future
How it fits into a portfolio
RIT Capital Partners aims to generate long-term growth, while providing some shelter for investors’ capital when stock markets are weak. To do this, the managers of the trust invest in a range of assets, such as stocks of individual companies, private investments, equity and bond funds, real assets including real estate and property. gold, currencies and absolute return funds.
The trust could be an option for modest long-term growth or become a conservative part of a larger portfolio. Investors in closed-end funds should be aware that the trust may trade at a discount or premium to the net asset value (NAV).
RIT Capital Partners was launched in 1988 and is managed by J. Rothschild Capital Management (JRCM), making it one of the only self-managed trusts in its industry. It is made up of two committees and an experienced investment department to ensure that everything runs as efficiently as possible.
JRCM’s executive committee, chaired by CEO Francesco Goedhuis, has been in existence for nine years and committee members are responsible for overseeing the day-to-day management of the trust. The investment committee works closely with the wider investment team who research opportunities for the trust and generate recommendations for potential investments.
They meet weekly to discuss the relevance of the recommendations and make final decisions about the trust’s investments and its overall risk profile.
Ron Tabbouche, Chief Investment Officer, is a member of both committees and joined RIT in 2012. He was previously Head of Investments for Managed Portfolios at GAM. He has experience managing large investment strategies in a range of different investment types. Tabbouche can call on the support of the internal investment department for ideas, challenges or analysis, but can also call on external managers to take charge of part of the portfolio and invest on behalf of the trust.
We appreciate the fact that the trust is managed by an experienced team and that it can call on the support of external managers to gain additional information and expertise.
The investment team uses a distinctive “six cylinder” framework to manage the trust and determine what to invest in. The idea is that different cylinders can boost the performance of the trust, depending on the economic situation, providing more consistent returns over time.
The first cylinder is used to help form a larger economic view, to determine what level of risk can be taken and how the trust should invest. In times of uncertainty and volatility, the investment team is more cautious, which is reflected in how the trust is currently invested.
The second cylinder focuses on investing with external equity managers. The team allocates a portion of the trust, currently around 40%, to professional managers who invest in an equity portfolio on behalf of the trust. In order for the team to justify the payment of external fees, each manager must demonstrate a great deal of specialist expertise, show that he is focused on the long term and that he has a strong conviction in his opinions. Most of these managers are not available to other private investors, which adds a potential benefit to the trust.
The third cylinder is made up of individual stocks of companies selected by the internal investment team. They seek out opportunities and formulate recommendations which are presented to the investment committee. Currently about 10-15% of the trust is invested in individual stocks.
Having an experienced in-house investment team means it can navigate a wide investment universe, without paying any external management fees, and poses an additional challenge for investment decisions and external managers.
The fourth cylinder invests in different currencies, including the US dollar, the euro, the Japanese yen and the British pound sterling. Currency positioning is used both to improve returns and to manage risk, for example by reducing the effect of a stronger pound.
The fifth cylinder is made up of alternative investments which tend to behave differently from company stocks and therefore offer true diversification. About 19% of the trust is invested in alternative investments such as hedge funds, absolute return funds and emerging market debt. Investing in emerging markets increases the risk.
Finally, the sixth cylinder focuses on private investment – companies that are not currently listed on the stock exchange, and tend to be more difficult to buy and sell than listed stocks. Private investments have always been a key feature and currently represent around 33% of the trust. The in-house team only invests in exceptional companies that offer compelling long-term growth potential. Currently, that part of the trust is tech-driven, as the team believes it offers good long-term opportunities. The team believes private markets may offer a more attractive way to invest in fast-growing companies before they reach public markets.
Gears and derivatives can be used by the trust and can amplify gains or losses. Investors should know that if they are used, each increases the risk.
RIT’s driving culture is its long-term purpose and alignment with shareholder interests. The long-term investment of the Rothschild family, which currently represents over 20% of the trust, is a key factor in how they achieve this. Lord Rothschild has made it clear that this is a core family holding company and that they intend to remain significant shareholders. This type of generational interest has been embedded throughout RIT’s culture and has encouraged shareholders to maintain trust between their own generations, sharing the long-term vision.
In recent years, environmental, social and governance (ESG) factors have been at the center of RIT’s concerns. In February 2021, the JRCM became a signatory to the United Nations Principles for Responsible Investment (PRI). In November 2021, the JRCM published its Responsible Investment Framework and Policy, outlining its responsible investment principles and explaining how it implements these principles in its investment activities. We think this is positive and we are happy to see some progress being made in this area.
The ongoing annual charges for the trust financial year as at December 31, 2020 were 0.66%. Investors should refer to the latest annual reports and accounts and the key information document for further details on the risks and the pricing structure.
If held in a SIPP or ISA, the HL platform fee of 0.45% (capped at £ 200 for a SIPP and £ 45 for an ISA) per year also applies. Our platform fees do not apply if they are held in a funds and stocks account.
RIT Capital Partners has a solid long-term experience. It has outperformed its two benchmarks over the long term, although over the past 10 years it has returned 160.27% * against 278.40% for the FTSE World and 74.06% for the RPI + 3%. At the time of writing (December 1, 2021), the trust is trading at a discount to NAV of -1.29%.
The trust is not intended to beat its short term credentials. Instead, it tries to show strength when the stock markets are weak and provide modest long-term growth. Stock markets have been strong over the past decade and confidence has tended not to rise as quickly in this environment.
Over the past year, Confidence has performed very well, increasing 38.60% from the FTSE World Index gain of 22.32% and the RPI + 3% gain of 9.06 %. Many parts of the portfolio contributed positively.
Private investments made a strong contribution to performance, whether in direct investments or in funds. South Korean e-commerce company Coupang has made a particularly important contribution to the private investment cylinder. It became a public limited company in March 2021 and was transferred to the individual listed companies that are part of the portfolio.
Within the cylinder of external equity managers, fund managers investing in neglected companies with the potential for recovery, also known as value managers, have performed well over the past year after several years of lower returns. Many have benefited from investments in commodity-related companies, which have generally performed well. On the negative side, managers investing in biotech companies, and those focused on China, performed less well.
Absolute return and the credit cylinder also provided positive returns. Distressed credit strategies that invest in the debt of distressed companies have performed particularly well, as government and central bank support in the aftermath of the pandemic has bolstered many struggling companies.
Performance of RIT Capital Partners plc over 10 years
Past performance is no guarantee of the future. Source: * Lipper IM as of 11/30/2021.
Annual percentage growth
|November 16 – November 17||November 17 – November 18||November 18 – November 19||November 19 – November 20||November 20 – November 21|
|RIT Capital Partners||9.96%||4.70%||9.72%||-8.14%||38.60%|
|UK Retail Price Index + 3%||6.88%||6.19%||5.25%||3.86%||9.06%|
Past performance is no guarantee of the future. Source: * Lipper IM as of 11/30/2021.
LEARN MORE ABOUT RIT Capital Partners, FEES INCLUDED
SEE THE RIT Capital Partners KEY INFORMATION DOCUMENT
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