It is rare to see a trust of the calibre of RIT Capital Partners (RCP) trading at a discount. However, RCP, one of our Top 100 funds in the wealth preservation category, has seen a substantial price derating in the past 18 months, with a swing from a 16 per cent premium to a 9 per cent discount - partly reflecting weak relative net asset value (NAV) performance. Could this present a good opportunity for bargain hunters?
The trust was set up to manage the wealth of banking and finance dynasty the Rothschild family and still counts Lord Jacob Rothschild as its chairman and biggest shareholder. It has delivered good long-term returns from a widely diversified and conservatively managed strategy, which aims for wealth preservation alongside capital growth. The trust's huge international portfolio has exposure to unquoted investments and private equity alongside conventional equities.
More recently, however, performance has been underwhelming. In the 18 months to 17 April 2013, the estimated NAV rose by 12 per cent, compared with a 26 per cent increase in the MSCI World Index. The share price performance has also been poor, falling by 7 per cent over the past 18 months.
However, action is being taken and performance in 2013 has been encouraging, with the trust hitting NAV of 1,344p a share earlier this year - RCP's highest net asset value since it floated on the London stock market back in 1988.
Since the appointment of new investment director Ron Tabbouche in September 2012, the trust has brought in a distinct change of emphasis for its portfolio. Key changes made in the past year include new investments focused on the US and Japan.
In March 2011, geographic exposure to North America stood at 32 per cent. By December 2012 it stood at 48 per cent.
The trust's managers also increased exposure to Japanese equities in the last quarter of 2012 through the purchase of Nikkei futures. Plus RCP has built a large short against the yen (4 per cent of NAV).
Other changes to the portfolio include an acknowledgment that the portfolio had become too diversified, leading to a number of funds and smaller investments being sold. This has led to a decrease in exposure to emerging markets.
In common with many funds, RCP has had a strong start to 2013, with the NAV rising by 13 per cent over the first quarter in capital terms. This was still behind the MSCI World (£) capital return of 15 per cent, but still respectable.
The dividend policy has been reviewed and a 28p dividend paid, with the expectation for this to be maintained or increased moving forward. However, analysts at Canaccord Genuity note that this is not covered by underlying revenue.
Although the ongoing charges look reasonable a 1.02 per cent (1.19 per cent including performance fees), Canaccord Genuity points out that this excludes costs of investing in third-party funds and estimates that inclusion of those costs would take the ongoing charges to 1.7 per cent (excluding performance fees).
On balance, RCP can still be considered a cornerstone investment for a diversified portfolio. Its emphasis on capital preservation continues to be attractive and the new manager has made some good investment decisions. Plus, the discount of nearly 9 per cent against its 12-month average discount of just under 4 per cent presents a good opportunity to buy or for existing investors to top up their holdings.
RIT Capital Partners (RCP)
| PRICE | 1,215p | GEARING | 108% |
| AIC SECTOR | Global Growth | Estimated NAV | 1.330p |
| FUND TYPE | Investment trust | PRICE DISCOUNT TO NAV | -8.65% |
| TOTAL ASSETS | £2.22bn | 12M Avg DISCOUNT | -3.92% |
| No OF HOLDINGS | 50+ | YIELD | 2.30% |
| SET-UP DATE | 15 June 1988 | Ongoing charge (inc performance fee) | 1.19% |
MORE DETAILS: www.ritcap.com
| Annual returns | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 (to 31 March 2013) |
|---|---|---|---|---|---|---|
| Share price | -14.21% | 19.24% | 15.70% | 2.42% | -5.37% | 7.16% |
| NAV | -11.14% | 6.57% | 19.28% | -8.35% | 5.60% | 12.76% |
TOP 12 HOLDINGS (as at 31 December 2012)
| Holding | Country | Description | % |
|---|---|---|---|
| RIT Global Quality | Global | Global equities | 12.5 |
| BB Life Sciences | US | US biotechnology | 3.0 |
| Findlay Park | US | US equities | 3.0 |
| US Treasury Bill | US | Government bond | 2.8 |
| Cedar Rock Capital | Global | Global equities | 2.7 |
| Infinity Data Systems | UK | Data centres | 2.2 |
| Titan Partners | US | US growth | 2.0 |
| Gaoling | China | Long/short Chinese equities | 2.0 |
| Independent Franchise Partners | Global | Global equities | 1.9 |
| Viking Long Fund III | Global | Global equities | 1.9 |
| Augmentum I | UK | International growth capital | 1.9 |
| UK Gilts | UK | Government bond | 1.9 |
| Geographic Breakdown (as at 31 December 2012)* | % |
|---|---|
| North America | 48 |
| UK | 17 |
| Emerging Markets | 15 |
| Global | 3 |
| Japan | 8 |
| Europe | 12 |
| Asia | 1 |
| Liquidity, borrowings, currency | 6 |
*Note: Includes market exposure resulting from index futures.
| Asset allocation (as at 31 December 2012) | % |
|---|---|
| Quoted equity - Internally managed | 18.5 |
| Quote equity - externally managed | 44.2 |
| Unquoted investments - direct | 11.5 |
| Unquoted investments - funds | 14.6 |
| Real assets (property and gold) | 5.5 |
| Absolute return & Credit, government bonds and currency | 2.9 |
| Liquidity | 10.8 |
| Borrowings | -8.2 |
| Other assets/liabilities | 0.2 |
