RIT Capital sees strong uptick in performance

According to the trust's annual results for the year to 31 December 2014, RCP's share price returned more than the MSCI All Country World Index for the first time since 2011. The trust's shares returned 13.3 per cent compared with 10.64 per cent for the index in 2014. However, net asset value (NAV) returns were lower at 9.5 per cent for 2014. But NAV has increased by 3.3 per cent in January 2015 alone, according to the trust. RCP may be on track to outperform again in 2015, having already delivered a share price return of 9.06 per cent compared with 5.27 per cent for the index.

RCP has also returned to delivering better risk-adjusted returns than the MSCI All Country World Index and FTSE All World Index according to its Sharpe ratio, a measure of returns delivered for risk taken. For 2014, the investment trust posted a higher Sharpe ratio than either index at 1.44.

RIT Capital Partners takes a cautious wealth preservation approach and is highly diversified but was impacted by its defensive approach over the last few years, resulting in underperformance against the index in 2012 and 2013. Following a management shake-up and successful stock picking and currency strategies the fund appears to have returned to growth and remains at an appealing discount.

Weak NAV performance between 2011 and 13 was previously reflected in the surprising swing from a 16 per cent premium to 9 per cent discount experienced by the fund in the 18 months to April 2013. The discount has now tightened to -3.75 per cent, a small narrowing on its 12-month average discount of -4.32 per cent.

That narrowing is related to the company's strong set of 2014 results, which revealed a £200m increase in net assets to a new all-time high of £2.3bn and a share price rise to the highest levels since the company listed 25 years ago.

The news follows the implementation of a new strategy under investment director Ron Tabouche, who joined the fund in September 2012 and placed stronger emphasis on new investments in the US and Japan. The US now accounts for 41 per cent of all assets, up from 32 per cent at the end of 2011.

Capital is allocated to internally and externally managed quoted equities, unquoted direct investments and unquoted fund investments, as well as real assets, absolute return & credit, government bonds and currency

RCP enhanced returns by adding to its private investments and absolute return and credit portfolio. A centrally managed credit overlay also generated 3 per cent towards overall returns due to an overweight position in the US dollar and short positions to the euro and Australian dollar.

The investment trust has increased its allocation to absolute return and credit to around 17 per cent of NAV. This was funded by borrowing and gearing increased, from 5.2 per cent at the end of 2013 to 15.4 per cent in December 2014. However, the investment was vindicated, with absolute return and credit responsible for generating 1.3 per cent of the 9.5 per cent NAV total return.

The strong growth in share price and NAV is mirrored by a consistent growth in dividends. RCP plans to increase dividends from 29.4p a share to 30p in 2015, split between two 15p payouts in April and October, marking a 2 per cent increase on the previous year. Dividends are expected to be maintained or increased in coming years.

Mick Gilligan, head of fund research at Killik & Co, says: "This has been a solid year for RIT Capital's returns, extending the long-term record of strong risk-adjusted returns and there are a number of facets to the portfolio that should ensure that this continues to be the case in future.

"The external managers are some of the most highly regarded in their respective niches and a number of which we endorse via their inclusion on our covered fund list."

Source: TrustNet & Morningstar, as at 2 March 2015

Discrete annual performance (% total returns)

Source: FE Analytics, *as at 2 March 2015

Risk adjusted returns measured in Sharpe ratio in discrete calendar years

Source: FE Analytics

Top 10 holdings, as at 31 December 2014

Asset allocation, as at 31 December 2014

GEOGRAPHIC BREAKDOWN as at 31 December 2014