Bargain cornerstone for the cautious

Bargain hunters should note that shares in RIT Capital Partners are trading at a rare discount to net asset value. Formed 20 years ago as a fund to help banking and finance dynasty the Rothschild family manage its investments, RIT Capital Partners is widely diversified and conservatively managed.

The Rothschild family have significant holdings, with chairman Lord Rothschild owning 13 per cent and involved in decisions on the trust's overall asset allocation.

The trust, managed by J Rothschild Capital Management, with Duncan Budge as fund manager, aims "to deliver long-term capital growth, while preserving shareholder's capital". While it invests without the constraints of a formal benchmark, its goal is "increases in capital value in excess of the relevant indices over time". Since inception in 1988, the trust has significantly outperformed relevant indices, which is why it tends to trade at a premium to net asset value.

With a fund like this you get a long term view and a distinctive approach. As well as conventional equities, the trust's huge international portfolio has exposure to unquoted investments and private equity. Part of the portfolio is operated as a fund of funds "in order to ensure access to the best external talent available".

RIT is one of Collins Stewart's core recommendations for 2009, reflecting the wealth manager's focus on capital preservation above the generation of absolute returns.

For several years Collins Stewart has recommended the trust as a cornerstone investment for a diversified investment portfolio and it also selected it as a core recommendation at the beginning of 2008.

Although the price total return is still comfortably ahead of the peer group and FTSE All Share index, the share price has come under intense pressure recently. The shares now trade on a 7 per cent discount, having been at a 21 per cent premium on 7 October.

Collins Stewart regards this as an attractive opportunity.

At the end of September, exposure to quoted equities and long equity funds represented around 55.4 per cent of net assets while unquoted investments and private equity partnerships were around 20.6 per cent (adjusting for the sale of MessageLabs) and 13.1 per cent of net assets respectively. The hedge fund weighting is now just 3.4 per cent of net assets.

Since then, the trust has increased its cash, government securities and money market fund balances from £350.2m at 30 September 2008 to £515.9m at 31 December 2008.

Collins Stewart highlights the trust's recent sale of MessageLabs, at a significant premium to carrying value, as demonstrating that it is still possible to realise unquoted investments. Plus another top holding, Robin Hood Holdings, is performing strongly and the valuation was increased by 79 per cent in the interim period to the end of September.

The stockbroker notes: "Undoubtedly, the market has been spooked by the trust's private equity exposure; while this is likely to be a drag on short-term returns, we believe it is wrong to simply apply a 'look-through' approach from the listed private equity sector."

Also, the 2 per cent stake in Atticus Global may raise some eyebrows - the New York hedge fund chaired by Nathanial Rothschild has lost billions of pounds in 2008 after underestimating the global economic slowdown.

Key fund data:

Note: Investment portfolio at 30 September 2008

Source: Datastream and * Morningstar

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