IC Top 100 Fund RIT Capital Partners (RCP) used to be the go-to investment trust for investors seeking a cautious wealth preservation approach and good long-term returns, and as a result traded at a premium to net asset value (NAV). But poor performance over the last few years mean this trust has underperformed both its reference index, MSCI World Index over one, three and five years, and the average global growth trust in terms of share price return. This has caused the trust to move to a discount, which at 9.18 per cent is now significantly wider than its 12-month average of 5.47 per cent.
- New manager
- Wide discount to NAV
- Diversified portfolio
- Protection in downturn
- No guarantee performance will turn around
- Lack of transparency
- Performance fees
But a number of analysts argue that this is a good opportunity to buy in because due to a number of changes this once popular trust could do well again. These include Winterflood, which has added it to its list of recommended investment trusts together with Witan (WTAN), replacing IC Top 100 Funds Scottish Mortgage (SMT) and Personal Assets (PNL).
"RIT Capital Partners shares many of the attributes of a family office with an emphasis on long-term capital growth and capital preservation," comment analysts at Winterflood. "The portfolio is highly diversified both by asset classes and individual holdings. RIT Capital Partners has a strong long-term performance record with the NAV up 208 per cent over the last 10 years (to July 2013) compared with 137 per cent for the MSCI World index. However, more recent performance has been affected by the portfolio's defensive positioning over the last few years, despite a number of unquoted realisations. This has seen its discount widen and this is wide by historic standards, one of the reasons why it offers an opportunity at present."
| IC TIP RATING | |
|---|---|
| Tip style: | Speculative |
| Risk rating: | Medium |
| Timescale: | Long term |
The trust appointed a new investment director, Ron Tabouche, in September 2012, who used to work at GAM most recently as head of investments. "This follows a period of quieter performance for the fund and the hope will be that this can be improved," adds Winterflood. "When this does occur the fund could see its discount tighten again."
Key changes made in the past year include new investments focused on the US and Japan. For example, in March 2011 geographic exposure to North America stood at 32 per cent, but at the end of May this had risen to 42 per cent.
Read more on RIT Capital's strategy changes
"We would expect this conservatively-managed portfolio to be relatively resilient during periods of heightened equity volatility," says Mick Gilligan, head of research at broker Killik. "The quality of the portfolio and the management is not adequately reflected in the current rating. This trust has consistently traded at a narrow discount or premium and the current 9.18 per cent level looks attractive."
There is no guarantee that performance will turn around, however, and as the trust has performance fees with regard to some of its external managers, an improvement could mean a higher ongoing charge.
The trust does not update its top 10 holdings on a monthly basis like most other mainstream funds available to retail investors, so when you buy in, it is not always entirely clear what you are holding. It reports its holdings every six months and does publish them in full. RIT Capital argues that it is not necessary to publish a list of top 10 holdings every month because as a long-term investor the holdings don't change much from month to month.
And Oriel Securities, while rating the fund 'positive', notes as a key negative that "communication with the market has been poorer than for peers, especially in terms of regular NAV reporting".
However, if you were a fan of RIT Capital Partners in the past or believe the new manager can turn around performance, and want something which should hold up well in a market correction, on its current discount of 9.18 per cent now may be a good opportunity to buy.
RIT CAPITAL PARTNERS (RCP) | |||
| PRICE | 1250p | GEARING | 98% |
| AIC SECTOR | Global Growth | NAV | 1353p |
| FUND TYPE | Investment trust | PRICE DISCOUNT TO NAV | 9.18% |
| MARKET CAP | £1.94bn | ONGOING CHARGE | 1.37% |
| SET-UP DATE | 15 June 1988 | MORE DETAILS | www.ritcap.com |
| YIELD | 2.24% | ||
Source: Morningstar
| 6-month cumulative share price return (%) | 1-year cumulative share price return (%) | 3-year cumulative share price return (%) | 5-year cumulative share price return (%) | |
| RIT Capital Partners Ord | 12.43 | 18.74 | 31.78 | 42.09 |
| MSCI World NR GBP | 17.06 | 28.83 | 46.60 | 68.14 |
| Global Growth Trust average | 11.04 | 20.68 | 38.09 | 55.61 |
Source: Morningstar
Performance data as at 15 July 2013
TOP 10 HOLDINGS as at 31 December 2012
| RIT Global Quality | 12.5 |
| BB Life Sciences | 3 |
| Findlay Park | 2.9 |
| Cedar Rock Capital | 2.7 |
| Infinity Data Systems | 2.2 |
| Titan Partners | 2 |
| Gaoling | 2 |
| Independent Franchise Partners | 1.9 |
| Viking Long Fund III | 1.9 |
| Augmentum I | 1.9 |
Source: Winterflood
Asset allocation as at 31 May 2013
| Quoted equity - externally managed | 48 |
| Quoted equity - internally managed | 21 |
| Unquoted - funds | 14 |
| Unquoted - direct | 10 |
| Real assets | 4 |
| Absolute return & credit, government bonds and currency | 3 |
Source: RIT Capital Partners
