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RIT forges tech links but flags 'unprecedented' share prices

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RIT forges tech links but flags 'unprecedented' share prices
RIT Capital Partners (RCP) has partnered with a Silicon Valley technology investment firm to take advantage of opportunities created by the so-called ‘Fourth Industrial Revolution’.

This industrial revolution has been sparked by the development of technology, which has permeated a range of industries and technologies.

RCP, a multi-asset investment trust set up by the Rothschild banking dynasty, has entered into a partnership with Social Capital, which is led by venture capitalist Chamath Palihapitiya.

RCP will invest in a range of Social Capital’s funds. To strengthen the relationship, Francesco Goedhuis, chief executive of J Rothschild Capital Management, will join the advisory board of Social Capital. The technology investment firm is also planning to open an office in St James's Place, the same location as RCP.

‘As the “Fourth Industrial Revolution” develops, it becomes increasingly important for your company to be able to assess investment opportunities in the innovation-driven changes which are affecting almost every business sector,’ explained chairman Lord Rothschild.

The announcement featured in RCP’s half-year update, covering the six months to June. During this period, RCP’s net asset value (NAV) grew by 4%, while its share price rose by 1.7%. This compares to 7.4% by the MSCI AC World Index. Since inception, RIT has participated in 75% of market upside but only 39% of market declines. This fits with the fund’s core focus on preserving capital.

Over the six-month period, RCP’s equity portfolio performed well, while its absolute return and credit investments also delivered steady returns. This was partly offset by the portfolio’s exposure to currencies. During the period, exposure to the dollar reduced, while sterling and euro allocations increased.

Valuation warning

Lord Rothschild remains cautious on equities because valuations are creeping to all-time highs.

‘We do not believe this is an appropriate time to add to risk. Share prices have in many cases risen to unprecedented levels at a time when economic growth is by no means assured. The S&P is selling at 25 times trailing 12 months’ earnings, compared to a long-term average of 15,’ he explained.

This is happening at a time when central banks are seeking to unwind extraordinary monetary policy measures and geopolitical pressures are mounting, Rothschild said.

‘We therefore retain a moderate exposure to equity markets and have diversified our asset allocation towards equity investments where value creation is driven by some identifiable catalyst or which are exposed to longer-term positive structural trends,’ he added.

The investment team has a particular interest in areas which have the potential to benefit from new technologies. They also like the Far East, where domestic demand continues to grow.

At the end of June, quoted equities accounted for more than half of the portfolio, followed by RCP’s absolute return and credit portfolio at 23% and private investments of 22%.

The board has declared a dividend of 16p per share for October, which is in line with the April payment.

RCP currently trades at a 7.1% premium to NAV. It has steadily traded at a premium since the autumn of 2015 and has risen from around the 3% level this June.

Over the past five years, shareholders in RIT Capital Partners have enjoyed a 77.5% return, slightly ahead of a 75.2% gain by the average fund in the Association of Investment Companies’ flexible investment sector.

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