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Lord Rothschild warns 70 years of prosperity at risk

'There could well be a period ahead of us when the avoidance of risk is as high a priority as the pursuit of gain,' warns RIT Capital chairman.   

 
Lord Rothschild warns 70 years of prosperity at risk

More than 70 years of hard work in creating the post-war, rules-based systems of trade and mutual self-interest is in danger of being thrown away, RIT Capital (RCP ) chairman Lord Rothschild has warned.

Writing in the full-year results for the £2.7 billion investment trust, he added that the portfolio was likely to maintain the defensive posture it has adopted in the past year, having run down its equity and sterling exposure, adopted a short sovereigns position, and upped its absolute return allocation.

‘Since the last World War, we have enjoyed some 70 years of patiently crafted international cooperation, which is now threatened,’ Lord Rothschild wrote.  

‘Against this deeply worrying geo-political situation one can point to a number of positive investment factors, for example in the US, the proposed tax reduction for companies and individuals, reforms of an over-regulated system and increases in fiscal and infrastructure expenditure.

‘These, however, come at a time late in the business cycle, when the labour market is close to full employment, with wage increases up by some 4% over the last few months.

‘Valuations are at the high end of their historical range, inflation is returning and in these circumstances, it is likely that interest rates in the US will rise meaningfully.’

Active currency positioning proved to be a significant contributor to full-year performance, returning 9.6% on a total portfolio return of 12.1%, as dollar exposure rose to almost two thirds of assets.

The shares currently trade at a premium of 4.8%, down from close to 8% last summer in the wake of Brexit.

Both the beginning of the Brexit negotiations next month and the fallout from the departure from the European Union were likely to keep the portfolio on the defensive, Lord Rothschild added, although over the long term a deterioration in the terms of trade between the US and China may be more damaging.

‘The impact on China of either straightforward tariffs or of a "border-adjusted tax" would be negative, at a time when Chinese economic momentum is fading and when it has to deal with the problem of misallocation of capital on a huge scale.

‘China will be choosing between becoming a more open or closed society and while its economy transitions from industrial growth and exports to being more consumer-led.

‘In these circumstances, our positioning is likely to remain defensive, with an emphasis on returns uncorrelated to the overall performance of equity markets.  

‘The success of our asset allocation depends on capturing the right market themes, the excellence of our external managers, stock selection, private investments and a continued emphasis on absolute return and credit strategies.

‘At this time of upheaval and uncertainty, our investment portfolio will continue to be well diversified. There could well be a period ahead of us when the avoidance of risk is as high a priority as the pursuit of gain.’    

37 comments so far. Why not have your say?

Ivan Kinsman via mobile

Feb 28, 2017 at 11:32

A very prescient overview of the current global situation in terms of opportunities and threats. With Donald Trump in the White House, think it best to adopt a defensive position for some time to come.

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William Phillips

Feb 28, 2017 at 13:25

At the end of WW2 the United States, behind the facades of the United Nations and NATO, 'patiently crafted' an international order which inaugurated a nuclear arms race- and that nearly resulted in the world being blown to bits in 1962. Then came an oil shock and hyperinflation, defused by a massive run-up of debt which almost capsized the world's financial system, and may yet do so.

The American attempt to create neo-imperial 'soft power' was constantly humiliated by military reverses. The European Union, part of the new order, is collapsing. The USSR has long gone. People are fed up of political grands projets.

Life was more peaceful under the gold standard, which produced unprecedented advances in prosperity for a century until 1914. Bretton Woods essentially failed in a quarter of the time: Nixon had to float the dollar in 1970. Nor did it reconcile the Third World to being an eternal auxiliary of western finance capitalism, as Osama bin Laden and Deng Xiaoping variously demonstrated.

As Keynes's blueprint kicked in, the country which had nobly resisted Nazism for four years was suddenly remarketed as the West's deadly enemy (plus ca change) and the military industrial complex effectively acquired a veto power over American foreign policy.

Forgive us outside the magic circle of big banking families if we prefer an 'order' in which the most predatory and interfering superpower in history is cut down to size. At last the US seems to have acquired a president whose first reaction to every international squabble is not 'how do we get our boys involved?'.

The Patiently Crafted Order which resulted in Americans having to pick up half the world's 'defense' tab with 5% of its population is being reconsidered. The idea that a post-communist, still impoverished Russia is an 'existential threat' to the USA- yet somehow simultaneously the hidden hand which sabotages everything- is being widely discounted if not derided. Also apparent is the need to refurbish America's own infrastructure after distributing manna worldwide to regimes that proceed to bite the feeding hand. The Federal government's $20 trillion debt is another legacy of the order Lord Rothschild extols.

Like Wall Street and London so far, I rather look forward to a post-EU, Trumpian era of strong and confident nation states freely negotiating, piecemeal, what suits them... instead of being herded into power blocs and their ideological straitjackets. Having tried both statist demand management and 'free trade' (tempered by crony-capitalism and market rigging) perhaps we can now proceed more empirically.

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PaulSh

Feb 28, 2017 at 13:57

@William Phillips, much as I agree with some parts of what you are saying, nevertheless the lesson that history teaches us is that strong and confident nation states tend to shoot first and negotiate later.

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Ermintrade

Feb 28, 2017 at 14:04

@William Phillips - an interesting diatribe, but none of it invalidates Rothschild's view that very uncertain times require a capital preserving strategy.

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William Phillips

Feb 28, 2017 at 14:24

All times are 'very uncertain'. At least, in more than 40 years I cannot remember certain ones.

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normski 2nd

Feb 28, 2017 at 14:33

Yeah , growing up in the sixties was,nt exactly peaceful eg. the Vietnam war was ever present and also being nuked off the planet

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JohnR

Feb 28, 2017 at 16:14

Perhaps someone ought to remind Mr Phillips the profligate orange has just announced a 10% rise in US military spending. His inauguration speech sounded like a preparation for war address.

The US is descending into fascism, much like the brexit cretins want this country and much of Europe to do so as well, it seems.

No matter how bad it gets though, at least the NHS will be £350M a week better off...

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Martyn

Feb 28, 2017 at 18:13

JohnR

So you think the majority of your fellow voters are cretins! There is a chance that you will think the same about the majority of Dutch voters as well as the French! It worries me that you think the EU is such a marvellous institution and those that don't agree are cretins.

I worry about you and hope someone will catch you when you fall off your pedestal.

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JohnR

Feb 28, 2017 at 18:23

Just the majority of leave voters as evidenced.

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Squareblade via mobile

Feb 28, 2017 at 18:23

Now, now JohnR.... No need to insult those of us with a different point of view. Greece needs another 60 billion bailout on top of all the others. The EU project can only survive with full fiscal and political union. I really don't want to be governed by Juncker & Co, so very glad we are leaving.

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Julio Velarde

Feb 28, 2017 at 18:40

Much as I love Europe, I can feel only cold feet about the current state of the EU.

Consider its balm decisions: Shengen (let the criminals roam freely); the single currency (any knowledge of the history of single currencies should have warned against this move).

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ardmjd

Feb 28, 2017 at 18:49

Grateful if JohnR would define facism.

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William Phillips

Mar 01, 2017 at 02:41

The trouble with being defensive is that it can become a habit and you wind up missing an entire bear market, like Personal Assets Trust has done under Sebastian Lyon and Robin Angus.

RIT's timidity seems particularly contrarian when Wall St. has just made a run of a dozen consecutive all-time highs, the best for 30 years.

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ACM

Mar 01, 2017 at 08:41

Yes, William!

But don't forget the 'Sage' warning to be fearful when others are greedy!

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The Old Man

Mar 01, 2017 at 10:17

Lets be more optimistic, after all the US, China and even Europe are recovering if slowly, and Brexit foolishness could be turned into a success with enough hard work and determination, and may be even Trump will be tamed into becoming a less ludicrous President after all. We old men must be wary of becoming too pessimistic!

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richard tomkin

Mar 01, 2017 at 10:49

I hope his lordship's patiently crafted 70 years of prosperity is not in danger.

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CT

Mar 01, 2017 at 11:09

Well said William Phillips

and John R don't you realise that our democracy wants to move on from the treacle wading monoliths. People like you will be far happier when you drop your fearful negativity. It can only serve to make these negotiations more difficult and is the biggest threat to our prosperity.

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JohnR

Mar 01, 2017 at 15:19

Don't be so utterly ridiculous.

It isn't people like me that are going to suffer, any sorrow is for the country and the next generation who've had no say in this idiocy that stand to suffer the consequences, falling living standards, while those who delivered it on them will have departed to Walmington-on-Sky..

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Ermintrade

Mar 01, 2017 at 16:17

Oh dear JohnR! Can you accept that many people hold quite different views to you. They might be right. On the other hand, you might be right. But it is not a sure thing. Personal attacks are unwarranted.

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JohnR

Mar 01, 2017 at 16:34

They are, which is why I don't, unlike others. If the cap fits however..

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richard tomkin

Mar 01, 2017 at 22:15

Grow up,the pair of you!

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colin overton

Mar 02, 2017 at 11:14

There is a deal of uncertainty about the next 2-4 years in the US, UK and Europe. This is interpreted as high/higher levels of risk. This is laid at the door of democracy i.e. peoples' voting choices in the last year. I find it difficult to put a price on democracy and sovereignty. Would I be prepared to be 5%, 10%, 20% poorer to be "free" - if it came to it? The alternative would be lose direct democracy in any meaningful way and not only be told what I will do or else (EU) or even what to think (US liberals). I believe this is a truly difficult choice, not only for me. I have felt that the deciding factor may be the quality of politicians such as Junker, Cameron, Tusk, Corbyn and Hilary. The alternatives may be unknown and certainly more right wing. For example the EEC was a great idea, but the EU and what it may become under the likes of Hollande and Merkel is undemocratic and bulling. The EU has shown a lack of appreciation of English common law and our diverse and quite different history, its a TINA organisation. Although England was affected by Charlemagne, Louis XIV, Napoleon, Kaiser Bill and Hilter we were not devastated as were many of the leading lights of the EU, so we remain less European, more global and perhaps more independent. Under then EU does England have more independence than a US State? I do not see the need to be completely uniform as the EU seems to want. There are risks in this approach as well.

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William Phillips

Mar 02, 2017 at 13:20

It amuses me that the Remainers obsess about the risks of quitting. You would infer that the EU is a granite sanctuary of security, not a body wracked by what are politely called 'challenges'.

Watch how things go this year with the Italian banks, the umpteenth Greek bailout and the economic torture of its people, the hopeless state of French national finance, the tectonic strains that Germany's reckless immigration have imposed, and the rise of nationalist Eurosceptic parties from Holland to Hungary.

Then tell us that we are still more secure inside than halfway out, where we have uneasily lingered since 1992. It is like saying that you are safer indoors when the house threatens to collapse round your ears.

Still, we know the solution, don't we? What it has always been for the federasts: 'more Europe', an 'ever-closer union'. Good luck with that.

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JohnR

Mar 02, 2017 at 13:50

Instead we have the very real prospect of Japanese manufacturers, Chinese tycoons, money laundering dictators and anyone else who will entertain us, dictating terms to the UK government.

What's that about frying pans and fires. At least it's those most in favour of leave who will, as always, suffer the worst of it. They can always wave a flag and blame it all on the EU and those blasted foreigners, again, if all else fails.

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richard tomkin

Mar 02, 2017 at 14:42

What's all this got to do with Lord Rothschild's investment allocations?

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Tim Gatenby

Mar 02, 2017 at 14:58

So good to see you back Mr Phillips - I enjoy and value your contributions to these fora so much.

We seem to keep finding folk who have little or no confidence in their nation's ability to even survive, let alone thrive, in the absence of membership of the EU. Why so? Let us treat this as a golden opportunity to renew our relationship with the rest of the world and to use our resources to renew and develop our nation according to our own needs rather than the needs of the 27 as a whole.

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Mark Stringer

Mar 05, 2017 at 07:34

The irony of being lectured to by a Rothschild about having the goose that lays the golden egg threatened by the fox!

What next shorters crying foul because they had to pay some fund a fee to manipulate a share price!

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an elder one

Mar 05, 2017 at 21:08

Economics is the art and practice of conjecture and we who invest do our best to guess best outcomes; only discovered after events. one way or another we survive and prosper. I was nine years old at the outbreak of WW2 and lived in a rented property, with a hand pump to get water, a paraffin lamp for light, and no telephone, one may imagine the rest; this, out in the sticks of Worcestershire.

I think we can all agree things have improved somewhat materially since that time; though I was a happy lad, nonetheless; morality is another matter.

As one who voted for Brexit, I believe most of us did, not for the matter of economics which with intelligence may be resolved, but, for the matter of politics and our ability to manage our tribe's affairs as we did in 1939.

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JohnR

Mar 05, 2017 at 22:02

Dear God.

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Mark Stringer

Mar 07, 2017 at 23:21

I see the worried well of EU sycophants and Trump hysterics are out again. Christ, can't those secure units keep any of them in anymore.

I'm surprised any of them have the strength to put finger to keyboard after so many sleepless nights worrying about things that have not happened, politicians in other countries doing what all politicians do.

Haven't any of them learnt that the £350 million a week NHS funding was as relevant as the EU nirvana of imposed and oh so successful unfettered 4 "freedoms" imposed upon the feckless nations of the EU.

I've yet to meet a capable, multi-skilled and enterprising person who is afraid of leaving the cesspit of EU diktats and waste, but plenty of one trick ponies who need the mirage of nanny EU to change their nappies.

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JohnR

Mar 07, 2017 at 23:34

The words you're looking for with regard to the £350M a week are gullible simpletons and deceitful lies. Worked a treat.

As for hysterics...

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Mark Stringer

Mar 08, 2017 at 07:58

But the ever so honest and inclusive EU's track record of propriety stands head and shoulders above all else.

You seem to have fallen into the worried well and hysterics trap of assuming that because the self entitlement remainers, who have no morale fibre assume that people of substance actually believed any of the headline nonsense needed to counteract Osbourne, the Establishment, shill media and the B of E's £4,000 each we will all lose, how the Ryan Air mentality of lost EU subsidies (who pays for the subsidies?).

What do you fight propaganda with, more propaganda.

If this is what the bed wetters do when the media winds them up, lord alone knows what would happen if a real crisis hit like a lost iPhone, EasyJet flight cancellation or Trump ate a bacon sandwich without getting the worried wells permission.

Hysterics? Yes, I see so many demonstrating on forums, in the streets or as fodder for tv journos about something that has wound them up because they need the constant reassurance of a guiding hand that nanny will look after them.

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richard tomkin

Mar 08, 2017 at 11:01

And all this started with a discussion of RIT's latest set of results....!! Dear,oh dear.

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Mark Stringer

Mar 08, 2017 at 11:33

I thought it was initially about a puff piece on Rothschild moaning about the cost of a free ride.

Well, because of the way that the "global village" works apparently, everything is interconnected. Someone makes a comment about their child being the only native English speaker in a class of 45 and the media reports 'Trump launches a nuclear attack on the UK and 4,000 children die in Syria'.

Unfortunately, nothing is 'just about' any longer.

Gina Miller fronts a campaign to 'protect our democracy' when she (and the hidden agitators) are really afraid of losing the 'hunt the lady' three card trick from their W1 Mayfair offices.

It is naïve to imagine that there is not a constant battle between people of substance and frightened sheeple and it's played out on forums because we cannot arm ourselves!

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Drake

Mar 08, 2017 at 12:09

Quite a lot of you chaps seem to be on the wrong website. This one is about investment. I can only assume that the female of the species has realised this.

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Mark Stringer

Mar 09, 2017 at 09:28

Drake, how the hell do you tell nowadays given the seemingly vast number of confused people out there. Who knows who half of the nom de plumes are.

Investment? Once maybe, but it is "three card monty" now and only the chosen ones know where the "lady" is.

Anyway, here's one for the worried well to lose some more sleep over, but the New Statesman,Huffington Post and Independent are great feeding grounds for them.

England rugby anthem 'Swing Low, Sweet Chariot' is an ignorant expropriation of slave lyrics, say American academics. Protest placards can be obtained by making a cheque for £25.00 payable to "when it happens we'll let you know associates" sent to "worried well, 1, nervous disposition place, nothing to see yet town".

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richard tomkin

Mar 09, 2017 at 10:58

For the guidance of the vast number of confused people "out there",the plural of nom de plume is noms de plume.

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