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RIT Capital Partners: great trust, but too popular?

RIT Capital Partners is one of the best-loved investment trusts around, but the fund has one fatal flaw: it’s expensive.

RIT Capital Partners: great trust, but too popular?

RIT Capital Partners is one of the best-loved investment trusts around, but the fund, founded and chaired by Lord Jacob Rothschild, has one fatal flaw: it’s expensive.

And even though shares in RIT have fallen in recent days after it revealed a decline in assets in its half-year earnings, the trust is just as popular as ever. We examine the reasons for this, and the difficulties investors face in accessing well-regarded and well-run investment trusts.

RIT Capital Partners is one of the best loved investment trusts around, but the fund founded and chaired by Lord Jacob Rothschild has one fatal flaw: it’s expensive.

And even though shares in RIT have fallen in recent days, after it revealed a decline in assets in its half-year earnings, the trust is just as popular as ever.

The trust posted a 9.6% fall in total net assets to £1.79 billion in the six months to the end of September, in the wake of what Lord Rothschild branded ‘some of the most torrid markets’ of his life.

The shares have shed 5% of their value since the results were published on Tuesday, missing out on strong rally in the wider London market – and yet their premium to net asset value has remained doggedly above its average of 3.4%.

This underscores the ongoing popularity of RIT with investors, as well as the difficulties one faces in accessing well-regarded and well-run investment trusts.
 
Founded in 1961, RIT seeks to invest in a widely diversified, international portfolio across a range of asset classes to deliver long-term capital growth. As such, it holds both publicly traded and privately held companies.

RIT has given total returns of more than 7% in the past year, beating the FTSE World index, an informal benchmark, which lost a fraction of a percent. And in the past five years, the trust has taken on 33% against the 19% for the index.

Lord Rothschild, who is also the trust’s largest shareholder, said that amid the recent market turmoil, RIT had reversed its focus on industrial commodities, trimmed its emerging market investments and increased selected short futures positions.

Citing $400m of debt as an additional source of liquidity, he added that the trust sought to identify areas of opportunity beyond the present uncertainty, including in distressed assets that European banks might be forced to sell at discounted prices.

But these plans and the trust’s long-term performance are not enough to justify its premium, Oriel Securities said in a note on Wednesday, branding RIT ‘overvalued’. Oriel said the shares should trade no higher than at a discount of between zero and 5%.

The broker said a 5% discount would imply that the market was marking down RIT’s private equity portfolio by 20% – significantly less than the typical 35% discount on which many listed private equity funds are trading.

There are also, however, good reasons for the current premium. The trust is a star pick in our Citywire Selection list of investment recommendations due to its mix of capital preservation and the prospect of growth, alongside its diversification and cautious mindset.

Admittedly, the portfolio includes a 25% exposure to private equity investments, posing possible downside risks at their next valuation points in December and next March. But those holdings are long-term and will only be realised over time, rather than sold at a potential loss in the coming months.

The premium may certainly discourage investors from entering now – but it does not mean they should not keep an eye on the trust, and hope to buy on the dips.

4 comments so far. Why not have your say?

orchardsparks

Dec 04, 2011 at 12:40

As RIT is my largest holding I am grateful to you Max for your comments. I had already been taking some profits above £13 but, when they went up to their all time high at £13.65, I assumed somebody knew something I didn't. When I saw that NAV had fallen I immediately took a small profit and bought back the following day.

I am now looking, as Max says, to buy on the dips. By the way Murray Income Trust, heavily promoted on this website, is on a 7% premium to NAV, although of course it does give a good yield.

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David 111

Dec 05, 2011 at 10:38

Is RIT really that good. Over three years it ranks 29 out of 34 in the Global Growth sector.

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martin hargan

Dec 05, 2011 at 12:44

me too just so long as Jacob is in charge.

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sgjhaghsdg

Feb 08, 2012 at 15:17

I just picked up a chunk of RIT on a discount in my SIPP. I'll grab another chunk if the discount widens and the leave it alone for a decade or so.

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