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Rothschild: we face greatest geopolitical risk since WW2
Lord Rothschild, chairman of RIT Capital Partners, says global fund has 'moderate' exposure to shares amid heightened world tension.
The world faces greater geo-political risk than at any time since the end of the Second World War, as unemployment threatens European prosperity and the Middle East erupts, Lord Rothschild has warned.
Rothschild, chairman of RIT Capital Partners (RCP ), said the £2.4 billion global investment trust was maintaining a ‘moderate’ exposure to equities (shares) as it grappled with the fact that stock markets were hitting all-time highs despite last year’s disappointing growth in the world economy.
RCP, which looks after the Rothschild family’s wealth as well as the savings of private investors, aims to protect shareholders’ capital while delivering long-term growth. Rothschild said this was a complex task given the frightening state of global politics.
‘We are confronted by a geopolitical situation perhaps as dangerous as any we have faced since World War II: chaos and extremism in the Middle East, Russian aggression and expansion, and a weakened Europe threatened by horrendous unemployment, in no small measure caused by a failure to tackle structural reforms in many of the countries which form part of the European Union,’ he said in a statement accompanying the 2014 results.
Rothschild suggested this was not a time to be too bearish or negative. ‘However, in a world of zero or even negative bond yields, equities may well remain the destination of choice for investors.
‘Furthermore, the majority of companies are reporting profits exceeding forecasts together with steady earnings growth. In Europe, the combination of a more competitive euro, an aggressive programme of quantitative easing and the yields available on equities, may well lead to even higher valuations.’
RCP achieved a 9.5% total return on its investments last year, nearly half what it achieved in 2013. However, shareholders’ total return was higher, at 13.3%, reflecting a narrowing in the shares’ discount to net asset value as the trust returned to favour after a period of underperformance.
It has enjoyed a good start to 2015 too, with the shares up nearly 9% since the New Year, on a discount to NAV of -3.8%.
In the two years since Ron Tabbouche replaced Micky Breur-Weill as the fund's manager shareholders have received a total return of 29%, the company said. It paid 29.4p in dividends in 2014 and intends to raise this by 2% to 30p this year.
Over five years, according to the company’s figures, RCP has generated a 48.4% portfolio return, below the 62.6% from the MSCI All Country World benchmark it uses. Over 10 years it has delivered 139.3% growth, beating the 104.8% index return,
Unlike many of its rivals in the Global Growth sector RCP does not only invest in shares of companies listed on stock exchanges. It also invests just under a quarter of its assets in private, unquoted companies, such as a stake in fund manager Martin Currie, which it sold to Legg Mason last year. It allocates nearly 17% to hedge funds aiming for positive returns in all conditions and has just under 4% in ‘real assets’ such as property and gold.
RCP’s net holding in quoted equities dipped from 59% to 56% last year, generating nearly half (4.7%) of its investment return, followed by 3.1% from private investments, 3% from the strength of the dollar and 1.3% from holdings in absolute return and credit. Government bonds and cash lost 1.2% and 1.5% respectively.
RCP claims its diverse investment approach has enabled it to capture 75% of the upside in markets while suffering only 38% of the declines since its launch in 1988.
According to the annual report its largest single investment is a 4.2% position in HCIF Offshore, a biotechnology fund run by Baker Brothers Life Sciences Capital in New York. Samsung Electronics of Korea is among its largest quoted equity investments, accounting for 2% of the fund at the end of 2014. On the private equity side, 1.3% of assets are invested in Williams & Glynn, the ‘challenger’ bank being spun off from Royal Bank of Scotland (RBS). Earlier this year it revealed a small position in Alliance Trust (ATST ), a rival global trust under pressure to improve performance.
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In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.
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by Gavin Lumsden on Jan 20, 2017 at 17:01