RIT Capital intends to keep its exposure to sterling around record highs in the ‘increasingly challenging’ investment landscape.
In the six months to the end of June, the Citywire Selection investment company increased its exposure to the pound to a record high.
Given the global reach of the portfolio, the currency’s appreciation since the turn of the year has impacted performance, with a 2.4% return on the net asset value (NAV) underperforming the 4.1% gain on the MSCI All Country World Index over the period. In dollar the portfolio outperformed, returning 5.7%.
RIT intends to maintain this high exposure to sterling, which stood at 52% at the end of June.
The trust’s chairman Lord Rothschild (pictured) told the market: ‘Mindful of the Bank of England's continued hawkish stance we will maintain our relatively high level of exposure to sterling, a portion of which is held through options as we see risks ahead which may cause a reversal of the currency's upward trend.’
RIT’s reluctance to participate in the liquidity rally also impacted performance.
‘Given current stock market valuations, further market appreciation will continue to be influenced by central bank policy of creating money and maintaining low interest rates,’ Rothschild said.
‘We have become uncomfortable in participating in liquidity fuelled markets and are sceptical as to whether the current degree of investor complacency can be maintained.’
RIT is finding it increasingly hard to find attractively valued investment opportunities likely to benefit from structural tailwinds and not short-term monetary policies.
‘The search has become increasingly challenging,’ Rothschild said. ‘Almost every asset class is highly priced by historical standards at a time when the precarious geo-political situation in the Middle East and Russia could undermine the fragile economic recovery which central bank policy has helped to bring about.’
Against this backdrop RIT’s individual stock portfolio, which accounts for 20% of NAV outperformed.
This was thanks to the decision to increase holdings in emerging markets and Japan, while it reduced exposure to technology and growth ahead of the correction.
Returns on its external stock portfolio also fared well, although it said some the winners over 2013 had underperformed this year. RIT intends to increase the concentration here to preserve performance. ‘We continue to concentrate our holdings into a reduced number of talented managers, giving us greater focus and allowing a more meaningful impact to our NAV,’ Rothschild said.
Meanwhile the trust’s private equity portfolio, which accounts for 11.7% of assets, returned 4.6% thanks to the agreed realisations of Metron and Chart Show. The portfolio was also boosted in the second half through Legg Mason’s acquisition of Martin Currie.
The underperformance in the last six months means trust 6.7% return over the last 12 months is 8.3% below the benchmark's gain. However, over 10 years the trust has outperformed, returning 150.1% versus 105.7% in the benchmark.