RIT Capital Partners, the global growth trust which provides the investment vehicle for Lord Jacob Rothschild, has started taking a profit on its gold holdings.
The trust has released final results showing a total return of 9.3% on its portfolio compared to the 5.2% for the MSCI World index over the period to the end of March 2011.
Rothschild told investors the trust has ridden the rally in gold prices but will now incrementally sell down. 'Real assets...were a major contributor to performance with a return of around 28% on our average exposure of 13% to these strategies. Funds invested in oil and gas shares, as well as exposure to gold and via futures, were the primary drivers of return. More recently, we have made some reductions to our exposure to these areas.'
Rothschild said that investors should recognise the possibility that the leadership in global markets, that has been occupied by commodity prices over the past decade, could be coming to an end. He cited Jeremy Grantham's recent research to argue that the trust must prepare for a new era where quality growth companies experience returns eclipsing commodities.
'There is I believe a growing awareness of the dangerous position which confronts many countries, particulary those in the developed world. In spite of these concerns, we continue to take advantage of areas that we believe are attractive, but we will remain cautious in terms of the quantum of capital that we allocate,' said Rothschild.
'For instance, your company has benefitted from the rise in commodity prices. Yet a noted US strategist has pointed out that commodity returns relative to equity returns are at a 200-year high on a rolling 10-year basis.
'We are not alone in having noted the attractive level of valuation of many quality companies, eclipsed till now by commodity and cyclical companies. After a decade of commodity leadership, a shift to a new regime is a possibility.'
Rothschild also warned on the fragility of the US economic recovery and argued that European growth is likely to slow as deficit reduction programmes continue.
'It is likely that the withdrawal of fiscal and monetary stimuli which will surely come soon will have an impact on global growth, indeed there is already evidence of some slowing down,' he said.
The trust is responding by keeping a high store of liquidity. Some 15.4% of the trust in invested in liquidity assets with 14.7% in individual shares, 39.1% in funds and the reminder in private equity, fixed income and real assets.
The trust is also actively involved in founding a new asset management company with Bill Winters, the former co-chief executive of JP Morgan Investment Bank who was once tipped to lead the whole of the banking firm. It has also made a move into Chinese private equity over the past year.
The trust will pay a 4p dividend. It continues to stay in favour with investors as the most highly-rated global growth trust and is standing at a 3% premium.