RIT Capital Partners: Cautious and diversified approach protects capital

This investment trust held up well in 2018 amidst a difficult period for markets.

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  1. Rob Morgan

2018 was a challenging year for investors with major share markets markedly lower and not many areas offering positive returns to compensate. RIT Capital Partners Investment Trust was one of the few funds that held its ground, testament to its prudent and diversified approach.

RIT Capital is an investment trust with a broad portfolio of assets. By owning a diverse range the overall aim is to beat inflation while limiting the ups and downs usually associated with investing in the stock market.  Shares make up the core, represented by managed funds and some individual stocks, and this is supplemented by bonds, absolute return funds, investments in private companies and the ability to add downside protection through derivatives.

Performance has typically lagged in periods of rising share markets given that a proportion of the portfolio is invested in defensive or infrequently-valued assets, but it has tended to be more resilient during weaker periods – a good example being last year.

There was a 0.8% return on the fund’s net assets in the year to 31 December 2018, compared with a fall of 5.8% for the global equities index it uses as an informal benchmark. It did, however, undershoot its other benchmark of retail price index (RPI) inflation plus 3% a year, which came in at 5.7%.

During a volatile year the managers maintained their cautious stance, with equity exposure averaging 47% having been reduced in advance of the sharp falls in the final quarter of 2018. This continues to be diversified by asset class with long-term strategic allocation to fund managers investing in Asia, notably China and Japan (both of which proved a notable drag on returns in 2018), as well as the US.  There is also some exposure to more specialist areas including biotechnology and hedge funds.

As well as a reduction in equities towards the end of 2018, exposure to US government bonds (via call options) and gold helped stabilise the portfolio amid the ‘flight to safety’ towards the end of the year. In addition, around a quarter of the portfolio was, and remains, in absolute return and bond strategies that are selected to deliver stable returns not correlated to markets.

One of the main differentiating factors of RIT Capital is the exposure to selected private investments, which are made directly, alongside established partners, or through specialist third-party funds. RIT has access to leading private equity funds through its well-established network. These sorts of investments are ordinarily out of reach for private investors but can provide a rich source of returns as well as important diversification.

2018 was an active year for the direct private equity portfolio, with the completion of the sale of Rockefeller and the flotation of Dropbox. In addition, a new investment was made in Coupang, South Korea’s leading online consumer business, which benefitted from a significant uplift in value in the second half of the year following a further investment from Softbank. A position in Acorn, a coffee company, also fared well, although Helios Towers, an African telecommunications towers business, was reduced in value after it abandoned plans for a stock market listing.

Our view

RIT Capital has an exceptional long term track record through a differentiated and unconstrained approach seeking to deliver long-term growth, while preserving capital. These twin aims fit well with the needs of many private investors. However one drawback for new investors is that shares are currently trading on a premium to net asset value of around 9%, which is high relative to history.

It is also necessary to assess the relatively high “all in” costs. RIT Capital’s ongoing charges figure (OCF) was calculated as 0.68% in 2018. However, overall charges were inflated further by fees associated with underlying third-party manager investments including in respect to performance fees, which were unusually high as a result of strong returns. We therefore note that the current ‘TOC’ (or Total Ongoing Charges figure) is unusually high. We believe the company’s industry connections and use of specialist managers are crucial to its impressive track record, but it does means that overall expenses are likely to be higher than most of its peers.

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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