As an investment journalist, I tend to assume that everyone has heard of RIT Capital Partners (LSE: RCP) – otherwise known as the Rothschilds’ publicly quoted investment trust. Think of it as a listed private office where you get to co-invest alongside Lord Rothschild. Precisely because this is such a rare structure – a wealthy family willing to share its deal flow with the rest of us – we humble scribblers assume that everyone must be in on it. So I’m still shocked when I meet people who are unfamiliar with it.
So what exactly does RIT do? The fund’s managers seek to identify key macro themes, and then construct a portfolio through a combination of high-conviction stocks (both listed and unquoted) and investing alongside specialist third-party managers. It’s not a pure absolute-returns approach, but it’s certainly a defensive, long/short strategy (buying equities expected to do well; selling those predicted to fall) with a bias towards equities and managers who engage in very active asset allocation.
For example, the fund’s current investments include individual equities such as chemicals company Air Products, Walt Disney, and Coca-Cola. Looking at third-party fund managers, in the long-only space the trust has money invested in Morant Wright in Japan, BlackRock Frontiers in emerging markets and HCIF Offshore in biotech. In terms of direct private business investments, they also have decent sized stakes in tech firm Dropbox as well as asset manager Rockefeller & Co.
The strategy seems to be working. Since inception in 1988, RIT has participated in 76% of the market upside, but only 39% of the downside. Its total return in net asset value (NAV) terms has compounded at 11.6% per year since 1988, significantly ahead of global equity markets (the MSCI World and the FTSE All Share have delivered annualised total returns of 8% and 8.8% in sterling terms, respectively). Over the last ten years the fund has doubled its net asset value and share price.
However, RIT’s appeal isn’t purely based on performance. Lord Rothschild has been chairman of Rothschild Investment Trust since 1971 and remains a powerful intellectual force within the business. He and his family are still the largest shareholders with a holding of 21%. It’s great that the chairman has vastly more than me to lose from the fund – but if he’s a dominant voice in key meetings, what happens when he’s gone?
Thankfully, in recent years the fund has gone out of its way to build a next generation of key managers and directors. At varying points, concern about Rothschild’s successor manifested in the shares trading at a discount – something of a first for what has been a loyally held fund. But that’s now changed and the last time I looked the fund was at a 5.3% premium to its book value. That doesn’t make the shares cheap, but it’s not heinously expensive either.
Despite the fund’s defensive posture, investors shouldn’t assume it will be immune to ups and downs – as I noted above, this isn’t a pure absolute-returns fund. In the global financial crisis of 2008/2009 the fund’s shares peaked at £12.05 and then fell to £9.78 in December 2008 before hitting a bottom at £7.70 in early March 2009. In total from peak to trough that’s a fall of 36%.
So there will inevitably be some volatility – but if you can stand that, you get all the hard work on asset allocation done for you, especially in the field of currency exposure. The fees aren’t bad either, with a total expense ratio of 1.25%, and you get a combination of both public listed businesses, big private companies and more entrepreneurially minded fast-growing businesses, such as Dropbox. In sum, RIT still ticks a lot of boxes. Overall, I see this trust as a core long-term holding that should deliver solid, if unspectacular, returns.