Yahoo Finance Questor: this trust’s charges appear eye-watering, but impressive returns make it worth keeping
After a bumpy start to the year, there is much to be said for an investment trust that has the potential to benefit from rising markets, but can also protect capital on the way down.
This is the aim of RIT Capital Partners, the £4bn trust founded by Lord Rothschild, which claims to have benefited from 74pc of the market’s rises since its listing in 1988 but only 38pc of market falls.
It is typically grouped together with other “multi-asset” trusts such as Ruffer Investment Company and Capital Gearing, discussed here last week. However, there are some important differences to consider.
The first is RIT Capital Partners’ higher allocation – 38pc of the fund – to private firms via direct investments and funds. The trust also holds quoted shares, hedge funds, bonds and currencies.
“With the unquoted assets, you get the impression that Lord Rothschild’s connections help, as the trust gets access to deals you don’t typically see in other London-listed private equity funds,” says Mick Gilligan of Killik, the wealth manager.
“In the past year the unquoted portfolio accounted for a big proportion of the return.”
Investments include digital disrupters such as taxi-hailing company Bolt and Coupang, the South Korean ecommerce business that enjoyed a blockbuster flotation in March last year.
The approach taken by RIT is also less defensive than its rivals. It typically offers greater participation in rising markets, which helps to explain why it has delivered better long-term returns. Over the past decade it has grown its assets by 161pc, compared with 87pc for Capital Gearing and Ruffer’s 71pc, according to Numis, the broker.
However, the quid pro quo is that RIT is more likely to feel the effects of a market crash. This was evident in the Covid-induced sell-off in 2020, when its shares plunged by 28pc. While this was less than the FTSE All-Share’s 31pc drop, it compares with an 8pc fall for Capital Gearing and a 2pc gain for Ruffer.
Since then, investors appear to have questioned RIT’s wealth preservation credentials: its shares have consistently traded at a discount, by contrast with its persistent premium over the previous five years. Today it trades at a discount of 7.4pc, which is less than last month’s 14pc.
Gilligan adds: “If you look at share price performance, at times RIT has been just as volatile as any other global equity trust, but if you look at the net asset value (NAV) performance it is a different story.” This is because RIT offers investors something genuinely different: six investment strategies across the portfolio, access to the potential disrupters of tomorrow and a firm focus on managing risk.
As the trust was set up to manage the Rothschild family’s wealth – they still have more than £800m invested – capital preservation remains front of mind for the management team. We see no reason for this to change.
Charges are a big sticking point though. While RIT’s headline ongoing charge is 0.72pc a year, the total costs associated with running the trust (which include external managers’ fees and performance fees) come to an astonishing 4.85pc, according to the most recent figures.
This can be explained: it reflects a strong year for the underlying funds and investments held in the portfolio, which meant performance fees were due. The trust’s managers describe those fees as a “necessary cost” associated with unique deals and difficult-to-access fund managers.
“You probably have to take the view that you are only going to pay that much in a good year or when there has been a good exit [from an investment],” Gilligan says.
Questor is acutely aware of the impact of high charges on returns and will continue to monitor this situation. For now, RIT Capital remains a hold.
Questor says: hold
Ticker: RCP
Share price at close: £25
Update: Allianz Technology
Walter Price is to step down as manager of the Allianz Technology trust after almost 15 years at the helm. Mike Seidenberg, his colleague of 13 years, will take over in July. The move coincides with a challenging period for the trust, whose shares have slumped by 24pc since the start of the year as investors have shifted out of fast-growing technology shares, questioning the promise of their future earnings, in favour of “value” stocks.
For investors who want technology exposure we think this will remain a well managed fund. Hold.
Questor says: hold
Ticker: ATT
Share price at close: 267p
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