A fourth quarter turnaround meant the underlying performance of RIT Capital (RCP) managed to beat its benchmark last year, but shares in the Rothschild-backed global investment trust are still under a cloud and trade 7% below net asset value (NAV). Last October the board of the GBP3.2bn multi-asset portfolio made a rare entry into the stock market buying back 20,500 shares to signal its belief that the then 10% discount on the shares was too wide. Before the Covid-19 pandemic struck world stock markets a year ago, RCP shares had traded at a modest premium for over four years.
Writing in the trust's annual report for 2020 chairman James Leigh-Pemberton admitted the pick-up in NAV at the end of the year had yet to be seen in the share price. He blamed the fact the trust does not publish a daily NAV 'and so the strong performance in December, well above market estimates, was not reflected in the share price, resulting in a discount of 9.9% at year-end'. He added that the trust will continue to 'selectively purchase shares' when it is beneficial to the portfolio, which is nowadays run by chief executive Francesco Goedhuis and chief investment officer Ron Tabbouche, who took over when RCP's founder and former chair Lord Jacob Rothschild retired.
Before the share buyback RCP's portfolio had fallen 13% in 2020 against a 6% rise in the MSCI World index. However, a 14% rally in the last three months meant by the year-end they had overseen a 16.4% rise in NAV for the year to 31 December, beating the 12.7% index return and jumping its hurdle of 3% over the retail price index (RPI), which measured 4.2%. This ensured RCP delivered its ninth consecutive year of positive returns and allowed it to maintain its strategic aim of participating in market rises while shielding the portfolio from the worst of a market sell-off.
This was achieved by the managers deploying 'relatively modest levels of market exposure' during the year, with the equity part of the portfolio averaging 43% of NAV and marked by an increasing emphasis on Asia and China. 'The book was tilted towards Asian equities, particularly China, where we continue to see value opportunities from its expanding domestic market,' said Goedhuis and Tabbouche. 'We retained our allocations to healthcare, a sector whose reputation has seen a rehabilitation as a result of the vaccine efforts,' they added.
The pair also benefited from an allocation to private, unlisted investments, that often have a technology bias. They said the private companies are often delivering 'disruptive technologies' and had benefited from the acceleration of online trends in the US and Asia during the pandemic and allowing 'us to capture pre-IPO value creation opportunities, which can be sizeable'. The fund managers predicted there could be more 'meaningful market volatility' this year given the challenges of the coronavirus vaccination programme and 'the degree of optimism we feel is already embedded in many asset prices'.
However, they said 'a smooth path to broader immunity' will pose its own risks, namely a resurgence of inflation. 'As investors seek to adjust to such a change, they are likely to demand an additional risk premium. And at a time when much of the invested capital is premised on sustained low rates and a lack of inflation pressures, a shift in the perception of these, could have a sizeable impact,' they warned.
One area where there is less uncertainty are the dividends. The growth fund intends to pay a total of 35.25p this year, an increase of 0.7% or 0.25p over last year, offering a prospective yield of 1.7%. The first dividend of 17.625p will be paid on 30 April followed by an equal second interim dividend in October.
RCP's long-term record continues to look good against other defensive global trusts. Over 10 years the shares have achieved a total return of 100%, beating the 75.9% return of the FTSE All-Share index but trailing the MSCI World's 179.6%. Its latest three-year return of 17.9%, however, has been overtaken by rivals Capital Gearing Trust (CGT) and Ruffer Investment Company (RICA) and is not so far ahead of the very defensive Personal Assets (PNL).