RIT Capital Partners is my oldest position so it’s tempting to view it through rose-tinted glasses. I first picked up shares in this investment trust back in 1996 and its conservative approach still appeals today.
Having reviewed RIT in my first blog post several months ago, the release of its 2018 results seems like an appropriate excuse to check in again.
The long-term view
I paid just 234p for my first slice of shares through a savings plan in December 1996. The share price is now just north of £20. My initial gain, admittedly on just a handful of shares, is 775% before taking dividends into account.
My average purchase price is quite a lot higher at 780p. I’ve topped up on several occasions, most recently in 2015.
I suspect that, including dividends, I’ve roughly tripled my money. Not too shabby for what’s supposedly a safety-first investment!
That probably sounds a little smug. But I think it’s good to look back at ancient investment decisions like these. You need to remind yourself that the best thing to do is to sit on your backside rather than endlessly fiddle with your portfolio.
The FTSE 100 was about 4,200 when I first invested in RIT. At 7,150, it’s up 70% over the same timeframe.
True, if you factor in dividends the gap narrows a lot. RIT has probably yielded 1% on average during the time I have owned it, whereas the FTSE 100 has probably paid out 3% a year.
Against global markets, the outperformance has been similarly impressive. Since RIT launched in August 1988, its shares have returned 12.1% a year. The MSCI All Country World index has produced an average of 6.7%.
The short-term view
A lot of this outperformance was delivered when RIT was a much smaller operation of course. Now, with assets of nearly £3 billion, it’s far less nimble.
Its latest factsheet shows the following performance stats:
|As of 31 Jan 2019||3 years||5 years||10 years|
|RIT net asset value||28.4%||49.7%||132.5%|
|MSCI All Country World||43.7%||60.9%||209.6%|
Ten years of ever-climbing markets have been a tough comparator for the capital-preservation strategies that RIT adopts.
It claims to have “participated in 74% of the market upside but only 39% of the market declines” since 1988. When there’s mostly upside, as has been the case for the last decade, it’s likely to lag behind.
However, you can see its resilience from its 2018 performance. RIT’s net asset value edged up 0.8% although its share-price return was -1.0%. The MSCI All Country World declined by 5.8%. That’s a comfortable win.
Digging into the component pieces, RIT’s private equity investments, such as the Acorn coffee business, did well. But its preference for both Asia and resource companies were a drag on returns.
I think it’s pretty unlikely that RIT will open up a major lead over global markets over the next 10 years. But I also suspect that global market returns won’t be anywhere near the 12% a year we’ve seen over the last decade.
Somewhere between 6-9% seems like a more likely outcome, although I’m aware how futile such forecasts are. RIT, which should provide a steadier performance than the broader market, still seems like a decent place to invest.
The premium problem
The premium to net assets remains a barrier to any new investment for me. It was 5.2% as of 31 January 2019 but has probably widened a little since then. It averaged 7% over the course of 2018.
It’s a fairly recent phenomenon mind you. While RIT has consistently traded at a premium for the last four years, it suffered from a discount for the three years prior to that.
The three years before that, from 2009 to 2012, it bounced around from premium to discount every several months, seemingly quite unable to decide the decent thing to do.
The shift from discount to premium has definitely boosted returns over the last several years. But I would be very surprised if the premium widened further to any significant degree even though, unlike many investment trusts, RIT doesn’t issue new shares in an effort to keep its premium down.
Indeed, RIT had 165 million shares when it listed in 1988 and it has 155 million today.
The state of play
RIT’s results are worth reading as Lord Rothschild, who turns 83 next month, usually has very sensible things to say about the state of the markets.
Here’s how he views them right now:
In the current year stock markets have, so far, shown significant gains. We remain however cautious about future prospects for markets, concerned over the accumulation of downside risks.
Global growth is declining, with the IMF having further reduced its forecasts. The weakest Chinese GDP growth in nearly three decades is clearly having an impact on other regions, while German manufacturing output has contracted for the first time in four years.
The most recent retail figures in the US lead one to believe that the economy will find it difficult to repeat last year’s fiscal-fuelled results.
Against this weakening backdrop, geopolitical risks have not subsided. We are surely witnessing the worst political situation in the United Kingdom since the Suez crisis, while social unrest and populism in a number of European countries cloud the future.
The question is whether current stock market valuations discount these concerns and take into account the likelihood that corporate profits are on the way down, undermined by reduced demand, increased wages, and higher input costs (due to tariffs).
We therefore anticipate a continuation of heightened market volatility. In these circumstances, capital preservation will remain as high a priority as any in the management of your Company’s interest.
The Suez comment, as you might expect, has been pretty widely reported. And it’s hard to argue with.
One thing that’s a little strange given RIT’s conservative stance is that it uses gearing. It’s relatively modest at 11.5%. Still, it seems at odds with the above comments on the state of the markets.
While I am being picky, the following phrase from the results commentary feels a bit overstated:
2018 was the most difficult and treacherous year for investors since 2008, with negative returns in all major asset classes.
Now 2018 certainly felt tough for several weeks, but it seems a stretch to call a 6% decline in global markets treacherous.
I would say that the real problem is that we’ve been spoiled these last 10 years. Investing, by and large, has been a cakewalk.
In for the long run
I’m not entirely clear on is how involved Lord Rothschild is these days.
As Chairman, he took home £1.4m last year, including a £1.05m bonus/long-term incentive, suggesting he’s still very hands on. However, part of his remuneration was a £50,000 pension allowance, which seems bizarre given he is in his early 80s.
However, the main stand-out for me from these results is how little has changed at RIT over the last year. That’s not a bad thing of course.
Looking down its list of investments, there’s been a few position changes but nothing seismic. And dividends are being increased by 1p to 34p, the same level of increase we’ve seen for the past few years.
The Rothschild family owns 21.35% of RIT — a stake worth around £680m.
My own position is rather smaller! However, it’s still one of my largest holdings and I expect it to remain so for a little while yet.
Please note that I may own some of the investments mentioned above. You can see my current holdings on my portfolio page and the index page summarises all my posts by category. Nothing in this article or on this website should be regarded as a buy or sell recommendation as this site is not authorised to give financial advice and I'm just a random person writing a blog in his spare time. Always do your own research and seek financial advice if necessary!
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