RIT Capital Partners (RCP)

01/08/2023

Results analysis from Kepler Trust Intelligence

Over the six months to 30/06/2023, RIT Capital Partners' (RCP) NAV per share total return (including dividends) was broadly unchanged at -0.2%. This compares to the MSCI ACWI (50% £) which was up 11.0% and CPI plus 3% at 5.5%. Excluding a handful of the largest technology companies, the remaining stocks in the S&P 500 averaged more modest returns. The FTSE 250 (of which RCP shares are a constituent) declined by nearly 1%.

RCP's in-house management team (J Rothschild Capital Management) maintained a relatively low quoted equity exposure over the period. They also deliberately had little exposure to publicly listed technology stocks, given this sector is well-represented in the private investment portfolio. Despite this, the quoted equity portfolio performed well, helped by some strong stock picks, as well as healthcare and Japan exposures. Private investments were down slightly for the half year. The largest detractor over the six months was currency, driven in large part by Sterling's 5.1% appreciation.

Over the six months, the discount to NAV at which RCP shares trade widened by 10 percentage points to 21%. A total dividend for 2023 of 38 pence per share has been declared, an increase of almost 3% from 2022.

Kepler View

Context is everything. So whilst RIT Capital Partners' (RCP) NAV performance over the first half of 2023 may have lagged rising equity markets, it is worth remembering that RCP has been cautiously positioned with respect to equity markets, both by having a relatively low net equity exposure, and within this by having a relatively defensive underlying equity exposure.

The low exposure to quoted technology businesses (which have led equity markets) is a result of the manager's conscious decision to gain exposure to their digital transition theme within private markets. RCP's managers highlight that stripping out the few megacap technology stocks from the S&P 500, the remaining stocks averaged a return of around 6% over the six months to 30/06/2023. By comparison the quoted equity book rose by almost 7% in the first half, an entirely acceptable performance.

RCP aims to deliver long-term capital growth, while preserving shareholders' capital. It achieves this through diversification across a broad spread of asset types, as well as active risk management by the in-house management team, which aims to shield the portfolio from specific risks. Private investments make up the largest individual segment of the portfolio. It is this section of the portfolio that powered the strong performance of the trust relative to equity markets during 2020 and 2021, but contributed to negative returns during 2022, and has marginally detracted so far in 2023. A consequence of the strong organic performance is that private investments now represent c. 40% of NAV, a figure we would expect to trend downwards over time as the portfolio naturally rebalances.

The managers do not yet see grounds for increasing their overall exposure to equity markets, but continue to focus on specific themes, such as healthcare, digital transition and Japan. We welcome the promotion of Nick Khuu as co-CIO, which illustrates the strength and depth of the talent on the investment team. RCP is set up for, and has historically dealt well with, challenging periods for equity markets such as the period we currently face. The board report that they are confident that the in-house management team will continue to find attractive opportunities to invest RCP's capital, but also see the current discount as a compelling investment for shareholders, as is evidenced by continuing buybacks.

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