RIT Capital Partners says that its NAV ended 2021 at 2,794 pence, representing a total return for the year (including dividends) of 23.6%. At the same time its share price closed at 2,750 pence, providing a total return to shareholders of 35.1% – the strongest shareholder return the company has delivered over the past 20 years. By contrast, the MSCI All Country World Index returned 20.0% 0ver 2021 and the trust’s other performance comparator – 3% over inflation as measured by the RPI – 10.5%. The dividend for the year was 35.25p and the company is targeting 37.0p for 2022. Last night, the NAV was 2696p and the share price 2460p, and the shares were trading at an 8.75% discount.
Good returns from unlisted technology stocks
The chairman says that “This performance has been achieved with all the core categories contributing. Among our well-established themes, the stand-out contributor was the exposure to innovative companies, which we have chosen to express through our private investment portfolio. Valuations in unlisted technology stocks rose strongly during the year, with multiples expanding and funding readily available, even at demanding valuations, to finance these companies’ continued growth. On the other hand, our China and biotech exposures, predominantly within our quoted equity portfolio, had a more difficult year, after a strong 2020. The quoted equity return was helped by an increased focus on value equities, which benefited from the reflationary trend seen in markets. Our absolute return and credit performed well, delivering steady returns with limited correlation to stock markets. The NAV was also reasonably well protected from the meaningful rise in trade-weighted sterling, by focusing our currency mix almost exclusively on the strong US dollar and sterling, and avoiding exposure to the depreciating euro and yen.”
59,000 shares were bought back at a cost of £1.4m and this contributed towards a substantial reduction in the discount from 9.9% to 1.6%.
Extracts from the managers’ report
Overall, the key drivers of performance for the year were:
- exceptional performance from our private investments, including Coupang’s IPO and more widespread gains across investments that focused on the digital transition;
- absolute return and credit delivered healthy returns with low correlation to equity markets; distressed credit managers in particular performed well;
- positive contribution from our quoted equity book, though the overall return was impacted by two of our key areas of focus, China and biotech, which underperformed in 2021 after a strong 2020; and
- active currency management provided some shelter in the face of stronger trade-weighted sterling.
In terms of asset allocation, the levels of net quoted equity exposure remained moderate, averaging 43% for the year while the exposure to private investments has increased to 36.5%, mainly through strong organic performance. Within absolute return and credit, we took the opportunity to decrease some of our corporate credit exposure following healthy gains. We actively managed our sterling levels over the year, increasing our exposure to the US dollar after sterling’s rise in the first quarter, in anticipation of a more hawkish Federal Reserve, then increasing our sterling exposure in the latter part of the year – providing some protection from its increase.
QD comment on the current situation
The chairman’s and managers’ statements make no mention of the war in Ukraine which suggests that they were both written ahead of its outbreak. In the current market volatility, the shares have moved to trade on a discount of 8.75%, falling by 8.9% since the start of the year. The NAV though is off 3.5% over 2022 to date, reinforcing the trust’s message of protecting shareholders’ capital in falling markets. The statement points out that since inception, RIT’s NAV has participated in 74% of market upside but only 38% of market declines. It is a mystery to us why its discount tends to overreact to market moves in the way that it does.
RCP : RIT Capital discount widens despite great 2021