by Val Cipriani, Investors Chronicle, February 27, 2024:
The past two years have been tough for the four investment trusts that promise to deliver a degree of capital growth but with a focus on wealth protection, regardless of how financial markets perform. Ruffer Investment Company (RICA) and RIT Capital Partners (RCP) have had particular difficulties, and Capital Gearing Trust (CGT) and Personal Assets Trust (PNL) have also underperformed the FTSE All-Share since Russia invaded Ukraine. The index returned 8.8 per cent in the two years to 23 February.
But these trusts remain relatively defensively positioned and can still be a useful hedge against the risk of future woes in equity markets, particularly if you think the market’s current optimism is overdone.
Broadly speaking, in 2023 the four trusts were positioned for a more bearish outlook than ultimately materialised. RIT Capital has been the most volatile of the group. Over the long term, its track record still holds up somewhat, with a share price total return of 66.2 per cent in the 10 years to 23 February 2024. But the trust has roughly 40 per cent of the portfolio in unlisted assets via a mix of direct holdings and funds, which has produced a significant mismatch between its share price and net asset value (NAV) returns. In the three years to 25 February, the trust’s NAV rose by 9.8 per cent yet the share price fell 11.8 per cent.
The rest of the portfolio is a mix of equity (24 per cent), absolute return and credit (22 per cent) and hedge funds (10 per cent), making it the most aggressively positioned of the group. In March 2023, Investec analysts downgraded RIT to sell, via a scathing note that criticised the trust’s lack of transparency on payments made to its management firm, as well as its exposure to late-stage venture capital assets and recent track record.
But James Carthew, head of investment company research at QuotedData, is comparatively bullish on the trust: “I’m expecting that when the market broadens out beyond the narrow focus on AI stocks, RIT Capital’s NAV returns will pick up and the discount will narrow,” he says. “The wide discount reflects its short-term performance and a general but irrational aversion to funds investing in unlisted companies. That adverse sentiment will not last forever and then RIT should return to form.”
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