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Global disunity puts economic order at risk, says Rothschild

8 August 2018

RIT Capital Partners chairman Lord Jacob Rothschild warns investors the global unity that helped propel stock markets over past decade is fracturing.

RIT Capital Partners (RCP) chairman Lord Jacob Rothschild has warned investors the global unity that helped propel stock markets over the past decade is fracturing, putting economic security at risk.

Although the economic picture looked good with up to 120 countries seeing growth accelerate last year, Rothschild used his commentary in the investment trust's half-year results to stress that this was ‘not an appropriate time to add to risk’ as stock marekt valuations were high and growth flagging.

‘The cycle is in its tenth positive year, the longest on record,’ he said. ‘We are now seeing some areas of weaker growth emerge.’

Rothschild – who has chaired the £3.3 billion listed global fund that holds much of his family's wealth since launch in 1998 - noted the eurozone was a particular concern both politically and economically ‘given the potentially destructive levels of debt in a number of countries’, and the ongoing trade tensions with the US.

‘Problems are likely to continue in emerging markets, compounded by rising interest rates and the US Federal Reserve’s monetary policy, which has drained global dollar liquidity,’ said Rothschild.

Unfortunately, he said, the lack of a co-ordinated, international response to global challenges was unlikely in an era of populist and protectionist leaders such as US president Donald Trump, he suggested.

‘The resolution of these problems in this unpredictable era will surely be difficult,’ said Rothschild.

‘In 9/11 and in the 2008 financial crisis, the powers of the world worked together with a common approach. Co-operation today is proving much more difficult. This puts at risk the post-war economic and security order.’

Consquently, RIT Capital has maintained a ‘cautious approach’ with net exposure to public stock markets of just 47% in the first half of the year, with the rest of the portfolio largely split between private, unquoted investments, defensive absolute return funds and currencies.

Including an interim dividend of 16.5p per share, RIT delivered a total return on net assets of 3.2% in the six months to 30 June. This was in line with its absolute return target of achieving 3% more than inflation, as measured by the retail prices index (RPI), and ahead of the 1.4% generated by the version of the MSCI All Countries World index it also uses as a benchmark.

The board intends to pay another dividend of 16.5p this year giving a total of 33p, up 3.1% or 1p on last year's distributions.

Shareholders did better than the NAV performance suggests with a 6.2% total return as demand for the stock pushed the price to a 9% premium, making RIT expensive to buy at current levels.

While the overall return from equities was slightly negative as losses in emerging markets offset gains in developed countries, the 22% held in private investments, did better, with the company making a profitable exit from Rockefeller and booking gains as Dropbox (DBX.O), the popular file hosting service, floated on the US stock market.

Also within technology, RIT successfully span off its investment in Augmentum Capital, with Augmentum Fintech (AUGM), a venture capital fund in which it holds 20%, floating in March. Last week the investment trust announced a £3.5 million boost to its portfolio from the refinancing of peer-to-peer lender Zopa, one of its five seed investments. 

It also revealed a new investment in Coupang, a leading South Korean online consumer business aiming to float next year, which accounts for 1.3% of RIT's net assets.

It also increased to 3.5% its exposure to Acorn, the holding company used by the Reimann family's JAB Holdings to buy US soft drinks giant Dr Pepper Snapple for $18.7 billion (£14.5 billion) in February. 

Over 10 years RIT Capital's total return to shareholders has been 117.4%, in line with the FTSE All-Share but with slightly less volatility.

Investment company news brought to you by Citywire Financial Publishers Limited.

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