RIT Capital Partners (RCP ) has undertaken its first share buyback in over seven years as the Rothschild-backed global investment trust seeks to narrow the uncomfortable discount to which its stock has fallen this year.
Yesterday morning before a call with investors and analysts updating them on the progress of the £3.1bn multi-asset portfolio, RCP bought 20,500 shares at £18.19, the first such purchase since August 2013 when it mopped up 30,810 shares or 0.02% of share capital.
Although yesterday’s transaction accounted for just 0.01% of RCP shares, Numis Securities, the trust’s joint corporate broker with JPMorgan Cazenove, viewed it as a statement of intent by a board anxious to preserve RCP’s reputation as a defensive investment.
Since last November when RCP shares reached a high 11% premium over their underlying net asset value (NAV), the trust has suffered a de-rating in the pandemic crisis.
In common with most other trusts it briefly plunged to a 22% discount below NAV in the March before making a partial recovery to stand at a 9% discount today.
The de-rating means shareholders have suffered a 13% loss over one year which while it beats the 19% decline in the UK’s FTSE All-Share, looks poor compared to the 6% rise in global stock markets, as measured by the MSCI World index.
It also undermines RCP’s oft-repeated claim that it avoids the majority of equity market falls but captures most of their updside.
Also, frustratingly for chief executive Francesco Goedhuis and chief investment officer Ron Tabbouche, who have taken over RCP’s fund management from founder and former chair Lord Jacob Rothschild, the tumbling share prices belies the 5% growth in the monthly updated NAV achieved in the past 12 months.
Numis commented: ‘RCP’s NAV performance during 2020 has been as we would expect, providing some insulation against falling markets, whilst generally lagging in strong equity markets. We believe the fund offers a risk/return profile that should be attractive to a wide range of investors although the discount volatility this year has been a concern for some.
‘Therefore we believe it is significant that RCP has engaged in a share buyback which should provide some comfort to shareholders that the downside from the discount is limited,’ it said.
The broker described the discount – which it set at 8% according to its estimate of RCP’s latest NAV – as ‘an attractive buying opportunity’, a point that Stifel analysts made in July when the trust traded at a similar deficit.
In the first nine months of 2020, RCP has edged up NAV by 1.6% against 2% from the MSCI AC World benchmark with gains in some of its ‘megatrend’ growth themes such as China, biotechnology, unquoted tech holdings, gold and credit offsetting falls in ‘value’ and cyclical stocks in the UK and Japan.
With US election, coronavirus and Brexit uncertainties leaving open a wide range of market outcomes, Goedhuis and Tabbouche told investors they were maintaining a balanced and diversified portfolio, according to Numis.
Over 10 years RCP has generated a 90.8% total shareholder return from its portfolio’s 106.7% growth in NAV. This again beats the All-Share, which has returned 53.8% in the decade, but behind the 168% advance of the MSCI World.
It also compares favourably to the performance of other well-known defensive funds, such as Capital Gearing (CGT ) and Personal Assets (PNL ) which have both produced 68.5%, but behind Caledonia Investments (CLDN ) which has provided a 102% total return.
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