Following a stellar year for stock markets, I often find it interesting to look at funds which appear to have performed less well as this is where opportunities to invest at attractive valuations can arise.
Investment trust RIT Capital Partners is one such fund. At various points during 2013 it traded on double-digit discounts to NAV. RIT’s priority is to offer a degree of capital preservation in tougher stock market conditions while growing capital over the long term.
Over the past five years markets have generally climbed the wall of worry and performed strongly but it is worth reminding ourselves of the average duration of an equity bull market.
The current run has lasted 60 months compared with an average of 64 months, according to analysis from Majedie Asset Management. Six of the last nine bull markets lasted 61 months or less.
Furthermore, the average size of a bull market is 163 per cent while the current one has seen the market rise 154 per cent from its low.
I am not forecasting the end of a bull market, merely noting that statistically the current one is looking long in the tooth. At such times it can be worth considering funds which might not capture all of the upside, but aim to limit some of the grisly downside.
RIT aims to do this by taking a multi-asset approach, holding a combination of equities, funds, currencies, private equity and real assets such as gold. As it is not fully invested in equities it would not be expected to keep pace with a strongly rising market. This has contributed to the de-rating over the past couple of years and the appointment of a new investment director, Ron Tabbouche, probably also unsettled the rating.
Tabbouche was previously head of investments for GAM and since his appointment to RIT in 2012 he has concentrated the portfolio to focus on the team’s higher conviction ideas in an effort to ensure stock selection is driving performance.
The portfolio is managed using a team-based approach and there are six elements which will drive performance over the long term.
The first element is managing wider economic themes and trends. These will often determine how aggressive or conservative they are. During 2013 two themes which benefited the portfolio were increased exposure to Japan and technology stocks.
The second element is single stocks. These have been concentrated down to a portfolio of 10 to 12 high conviction ideas which have the potential to contribute strongly to performance. They account for around 20 per cent of the portfolio and key holdings include AIG, Qualcomm and H&M.
Third, there are externally managed funds run by managers with strong track records and which have often closed to the general public. Fourth, the team actively manages currency exposure. The current focus is on sterling and the US dollar, while they are negative on the euro. Fifth is the downside protection which involves blending different assets such as equities, absolute return funds and gold.
Finally, there are the private equity investments, accessed through the team’s unique network of contacts, the in-house team and externally managed funds. This accounts for approximately 25 per cent of the portfolio and has added plenty of value.
Having increased exposure to equities in 2013, the team has recently been increasing exposure to absolute return funds which could offer some protection in a market selloff.
The portfolio remains well diversified geographically.
This is a unique fund ideally suited to the closed-ended investment trust structure. It remains on a discount to NAV of approximately 4.2 per cent though this has been narrowing and compares with a 12-month average of around 7.7 per cent.
If you are looking for a genuinely different investment and you believe the current bull market is a little long in the tooth, this could make an ideal addition to your portfolio, and for the record it remains in my Sipp.
Mark Dampier is head of research at Hargreaves Lansdown