Time to trade investment trust favourite RIT Capital Partners?

RIT Capital Partners has long been one of Citywire’s favourite investment trust picks.

Not only has it been used as a key investment trust Isa pick but closer to home, it actually also forms part of my childrens’ child trust funds.

Yet there is a time to trade even the best long-term investments and for anyone able to take a tactical view this could be it.

The self-managed trust,  which is heavily backed by Lord Jacob Rothschild, reported the value of its portfolio on Friday and showed that its shares are now trading at an 8% premium to the value of its underlying portfolio.

The reason for this is clear. Investors tend to rush to this trust when they are scared because they know that in choppy times it is well-insulated from the worst of the market.

Partly this is because of the fund managers’ focus on wealth preservation and partly it is because of its asset allocation. Some 20% is allocated to private equity, around 10% is in physical assets and a portion is also in absolute return funds. This makes it less volatile than the market,.

It tends to outperform in tough markets and over the past three months it has been true to form. It has seen its portfolio drop by 6.6% while the MSCI World is down 11.9% and the FTSE All Share is down 12.6%.

This has forced the trust’s share price up sharply. The last time it traded on this sort of premium was in November 2008 when investors rushed in seeing it as a safe port in the credit crunch storm. For this reason the premium certainly does not bode well for investors’ mood generally.

For those able to take a tactical view on this trust they may conclude that this is an opportunity to trade.

Oriel Securities analyst Ian Scouller shares the conviction that this trust is a key long-term buy but is nonetheless recommending investors reduce their positions – with a fixed re-entry point to the market in mind.

He said: ‘The shares closed at £12.03 on Friday, which equates to an 8% premium to the current Thomson Financial NAV estimate of £11.09 based on Friday’s close. We think such a premium is excessive and think the shares should probably be currently trading around £11 to reflect this new NAV.’

Many investors will retort that if this trust is a good fundamental buy then it should simply remain so regardless of the volatility in the discount, yet for the tactically minded there could be good money to be made from selling out and they buying back in.

Read the fund manager's latest portfolio positioning here.