Lord Rothschild, the veteran investor who is chair of the Rothschild Investment Trust (RIT), and with his family has an investment of over £120 million in the £2.8 billion fund, has asserted that conditions are unlikely to improve for investors in 2016, but remarked that profits are still obtainable.
The Rothschild Investment Trust is a multi-asset fund that has returned 40 per cent over the past three years, and 4 per cent over the past year, despite the losses recorded elsewhere.
In his annual update to shareholders, the veteran investor commented that six months ago he cautioned that market conditions were likely to be volatile.
Rothschild remarked that he had, ‘sounded a note of caution, ending up by writing that “the climate is one where the wind may well not be behind us”; indeed we became increasingly concerned about global equity markets during the last quarter of 2015, reducing our exposure to equities as the economic outlook darkened and many companies reported disappointing earnings.’
He continued, ‘Meanwhile central banks’ policy makers became more pessimistic in their economic forecasts for, despite unprecedented monetary stimulus, growth remained anaemic. Not surprisingly, market conditions have deteriorated further. So much so that the wind is certainly not behind us; indeed we may well be in the eye of a storm.’
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On the sources of the problems he commented, ‘The litany of problems which confronts investors is daunting: the QE tap is in the course of being turned off and in any event its impact in stimulating asset prices is coming to an end. There’s the slowing down to an unknown extent in China. The situation in the Middle East is likely to be unresolvable at least for some time ahead. Progress of the US and European economies is disappointing. The Greek situation remains fraught with the country now having to cope with the challenge of unprecedented immigration.’
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He added, ‘Over the last few years we have witnessed an explosion in debt, much of it repayable in revalued dollars by emerging market countries at the time of a collapse in commodity prices. Countries like Brazil, Russia, Nigeria, Ukraine and Kazakhstan are, as a result, deeply troubled. In the UK we have an unsettled political situation as we attempt to deal with the possibility of Brexit in the coming months. The risks that confront investors are clearly considerable at a time when stock market valuations remain relatively high.’
Turning his thoughts to where investors can turn in the tumult, he said, ‘There are, however, some influential and thoughtful investment managers who remain sanguine about markets in 2016 on the grounds that the US economy is in decent shape – outside of manufacturing – while they feel that economic conditions may be improving. To them, the decline in these markets may have more to do with sentiment than substance. Others are less optimistic but feel that the odds remain against these potential difficulties materialising in a form which would undermine global equity markets. However our view is that 2016 is likely to turn out to be more difficult than the second half of 2015. Our policy will be towards a greater emphasis on seeking absolute returns. We will remain highly selective when considering public and private investment opportunities. Reflecting this policy, our quoted equity exposure has been reduced to 43 per cent of net asset value with private investments at 26 per cent.’