Lord Jacob Rothschild, chairman of the £3.3bn RIT investment trust, intends to remain cautious in 2019, despite the recent strong performance of the stock markets.
Lord Rothschild and family have a personal investment of more than £300m in the trust, which made a positive return of 0.8 per cent during the year to the end of December 2018.
But in a statement accompanying the trust's results this morning (March 5) Lord Rothschild wrote that 2018 had been the "most difficult and treacherous year for investors since 2008", with negative returns in all major asset classes.
He said he was pleased about the increase in the company's net asset value per share, currently £18.96 (March 5), and explained the trust was able to deliver this return in part by having reduced exposure to quoted equities before a turbulent fourth quarter, which saw global equity indices fall by 13 per cent.
He wrote: "The dangers of holding assets inflated by low interest rates and quantitative easing are now visible to all.
"Throughout the year therefore we managed our asset allocation to keep net quoted exposure towards the lower levels of our historical ranges with higher levels of cash than usual."
He added: "In the current year stock markets have, so far, shown significant gains. We remain however cautious about future prospects for markets, concerned over the accumulation of downside risks.
"Global growth is declining, with the IMF having further reduced its forecasts.
"The weakest Chinese GDP growth in nearly three decades is clearly having an impact on other regions, while German manufacturing output has contracted for the first time in four years.
"The most recent retail figures in the US lead one to believe that the economy will find it difficult to repeat last year's fiscal-fuelled results.
"Against this weakening backdrop, geopolitical risks have not subsided. We are surely witnessing the worst political situation in the United Kingdom since the Suez crisis, while social unrest and populism in a number of European countries cloud the future.
"We therefore anticipate a continuation of heightened market volatility. In these circumstances, capital preservation will remain as high a priority."
But Jacob de Tusch-Lec, who runs the £4bn Artemis Income fund, said the strong performance of equity markets in 2019 so far was the result of a change in tone from the US Federal Reserve about interest rates, therefore it was likely to persist for the foreseeable future.
If US rates rise at a slower pace then traditionally equities do well, as bond yields do not rise to the extent previously expected.
Lower bond yields boost equities as when the income from the lower risk bond asset doesn’t rise the yield from equities becomes more attractive.
david.thorpe@ft.com
