Low interest rates have pumped the price of equities higher and mean the market is unable to cope with volatility caused by political events, according to Ron Tabbouche, chief investment officer at the £3.5bn RIT investment trust.
The trust was created by Lord Jacob Rothschild, who retired as chairman last year. The Rothschild family has an investment of over £700m in the trust, according to data from the investment trust team at Investec.
Both Lord Rothschild and Mr Tabbouche have taken a cautious approach to global equities.
Writing in the trust's annual report, released this morning (March 3) Mr Tabbouche said that having increased its exposure to listed equities at the start of 2019, it had started selling those during the last year after markets performed well.
Mr Tabbouche said: “As we enter 2020, we are cognisant that interest rates remain very low, which for some investors, makes equities the 'only show in town'.
"Our view is that a significant amount of good news is already priced in, and the market is unlikely to show resilience against any sustained macro or geopolitical volatility. Furthermore, after such a strong run in many of our structural themes we are, if anything, more focused on managing risk rather than adding exposure."
The RIT trust returned 12 per cent in 2019, compared with 9 per cent for the average trust in the AIC Flexible Investment sector in the same time period.
Matthew Cady, investment analyst at Brooks Macdonald, said the recent sell-off in equities as a result of market fears over the economic impact of the coronavirus has happened alongside bonds going up in value, with the consequence that bonds look more expensive than ever before when compared to equities, and this should boost equity valuations.
david.thorpe@ft.com
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