Jacob Rothschild founded Rothschild Investment Trust (now RIT Capital Partners) in 1961, after resigning from N M Rothschild & Sons bank following a family dispute. The fund has been very successful, returning 12.4% per year since 1988 and is famous for its wealth preservation and capital gains in bearish markets. In June, RIT Capital said that it had “no intention” of making a merger offer for Dundee, UK-based Alliance Trust, rejecting reports that itwas planning to make a potential $6.6 billion deal for the British financial services company.
RIT cut its ownership of sterling-linked assets to 34% from 47% and reduced its equity exposure to 59% from 67% during the first-half of the year, as it ramps up its holdings in safe-haven assets while it evaluates the economic stimulus programs from the Central Bank in the wake of the UK’s decision to leave the EU. RIT Capital’s U.S. equity portfolio was valued at $116.93 million at the end of June, and in this article, we’ll discuss the fund’s favorite U.S.-traded stocks from its highly-concentrated portfolio.
Through extensive research we have determined that the best approach to outperform the broader indices is to follow hedge funds into their top small-cap ideas. In our backtests, a portfolio of the 15 most popular small-cap stocks generated monthly alpha of 81 basis points, versus 0.7 percentage points posted by hedge funds’ top large- and mega-cap picks (see more details here).
#5 Baxter International Inc (NYSE:BAX)
– Shares Owned by RIT Capital Partners (as of June 30): 192,000
– Value of RIT Capital Partners’ Holding (as of June 30): $8.68 million
RIT Capital maintained its 192,000-share position in Illinois-based healthcare company Baxter International Inc (NYSE:BAX) during the second quarter. The stock has been a strong performer this year, gaining over 25%. For the third quarter, Baxter International Inc (NYSE:BAX) expects to earn $0.43-to-$0.45, slightly above the consensus of $0.42, while its full year 2016 EPS guidance stands at $1.69-to-$1.74, which has been raised from prior guidance of $1.59-to-$1.67 and which easily tops the consensus of $1.64. Dan Loeb’s Third Point owns 51.90 million shares of the company according to its 13F filing for the June quarter, with the stock ranking as his top pick.
#4 Alibaba Group Holding Ltd (NYSE:BABA)
– Shares Owned by RIT Capital Partners (as of June 30): 190,000
– Value of RIT Capital Partners’ Holding (as of June 30): $15.10 million
RIT Capital reduced its stake in Alibaba by 40% during the second quarter, ending the period with approximately $15.10 million worth of the company’s stock, which accounts for around 13% of the value of the fund’s equity portfolio. Goldman Sachs added Alibaba Group Holding Ltd (NYSE:BABA) to its ‘Conviction Buy’ list after the company posted better-than-expected fiscal year 2017 first quarter results two weeks ago. The firm is bullish on the Chinese e-commerce giant mainly because of its long-term strategy, strong growth prospects, and dominance in several businesses. Alibaba shares have gained over 17% in market value since the start of 2016. As of the end of the second quarter, 69 hedge funds in our system were long Alibaba Group Holding Ltd (NYSE:BABA).
On the next page, we’ll discuss the top-3 stock picks of Mr. Rothschild’s RIT Capital.