Ruffer Investment Company has announced its interim results for the half year ended 31 December 2015. During the period, the company’s NAV per share from 218.76p to 206.98p, which after allowing for dividends of 1.7p paid during the period, equates to a total return of -4.6%. The Company’s share price also fell by 4.6%, on a total return basis, as the shares ended the period on a premium of 1.9%. By way of comparison, the company’s target return of twice the Bank of England base rate rose 0.5% over the period, whilst the FTSE All-Share total return index fell by 2.0%. The managers say that, after a strong first half to 2015, the second half of the year proved to be a difficult environment in which to meet the company’s capital preservation objective.
Detractors from performance included the Japanese equity exposure (-0.5%) and options (-1.8%). However, the managers say that they were able to crystallise some profits in the option book through the volatility of the equity market selloff in August and September, but with the benefit of hindsight they say they could have done more. Nonetheless the managers say that, in the event of a more extreme market event, they would expect this part of the portfolio to make a significant positive contribution. Whilst the loss in Japanese equities was relatively small, this masks a sharp decline in August and September when Japan suffered following the suspension of a large part of the Chinese equity market. The managers believe that, unable to trade in Shanghai, investors used Japan as a proxy in order to reduce risk exposure and that, given the subsequent sharp rally in Japanese equities in October and November, suggests that such selling pressure was not based on fundamentals. Moreover, they believe news flow has been consistently positive on Japan and that the longer term prize of a return to self-sustaining growth and inflation will have a significant impact on the Japanese market, which is increasingly adopting western approaches to corporate governance and shareholder returns.
In terms of portfolio changes over the period, the managers say that the focus was on risk reduction. Equities were further reduced from 41% to 37% when adjusted for looking through the Ruffer funds, which resulted in an increase in cash from single digits to 11%. The managers also increased the Company’s Japanese yen weighting to 8% as they believe the currency offers more attractive protective characteristics than the dollar and is a better fit for the shape of the company’s equity book with its focus on Japan.
In terms of outlook, the managers say that they think 2015 was a year where the probability of the endgame being an inflationary one increased considerably and that the outlook for the year ahead is as challenging as they can remember. Reflecting this, the Company is positioned defensively but the managers highlight that this does not make it immune to a market setback. However, they hope that the positioning of the asset allocation is appropriate to achieve the company’s capital preservation objective and say that, if they can preserve capital through the next crisis, they believe there will be some mouth-watering opportunities on the other side.
Ruffer – second half of 2015 was difficult for capital preservation : RICA