Ruffer reports a loss – Ruffer Investment Company has published unaudited results for the year ended 30 June 2019. For a company which is dedicated to preserving investors’ capital, the results were a disappointment. The total return on the NAV was -0.9% but a widening discount meant that the return to shareholders was -5.7%.The dividend was maintained at 1.8p.
The fund’s objective is to achieve a positive total annual return, after all expenses, of at least twice the Bank of England Bank Rate. The Bank of England raised rates from 0.5% to 0.75% on 2 August 2018 and the blended average rate for the 12-month period ended 30 June 2019 was 0.73%, which gave a target return of 1.46%.
The chairman’s statement makes the point that the All-Share Index returned just 0.6% over the year and the company’s equity portfolio did worse than this because of its bias to shares of companies in the developed world and, within that, companies whose earnings are sensitive to the economic cycle – Ruffer believes such shares are out of favour with investors.
Other similar funds operate a policy of targeting a discount close to zero, issuing and buying back shares in response to demand. The chairman notes that Ruffer has powers to buy back shares but has not used them. The board can also offer a share redemption facility each November but it has decided not to offer this in 2019. The rationale is that the discount is still less than 4% (the level at which the redemption facility would be offered).
Extract from the manager’s report
“The chairman’s review has already provided the headline numbers. Despite performance picking up in the first six months of 2019, the Company posted a net asset value loss of 0.9% after adjusting for dividends in the 12 months to June 2019. This is a failure to meet our primary investment objective and we share the frustration of our shareholders. However, it is our strong belief that events are moving in a direction which will ultimately prove to be rewarding for those invested in the Company.
Over the period, our unconventional protective assets were again a dragging anchor on performance. The credit protection in the Ruffer Illiquid Multi Strategies Fund 2015 cost the portfolio (-170bps). Yet this fund rose 30% in the fourth quarter of 2018 as market sold off, giving us comfort that it will protect us when needed.
Option protection, mostly against a fall in equities, was the other big detractor (-190bps). We do not bear these costs lightly – our performance would be much better without them – but they are necessary in an environment where conventional protections cannot be relied on.
On the positive side of the ledger, inflation-linked bonds delivered strong returns (+230bps) despite inflation expectations remaining largely steady. This is one of the benefits of index-linked bonds; they can rise in value in both inflationary and disinflationary times because they react to changes in real interest rates rather than being a binary bet on inflation rising. We also made money in US inflation-linked bonds – increasing the duration of our holdings in November, then taking profits in March.
Gold helped. Our move to increase gold exposure via equities in September proved profitable and well-timed. It was shortly followed by a spurt of mergers, which catalysed the sector to re-rate at the same time as the gold price was perking up. Gold and gold equities added 175bps to performance.”
The managers also discuss the impact of the fund’s currency exposures. The dominant currency in the portfolio is sterling, maintained on the basis that this is the fund’s home currency. Of course, sterling has been weak since the EU referendum result and this has not been helpful to performance. Of other currencies, the managers say: “we have been actively reducing exposure to the US dollar in recent months. Given the volte face of the Federal Reserve, narrowing interest rate differentials and the uncertainty of trade wars, it appears to us less obvious that the dollar will function as a safe haven.
We have maintained a larger weighting in the yen (8%) – towards the end of the period with additional exposure through the option book – and this has performed well to date.”
[We addressed many of the issues affecting similar funds in our recent note on CG Asset Management (Capital Gearing Trust is a direct competitor to Ruffer Investment Company and has been outperforming it. If you haven’t read it already, it might be worth a look – The rewards of long-term thinking]
RICA : Ruffer reports a loss