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Ruffer annual results reflect challenging year

Ruffer annual results reflect challenging year – Ruffer Investment Company (RICA), the un-benchmarked multi-asset investor (part of the AIC’s ‘flexible investment’ sector), has released annual results to 30 June 2019. The objective of RICA is to achieve a positive total annual return, after all expenses, of at least twice the Bank of England (BOE) bank rate. RICA notes that the BOE raised the rate from 0.5% to 0.75% on 2 August 2018 and it has stayed there since.

Results summary:

  • Share price total return over 12 months: (5.7%) versus (1.0%) a year ago
  • NAV total return over 12 months: (0.9%) versus 0.8% a year ago
  • Discount/premium of share price to NAV: (4.0%) versus 0.9% a year ago

Manager’s notes

Extract from the manager’s report: “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 markets 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.”

In the outlook section, the report added: “Jeremy Stein, a former Federal Reserve governor, astutely observed that monetary policy, while a blunt instrument, was the most effective policy tool because ‘it gets in all the cracks’. What he meant by this was that interest rates are the fulcrum from which all economic and market activities take their lead. Because higher interest rates have a broad but blunt impact in tightening financial conditions and curbing risk-taking, policy makers don’t necessarily need to have spotted the exact root cause of the next problem. Targeted, narrow macro-prudential or fiscal policies often have a sort of whack-a-mole nature to them – you may squash one problem but up pops another.

The trouble is that after a decade of zero interest rates, and five years of negative interest rates in Europe and Japan, the economy and market are utterly incapable of tolerating higher interest rates. Twice in 2018 markets reacted badly to the prospect of higher rates before the pivot from Jerome Powell, chairman of the US Federal Reserve, caused expectations for interest rates globally to crash lower again. By the period end almost 20% of total debt outstanding globally stood at negative yields – at the latest estimate worth some US$13tn , as noted in the chairman’s statement. Investors must never forget how extraordinary and unprecedented this backdrop is. Interest rates are the price of money and this price has been grotesquely distorted for a long period of time. This will have consequences, seen and unseen.

As un-benchmarked, multi-asset investors we are entrusted by our shareholders to take risk on their behalf and to make an assessment as to the quantum of that risk. Today, as every day, we scan the landscape and must make a judgement as to whether or not the environment will be rewarding. We see a litany of risks investors must overcome; we split them broadly into market risks and economic risks.”

RICA top 10 holdings

wdt_ID Investments % of total net assets
1 Ruffer Illiquid Multi Strategies Fund 2015 7.19
2 UK index-linked gilt 0.125% 22/03/2068 6.85
3 UK index-linked gilt 0.375% 22/03/2062 6.15
4 LF Ruffer Gold Fund 6.09
5 US Treasury Inflation Indexed Bond 0.625% 15/07/2021 4.28
6 US Treasury Bond 1.75% 30/11/19 3.03
7 Walt Disney 2.98
8 US Treasury Bond 2.000% 01/31/20 2.91
9 US Treasury Bond 1.375% 09/30/19 2.90
10 US Treasury Inflation Indexed Bond 1.25% 15/07/2020 2.76

RICA: Ruffer annual results reflect challenging year

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