Ruffer gets a boost from index-linked bonds – Ruffer (RICA) has posted its interim results for the six months to 31 December 2021. During the period, the NAV total return was 2.8% and the share price total return was 2.6%.
The largest contributor to performance was index-linked bonds, which added 1.9%. This return was boosted by some active trading and duration management during the period. Purchases were made of long-dated index-linked gilts in June and these were trimmed in August. In November, the managers bought the new 2073 issue and then reduced other long dated index-linked bonds in December. The long-dated gilts rose more than 10% over the six months.
The period under review was also a time of rising inflation and interest rates and so the managers had interest rate protection to offset the portfolio duration, which added 1.3% to performance. Gains in equities (+1.8% contribution) were almost entirely offset by the increased use of equity put protection which cost 1.6%. Standout contributions came from Marks & Spencer (+54%) and Tesco (+29%) as private equity bid for Morrisons and Asda.
The managers said the period was characterised by a rotation within rising markets back towards ‘old regime’ trades of growth and quality outperforming value while bond yields behaved in a more benign fashion.
Statement from the managers:
One thing is clear – no one asset, nor single strategy, can guarantee success in this path-dependent world. We are in uncharted waters from a market and economy perspective, nobody knows how all of this will play out.
Instead, for a new regime, investors will require a diverse toolkit – flexible, adaptable, and robust. At Ruffer, we believe we have built exactly that. How are we positioned for this world?
For bad market outcomes we’ve got the unconventional toolkit- index-linked bonds, credit protection, payer swaptions, gold exposure, and equity put options. This is what you would expect from Ruffer: a preoccupation with downside protection.
For rosier outcomes – because there’s a chance we have another roaring twenties, we’ve got attractively priced GDP- and inflation-sensitive equities.
Where we think investors don’t want to be is in the middle of the road – a resumption of the old regime of low and stable growth and inflation. The winners of that regime – growth stocks, long duration assets such as venture capital and renewables and conventional government bonds – look to us like they offer no asymmetry and are already pricing in victory. As liquidity is drained from markets these crowded trades look to us the most dangerous.
RICA : Ruffer gets a boost from index-linked bonds