Ruffer Investment Company (RICA) released its annual results for the 12-month period ending December 2023.
Ruffer generated a NAV total return of 8.0% and share price total return of 7.3%. Its since inception return of 7.8% is ahead of UK equities but with a much lower level of volatility and drawdowns.
The driver of Ruffer’s positive performance was its “unconventional protective toolkit”, with the biggest positive contributor being its interest rate hedges, which added 7.3% to returns.
Whereas its biggest detractor was index-linked gilts, with its 2073 bond (a 2.5% position at period end) down 68% in 2022.
Ruffer’s equity exposure remains at its lowest level in its history, 13.5% gross.
The management team have become US bond bulls, adding 12% increased exposure to the sector. The team also added to its oil and gold exposure.
In the near term, the investment team has positioned Ruffer for a disinflationary lurch, bond yields coming down and a bumpy recessionary landing for the economy. They are waiting for the opportune moment to pivot towards a portfolio positioned for higher nominal growth alongside inflation and financial repression.
With respect to the market outlook, the investment team comments:
“We go into the year set up for an uncomfortable ride. The first half of the year may be about an unusually durable US recovery, sticky inflation, and an even higher peak in the Fed Funds Rate. Alternatively, the market may be saved from further Fed hawkishness but only because the descent into recession happens earlier, and at greater speed, than seems probable at the end of 2022. Neither has a happy ending for investors.
“The setup points to significant volatility as market participants grapple with narrative swings and shifting financial conditions. We recognise we will need to trade actively to preserve capital in these choppy waters. We stand ready to change our views as circumstances change. Rather than try to predict, it may be necessary to see events play out and respond to them. We maintain a highly liquid portfolio, ready to capitalise on opportunities the turmoil may create.
“Our job at Ruffer is to assess the economic and market landscape, and then decide how much risk to take. We have a preoccupation with identifying the major downside threats and avoiding them. These periods are processes, not events” … “Today, our assessment is that this is a poor time to take risk. Patience and preparation are our watchwords and, in the meantime, for the first time in 14 years, you are paid a decent return to wait.”