Ruffer Investment Company (RICA) announced its annual report for the year ended 30 June 2023. The company’s share price total return over the 12 months was -7.2% while NAV total return was -1.7%, resulting in a widening of the discount which now stands at 4.4%. The performance reflects a year of two halves for RICA which achieved a positive net asset value and share price total return of 4.8% and 4.1% respectively, over the first six months of its financial year. In the second half, NAV and share price total returns were -6.8% and -10.9% respectively.
Chairman Christopher Russell noted that the main components of the negative NAV return were sterling strength against the yen, echoing
the RICL currency experience in 2007 (until the crisis arrived), and credit and equity protection. The latter covered equity indices which were driven higher by only a limited number of stocks which disguised more general market weakness, so despite widespread falls in stocks the portfolio did not benefit from the cost of this protection.
Regarding the outlook for the fund, he continued:
In February this year I wrote in the company’s interim report that ‘the company’s investment message for 2023 is an uncomfortable degree of financial market volatility demanding protection and patience’. Protection and patience have come with a price in short term performance. This has happened on several occasions in the past when geopolitical or economic events have made a relatively shorter-lived and shallow impression on the long-term positive returns from long-duration assets.
The investment manager’s report draws attention to Milton Friedman’s observation that monetary policy works with long and variable lags, arguably made longer today by fixed rate mortgages and expense of lockdown savings. Central banks are on a journey to reverse the inflation and excess of risk-taking induced by zero interest rates. The current direction and articulation of monetary policy remain firmly fixed towards slaying the inflationary dragon in the UK, Europe and the US. The portfolio therefore remains defensive, but the time will come, perhaps ahead of forthcoming elections on both sides of the Atlantic, when markets will begin to discount the policy pain and its subsequent effect. The portfolio structure will need to reflect that light emerging at the end of the tunnel when, as your investment manager says in its report, ‘It’s not the Fed that needs to pivot, it will be investors’.
RICA : Game of two halves for Ruffer