Ruffer (RICA) fund managers have flagged UK housebuilders as attractive now that Budget uncertainty is out of the way.
In their monthly update, Jasmine Yeo, Ian Rees and Alexander Chartres, managers of the £868m defensive, multi-asset fund, said the overall UK stock market looked good value compared to global peers.
“One area of opportunity is the housebuilders, which have struggled since the pandemic and trade at depressed valuations. With solid balance sheets and substantial dividends, these stocks offer an attractive risk-reward if the Bank of England cuts rates further,” they said.
The managers did not say whether they had added more builders to the portfolio or increased their position in Barratt Redrow (BTRW), which at 30 June was their one holding in the sector. The “all-weather” capital protection fund held just 0.16% of its assets in the £5.2bn company, according to the latest annual report.
In the run-up to the chancellor’s delayed statement last month, housebuilder shares weakened as consumer confidence fell and construction slumped. While Rachel Reeves’ tax rises hurt, the government’s emphasis on cutting planning delays pleased some in the sector.
In a sign of improved sentiment, house builder Berkeley (BKG) rose 2.5% today when in half-year results it cited an expectation of lower interest rates for its improved outlook.
The Ruffer managers said: “With the Budget now behind us, UK assets can again be viewed with a longer-term perspective. Our conviction remains that UK equities stand out on valuation compared with their global peers – an advantage far less evident for either gilts or sterling.”
They revealed they had trimmed their position in UK index-linked gilts in the event of a poorly received statement, which proved not to be the case.
“Ultimately, the chancellor was able to avoid some of the most difficult decisions because the projected fiscal hole was less deep than anticipated,” the trio said.
The investment company’s assets slipped 0.2% in November in a volatile month for equities with US shares down almost 5% before the Federal Reserve indicated it was likely to cut interest rates for a third time in December. The Fed’s decision is due today with the managers believing both investors and the central bank are walking a “tightrope” on whether the rate cuts wanted by president Trump are in fact desirable.
“We are concerned that the market is ill-prepared for outcomes outside its base case. This leaves us with attractive opportunities beyond the crowded trades. Growth assets in less fashionable areas – such as the UK – offer compelling entry points, and low volatility means portfolio protections are also attractively priced,” the managers said.
Ruffer holds most of shareholders’ capital in “protective” assets with over 62% in bonds, credit derivatives and cash, with a further 8% in inflation-linked bonds and gold and just 28.7% in a range of international “growth” equities. Of this, the highest exposure is to the UK at 12.4% compared to only 5.2% to North American companies.
The fund’s underlying NAV has returned 11% in year to 30 November with shareholders receiving 12% as the discount – or gap to asset value – narrows to 3.5% in response to large share buybacks by the company. Medium-term performance has disappointed investors with a total underlying return of 5% over three years that led to the departure of former lead manager Duncan MacInnes in February. He later joined UK small-cap boutique Aberforth.
In the year to 30 June Ruffer’s 5.4% underlying return fell short of the 9.8% required to hit its target of doubling the Bank of England base rate.
