Performed well through tariff-hit markets: Ruffer Investment Company

RICA has performed well through tariff-hit markets…by Thomas McMahon

Overview

Ruffer Investment Company (RICA) is a sophisticated multi-asset fund which has a strong focus on capital preservation. The aim is to deliver positive returns in all market environments, which means being acutely focussed on the key risks to equity and bond markets. The trust has delivered strong returns during the major market crises of the last two decades, and has also done a good job of protecting during the short-term volatility experienced this year surrounding US tariff announcements (see Performance).

In particular, options on the VIX index of equity market volatility delivered positive returns when markets fell, as did precious metals exposure. RICA then delivered positive returns in the market recovery, the managers buying call options on the S&P Index during the sell-off when they were cheap and monetising them over the following weeks and months. RICA also delivered positive returns in the equity market rotation at the start of the year , meaning that it performed in three distinctive market environments, illustrating exactly how the valuation-sensitive, macro-heavy process is supposed to work.

The management team of Jasmine Yeo, Ian Rees, and Alexander Chartres (Duncan McInnes left Ruffer in January) work within a large team of investors all focussed on delivering on the same basic philosophy. The managers are currently cautious on the immediate outlook after the recent rally, and as a result, the portfolio is defensively positioned (see Portfolio). Over the medium to long term, they are particularly concerned about the behaviour of the dollar, which they think is a protective asset which may have stopped protecting, as bonds have done in recent years too. As a result, they are looking for more unconventional assets and techniques to protect against the next market crisis, which we think may well be due, given the time since the last one and the rocky economic and political outlook.

Analyst’s View

As we said in our last note, we think it is often a good strategy to buy insurance when it is cheap. Equity markets have performed well this year, and while RICA has protected when they have fallen, it has not kept up. This is a common pattern over its life, and we think this is a good time to be considering investments like RICA, which might protect when the gravy train ends. High US valuations and a geopolitical tinderbox, along with weak economies in Europe and ambiguous data in the US, all urge caution. In a recent meeting, the team were eloquent on what appears to be regime change in global markets, and an emerging world in which the dollar could follow equities and bonds down in a crisis, and fail to provide diversification when equities are weak. RICA’s unconventional strategies and sophisticated use of fixed income instruments and derivatives look appealing in this new environment. Another key risk the portfolio is positioned for is a new wave of inflation, which recent data suggests may be building, and makes generating real returns even harder.

Changes to the management team in recent years shouldn’t lead to any significant change in performance, in our view. This is because of the collegiate approach taken at Ruffer, which means that research is shared and views filtered through key members of the investment team. In fact, the size and structure of the team are intended to limit the impact of any manager leaving, in keeping with the focus on risk within the investment philosophy.

RICA’s modest Discount has remained stable this year, with the board implementing significant buybacks, and we note it has traded on a premium in the past when crises have hit and investors are more keen on protection.

Bull

• Strong track record of making good returns while limiting drawdowns, especially in crises
• Well positioned for an inflationary environment, in contrast to many other strategies
• Current discount looks attractive versus its recent history

Bear

• Long-term and contrarian approach can lead to periods of sluggish performance
• Could suffer if central economic theses are proven wrong
• Positions can be complex and hard for investors to understand

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_{Disclosure – Non-Independent Marketing Communication. This is a non-independent marketing communication commissioned by Ruffer Investment Company. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.}