Ruffer Investment Company (RICA) is designed to achieve net annual total returns of at least twice the Bank of England base rate. The trust invests internationally across a range of asset classes, seeking to hold both growth and protective strategies in an appropriate balance with the aim of generating consistent positive returns and avoiding losses over rolling 12-month periods.
As we discuss under Portfolio, RICA owns pools of assets designed to provide different return profiles in various environments. The managers, Hamish Baillie and Duncan MacInnes, have long argued that structural problems in developed economies – primarily too much debt and too little growth – have compelled governments and central banks to ever more extreme measures to try to inject inflation and nominal growth into the system. The RICA portfolio is positioned to benefit from a return of inflation and higher nominal growth which will surprise markets. Yet the managers also retain defensive positions designed to offer asymmetric protection against deflationary economic shocks.
RICA is managed with an aversion to absolute losses, and proved successful at protecting capital and generating gains in the challenging conditions of Q1 2020, as we discuss under Performance. Subsequently, ‘risk on’ assets have delivered positive contributions whilst protective strategies detracted, in line with the balanced approach the managers seek to ensure is present. The notable exception is US TIPS, which have made money since as inflation expectations have recovered and the world has moved away from the deflationary abyss.
RICA’s Discount remains relatively wide compared to the trust’s history, but seems to have consistently attracted buyers when around current levels (c. 5.2% as at 11/11/2020).
Repeated attempts by central banks and governments across the world to smooth economic and market conditions have ironically created conditions which seem likely to structurally increase periods of sharp volatility. Coming after a c. 40-year epoch which has been extremely supportive of a simple 60/40 equity / bonds portfolio split, there seems to be the potential for disruption to long held market assumptions. In this respect, we regard the focus on asymmetry which is present across the multiple strategies in RICA as attractive, with results in 2020 showing how this can benefit returns.
Structurally, then, RICA continues to offer attractions. We have on several occasions highlighted the benefits of volatility hedging, and believe RICA serves a purpose in this regard. And despite recent rotational activity there does seem to be a pervasive complacency within equity markets about the perceived ‘winners’ of COVID-19 continuing to dominate and take market share. We would not regard such a situation as fundamentally societally or economically sustainable and certainly think that if there is to be any sustainable equity market upside, then there is relative upside in areas the managers have identified (such as cheaply valued, high-quality cyclicals). In such a scenario RICA may well lag a 100% equity reflationary play, but over the long term we believe it continues to offer true portfolio diversification benefits.
|Long track record of making money in up and down markets
||Will likely lag ‘vanilla’ equity reflationary plays in a macro upswing
|Should offer substantial and convex upside in an inflationary upswing
||Continuation of US and technology dominance would be a threat to returns
|Discount is wide relative to trust’s own history
||Dividend yield likely to remain low