Ruffer Investment Company 20 December 2021

Ruffer Investment Company (RICA) is managed with an unconstrained approach in order to grow investors’ capital over the long-term while protecting it against the key risks the managers see on the horizon. The aim is to provide a positive return in essentially all circumstances, with a focus on avoiding material drawdowns and specifically the large drawdowns that occur during crises or changes of economic environment.

As we discuss under Performance, this has been achieved since launch in 2004, with the multi-asset portfolio outperforming UK equities, with significantly fewer down periods and those being of lower magnitude than equities on average. The maximum fall in NAV since inception is 8.6% compared with a fall of more than 45% in equities. Performance was particularly strong during 2020 as some long-standing protective positions paid off in a crisis, exactly as designed. This strong performance has led to the shares trading on a sustained premium (see Discount), and this is currently 2.8% despite the recent success of an open offer which raised c. £41m of fresh capital.

RICA is managed by Hamish Baillie and Duncan MacInnes. They work with the broader Ruffer research team. Jonathan Ruffer, founder of the fund management company, remains actively involved in the investment strategy and decision making process. The investment process is informed by both top-down macroeconomic research and bottom-up stock specific research. A major conviction at present is that the world will see substantially higher inflation in the coming years and there is limited scope to raise interest rates to counter this. However, as we discuss under Portfolio, the managers use hedging strategies to ensure they are not over-exposed to one outcome.

We think RICA could be characterised as a simpler and cheaper hedge fund or absolute return fund strategy, making available to the average investor a sophisticated way of managing money with a focus on downside protection but also the potential to make good absolute returns. It is a good option for investors who want to make money in a steady fashion, without suffering the drawdowns often experienced in equity markets, or who are looking for a diversifying and protective strategy to hold in their portfolio instead of or alongside bonds.

RICA’s performance in 2020 was particularly impressive. We think it demonstrates how a patient, contrarian approach can work well over the long run. Of course, it followed a period of sluggish returns, and investors need to have the patience to sit through periods like this. It is also worth considering that in a complacent or ebullient market, the trust will likely underperform equity markets, due to the cost of their hedging strategies, their contrarian approach to equity selection and multi-asset approach.

A key consideration for investors is whether they share the managers’ macroeconomic views and whether it matters. For us, the reaction to the pandemic has indeed shown that authorities are trapped in a cycle of debt creation which makes one of the central theses of the Ruffer team – that interest rates must be pinned below inflation – look much more secure. The way the portfolio is structured should mean there is some protection against the managers’ macro expectations not playing out too. However, it is worth bearing in mind that the economy is extraordinarily complex and hard to read so there is always the chance unexpected events won’t be hedged.