Ruffer’s decision to go on the defensive ahead of the second half of 2022 started paying off in September even if a better-than-expected July meant the strategy got off to something a shaky start.
The investment company’s net asset value rose 3.1% in September, strongly outperforming the FTSE All-Share, which fell by 5.9%. Its share price is down 3%, however.
Year to the end of September, Ruffer’s NAV is up 6.8% against its benchmark’s -12% drop, while its share price has delivered a return of 0.4%.
Writing after the mini-budget which was unveiled by former chancellor Kwasi Kwarteng and ahead of the astonishing government U-turn announced by his successor Jeremy Hunt, the Ruffer team said: “A seamless succession from the late Queen Elizabeth II to King Charles III stood in stark contrast to growing instability in financial markets as the long reign of low inflation and easy money ends.
“Stocks and bonds both fell once again as the toxic cocktail of persistent inflation, central bank hawkishness, rising recession risk and political unvertainty left investors with few hiding places.”
The fund’s performance in the face of tough market conditions was due, in part, to its record-low equity weighting of roughly 14%. This low exposure meant that the torrid month for equities only shaved 1% off its performance, while derivative protections added 3.6%.
Ruffer also capitalised on UK market turmoil in the wake of the mini budget, purchasing index-linked bonds at “extraordinarily distressed prices” before the Bank of England took emergency measures to prop up the gilt market.
The firm adopted a defensive stance after slashing its equity exposure in July in preparation for a “dangerous H2”.
Ruffer deepened this approach in September by increasing its US dollar weighting after the pound recovered from its “mini-budget meltdown”. Fund manager Dunan MacInnes (pictured) said: “For now, the dollar offers defensive characteristics in a world of deepening risks.”
He added: “Britain’s gilt market seizure is a warning from the future. As the liquidity tide continues to recede, other crises will emerge. Housing markets are one obvious area where rapid rate rises are already causing trouble.
“As the Bank of England has just discovered, central banks may have to choose between controlling inflation or protecting financial stability. Ending the reign of easy money was never going to see a smooth succession. The fund remains defensively positioned with the liquidity to take opportunities as they arise.”
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