Ruffer IT – added to the Foundation Fundlist

It is a tough environment for investors aiming to balance risk and return. This Trust aims to capture decent returns while keeping one eye firmly on the downside.

This content is more than 6 months old now, please visit the news area of this site for more recent content

  1. Rob Morgan

Positioning a portfolio for a variety of economic outcomes is not easy, which is why many investors turn to ‘multi-asset’ investments that contain a variety of different areas. These benefit from diversification, and some also employ ‘protection’ strategies, which can guard against the worst of market falls.

Over the past few decades, a traditional ‘60/40’ portfolio – 60% equities and 40% bonds – has done a good job of providing decent returns while ironing out volatility. However, that may not always be the case. The diversification benefits of bonds may be waning with yields so low and prices high. A bond sell off could coincide with a slide in share markets, for instance if both are spooked by rising inflation. Therefore, a more sophisticated approach could work better.

One option in this regard is Ruffer, a flexible multi-asset investment trust that seeks to achieve a total annual return, after all expenses, of at least twice the Bank of England Bank Rate. It combines conventional asset classes – global equities, bonds, currencies and gold – with the use of derivatives strategies that serve as protection and an allocation to an internal ‘illiquid strategies’ fund, which currently includes Bitcoin exposure. The balance of different assets is designed to cope with a variety of economic scenarios.

Managers Hamish Baillie and Duncan MacInnes seek to anticipate future risks to capital rather than be reactive. The team has been successful in navigating the major crises in the 21st century thus far, namely the Dotcom Bubble, the Global Financial Crisis and, most recently, the Covid crash. The strategy is dependent on the managers’ ability to interpret the macroeconomic environment and identify effective protection to market shocks in an era of inflated asset prices and high correlation.

The portfolio is currently centrally positioned for an inflationary environment, driven by the team’s views. This underpins the decision to hold assets such as cheap economically sensitive equities and index linked bonds. Equities account for about 40% of the portfolio and are heavily biased towards the UK and Japan. While there is a value tilt to this, the managers favour ‘quality franchises’ and avoid distressed or highly indebted businesses. Index-linked bonds represent about a third with gold (and gold equities) accounting for 6%. The remainder is split between cash and the ‘illiquid strategies’ component.

An environment of continued low or negative interest rates and weak global growth would be an ongoing headwind to the strategy. It should also be noted that the overall portfolio will still often carry a positive correlation to risk assets such as equities, despite having diversification benefits.

The trust’s exposure to Bitcoin is somewhat controversial, but we don’t think investors should be overly fixated on it. Estimated at 2-4% of net asset value, the managers have been trimming exposure as the price has risen in recent months. It is kept in offline cold storage in a segregated account by the world’s largest digital assets custodian. Ruffer see it as an asset that blends the benefits of technology and gold, and that it could benefit from the current economic climate.

Our view

Given where government bonds trade today it’s harder to make a case for them offering familiar defensive qualities in future ‘risk off’ environments. We think this enhances the importance of Ruffer’s various forms of protection, and this Trust could be worth considering as a more stable ‘core’ holding in a portfolio.

The Ruffer team have an excellent long-term record of balancing capital preservation and growth, and the Covid crisis proved a reminder of the power of their protective approach. Their derivatives strategies came to life in early 2020, offering a rare source of positive returns in a stressed and volatile environment. However, this part of the portfolio will likely be a drag on returns when markets are benign.

The trust is now positioned for a pickup in inflation, so it could blend well with investors’ more growth-biased equity allocations. We recognise it as an important source of defensiveness and diversification and are pleased to add it to the Foundation Fundlist, our list of preferred funds for new investment across the major sectors.

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

More from author

  1. Rob Morgan

    April’s most widely bought and sold funds

    Date: 5th May 2021 08:23am

    We reveal the funds most bought and sold by customers using Charles Stanley Direct in...

  2. Rob Morgan

    April’s top and bottom performing funds

    Date: 4th May 2021 17:21pm

    A round up of the notable market and fund sector trends in April as US ‘earnings seas...

  3. Rob Morgan

    Six investment pitfalls beginners must avoid

    Date: 27th Apr 2021 17:51pm

    If you are just getting started in investing there are a few things you should learn ...

Most read articles

  1. Ruffer IT – added to the Foundation Fundlist

    April’s most widely bought and sold funds

    Date: 5th May 2021 08:23am

    We reveal the funds most bought and sold by customers using Charles Stanley Direct in...

  2. Ruffer IT – added to the Foundation Fundlist

    April’s top and bottom performing funds

    Date: 4th May 2021 17:21pm

    A round up of the notable market and fund sector trends in April as US ‘earnings seas...

  3. Ruffer IT – added to the Foundation Fundlist

    How Europe can be a dynamic place to invest

    Date: 22nd Apr 2021 08:49am

    This European fund has beaten the S&P 500 over 1, 3 and 5 years despite European mark...

Investment involves risk. You may get back less than invested.