RUFFER INVESTMENT COMPANY
LIMITED
(a closed-ended investment company incorporated in Guernsey with
registration number 41996)
Attached is a link to the Investment Monthly Report for
December 2018
https://mma.prnewswire.com/media/805707/2018_12_RIC_monthly_report_Dec2018.pdf
During the month, the net asset value fell by 1.5%. This
compares with a fall of 3.7% in the FTSE All-Share Index.
In a turbulent month our protective assets started to come into
play. If we were to factor in the positive performance of the
protective credit and volatility strategies, which did not price
until after the month end, then the NAV would have fallen less than
1%. From where we stand a further market fall should see the
Company perform well. That being said, we have failed in the last
12 months to deliver on Ruffer’s raison d’être: namely to protect
capital and deliver positive returns regardless of the direction of
markets. That is disappointing and frustrating to us; more
importantly it has been costly to our shareholders.
Let us briefly survey what the financial historians will likely
say about 2018. The most striking factor was the all-encompassing
nature of the decline. Recent market volatility has not been an
economic event (yet) but a financial market one: the global economy
has been growing robustly with the US at the forefront. Yet a
Deutsche Bank study demonstrated that more than 90% of asset
classes posted losses in dollar terms for the year, a record since
1908. In December, not a single company managed to borrow money in
the $1.2 trillion high yield market
and it will go down as the worst
December ever for US stocks. Oil plunged 42% from peak to trough
with no clear catalyst and President Trump scared the horses by
engaging in trade wars and musing about firing the chairman of the
Federal Reserve. For the first time in several years, Federal
Reserve and Treasury communication policy hurt, rather than helped,
the market.
So how is the portfolio currently positioned? We have our lowest
allocation to equities since 2008, at 34%. Yet we have still
sustained damage here. Our exposure was focused on cyclical
businesses trading on low valuations, which we thought would best
capture the benefits of economic growth. Low valuations did not
soften the blow as these stocks fell in line with equity markets,
but we remain confident that these investments will be well placed
to capture any bounce. On the opposite side of the ledger, we have
deliberately chosen to protect the portfolio from material
declines, rather than buying expensive protection against bumps in
the road. As such, the protective investments have only just begun
to kick in, the exception being our investments against distress in
credit markets: these have performed well (up around 30% over the
quarter) and we would expect them to continue to deliver strong
positive returns should the stresses we observe begin to manifest
themselves more seriously.
Looking into 2019, credit markets are likely to be the epicentre
of the next crisis, but the effects will be felt much more widely.
The combination of option protection and the aforementioned credit
market protection will be a powerful one and should more than
offset any losses in our relatively trim equity exposure. When
combined with gold starting to show signs of life and index-linked
bonds likely to contribute positively, this should allow us to be
greedy when others are fearful, if markets fall further.
Enquiries:
Northern Trust International Fund Administration Services
(Guernsey) Limited
Martin Bourgaize +44 1481 745552