TIDMRICA
RNS Number : 7326S
Ruffer Investment Company Limited
13 July 2020
RUFFER INVESTMENT COMPANY LIMITED
(a closed-ended investment company incorporated in Guernsey with
registration number 41996)
LEI 21380068AHZKY7MKNO47
13 July 2020
INVESTMENT MANAGER'S YEAR REVIEW
For the year ended 30 June 2020
The following review from the Manager of the Ruffer Investment
Company covers the 12 month period to 30 June 2020. This review is
intended to give shareholders unaudited key performance indicators
and a portfolio review in a timely fashion. The audited Annual
Financial Report will be released in the normal way in
mid-September 2020 once the audit process is complete.
Attached is a link to the Year End Review -
http://www.rns-pdf.londonstockexchange.com/rns/7326S_1-2020-7-11.pdf
The Year End Review is also available via the Company's
Investment Manager's website www.ruffer.co.uk .
30 June 2020 30 June 2019
Key performance indicators (unaudited) % %
========================================== ============== ==============
Share price total return over 12 months
(1) 12.4 (5.7)
NAV total return per share over 12 months
(1) 10.1 (0.9)
Discount of traded share price to NAV (1.5) (4.0)
Dividends per share over 12 months 1.85p 1.80p
Annualised dividend yield 0.8 0.8
Annualised NAV total return per share
since launch (1) 7.4 7.2
Ongoing charges ratio 1.08 1.13
========================================== ============== ==============
Financial highlights (unaudited) 30 June 2020 30 June 2019
========================================== ============== ==============
Share price (bid) 242.00p 216.00p
NAV GBP444,389,282 GBP406,745,803
Market capitalisation GBP437,507,967 GBP390,502,979
Number of shares in issue 180,788,416 180,788,416
NAV per share (2) 245.81p 224.98p
========================================== ============== ==============
Investment Manager's report
Performance review
The share price return of 12.4% and the NAV return of 10.1% for
the year to 30 June 2020 are good results at a time of significant
market stress and profound economic uncertainty. The portfolio has
achieved its objective of preserving shareholder capital regardless
of the market conditions. Furthermore, we have produced some
much-needed growth and feel confident about our prospects from
here.
Ruffer has now produced a positive return in the three major
bear markets since the firm began in 1994, making money for our
clients and shareholders in 2000-3, 2008 and... so far... in 2020.
Ruffer Investment Company, which was launched in 2004, has
weathered two of these storms.
The first half of 2020 has demonstrated how the Ruffer strategy
should perform. We protected capital in the sell-off in February
and March, but we also managed to capture the rebound since April
posting a one of our strongest quarters ever in Q2 2020. This is
reminiscent of our performance in 2008 when we produced strong NAV
returns in a bear market and then followed up with a good return in
2009's bull market.
Although this report covers the last 12 months, the first eight
seem remarkably insignificant in the context of the pandemic. We
covered the major events in our interim report to December 2019.
Recapping what has happened since, after a positive start to 2020,
stock markets plunged in March on escalating fears of the global
impact of COVID-19 and a Russian-Saudi oil price war. The virus
shook the world and dragged the global economy into the deep freeze
from February. The combination of these events revealed the
structural and technical frailties in what we had come to call
'avalanche prone' markets. In the fastest decline in stock market
history, equity markets fell by a third in just 22 days, hitting
their lows on 23 March, the very day the UK officially went into
lockdown.
Cue the cavalry. Stock markets rallied in the second quarter as
central banks, very much led by the US, swung into their now
habitual role of supporting asset prices. The size, breadth and
swiftness of the monetary and fiscal intervention is unprecedented
in peacetime and we wait to see whether it is sufficient to keep
businesses and employment afloat, but for now at least, it has been
a big enough bazooka to reassure investors. In April and May equity
markets duly recorded one of their fastest recoveries.
Portfolio attribution
Of course, we did not see the coronavirus crisis coming but our
all-weather portfolio construction means we don't need a crystal
ball, we should always be prepared. In the downturn it was the
portfolio's protective assets which generated the returns. In the
last six months notable positive contributions came from credit
protection (+6.2%), gold (+ 5.1%), index-linked bonds (+3.9%) and
option protection (+ 3.3%). The negative side of the ledger was
dominated by equities, where we were hit hard (-10.5%). Overall, in
the acute period of the crisis the portfolio behaved in a balanced
fashion and as we would expect.
It is worth highlighting the success of our unconventional
protections which have cost the portfolio in recent years. The
Ruffer Illiquid Multi-Strategies Fund contained our positions to
benefit from rising credit spreads and burst into life, almost
doubling at the peak of the market stress. The options on rising
volatility and falling equity indices rose by between 20 and
100-fold, proving that whilst small in size they could be ferocious
at the right moment. Lastly, the LF Ruffer Gold Fund rose 56% in
the six months to 30 June 2020.
The equity book was bruising as stated above. Our holdings were
deliberately potent because they were an offset to our large
defensive positions elsewhere. Our focus on value and cyclicals
resulted in many of our stocks falling more than the market as
economic prospects collapsed. In the last 6 months, UK banks cost
the portfolio (-2.8%) as optimism from the 2019 General Election
turned into recession and loan-loss concerns.
We continue to look for special situation stocks in areas such
as merger-arbitrage where we generated fairly low risk profits
(0.5%) in owning Celgene and Grubhub as they were taken over. The
best performing individual stock for the year was Ocado which is
transforming from a food retailer to a global software platform and
rose 72% adding 0.7% to performance.
Portfolio changes
We entered 2020 defensively positioned due to a wide variety of
economic, political and market risks which we did not believe were
discounted in elevated valuations and stretched balance sheets.
In January we bought a basket of Japanese companies which we
believe are ripe for engagement and activism to improve governance
and shareholder returns by paying out excess cash, selling down
cross-shareholdings, or engaging in M&A. The virus has
disrupted the positive trend in corporate activity, but these
businesses are extremely conservatively run and compellingly
valued. These are small positions individually but cumulatively add
up to almost 2% of the portfolio.
The Japanese market in general has two ways to win thanks to its
previous conservatism. Due to Japanese companies' robust balance
sheets they can now be on the front foot to take market share and
invest in growth or alternatively they can increase their dividend
pay-out ratios and become a source of income in a yield starved
world.
In March we faced a decision about adding to equities as they
fell. Rather than catching what felt like a falling knife in the
equity market, we were excited to be given an opportunity to add to
distressed and disrupted positions in other asset classes. We added
more than 2% to gold equities in mid-March; these had sold off in
line with the equity market and had not yet started to respond to
the improving fundamentals for gold - zero rates and quantitative
easing, or for their operating costs - cheaper labour and oil
prices.
Another casualty of the panic and forced selling was US
inflation-linked bonds. This presented a brief but compelling
opportunity to extend the duration of our US TIPS. We moved 8% of
the portfolio from short dated bonds out to beyond 2040 giving this
part of the portfolio greater potency should real yields falls.
These two moves increased our portfolio risk and duration but in
a more oblique and targeted fashion than buying equities. On a risk
adjusted basis this was one of the most attractive trades we have
made in the last decade, the forced selling was purely technical
and we could deploy a large amount of capital quickly. We preferred
the risk/reward in these trades over equities as they were closer
to the source of a rally which was likely to be driven by
government intervention.
We added a little to existing holdings in Royal Bank of Scotland
and Lloyds. We re-initiated a position in Barratt Developments, the
housebuilder. A new holding, Vinci, is a key infrastructure player
in France controlling roads, concessions, and construction. We
managed to buy it well, almost 50% off its recent highs with a 10%
free cashflow yield.
Towards the end of the period we continued to take profits in
quality and growth companies, trimming Ocado, Sony and US
healthcare stocks. The proceeds have been used to focus the equity
book more into value and cyclical stocks. Recent additions include
American Express, Charles Schwab and Cemex. Overall, we maintain a
low equity weighting given the market and economic outlook.
Investment outlook
As always, our goal remains to provide consistent positive
returns regardless of what the market or economy throws at us.
There is an epoch-defining tug-of-war going on between the
unprecedented interventions of governments and central banks versus
the unimaginable disruption to the functioning of the global
economy caused by the pandemic. One of the most obvious
consequences is that the inflationary endgame is closer and more
likely than it was six months ago. Borrowing is currently going
through the roof in order to fund the emergency measures put in
place by governments. Previously one might have said that keeping
interest rates below the rate of inflation (financial repression)
was desirable, now it is a necessity if these promises are going to
be affordable.
The world today, in lockdown, is unequivocally deflationary but
the solutions are unequivocally inflationary. A significant change
of the last six months is that politicians rather than central
bankers now have their hands on the steering wheel and they have an
entirely different set of objectives and incentives.
The stable inflationary environment of the last 30 years leads
to a problem of imagination. Nobody much under 60 has any clear
memory of what it is like to deal with inflation as a real world
problem. But inflation is very much a behavioural phenomenon - if
you know your money will not be worth as much tomorrow, you will go
out and spend it today. For now these expectations lie dormant, but
they can very quickly become self-reinforcing as we recently saw
with the rush to turn money into goods on supermarket shelves.
Remember at its simplest, inflation is caused by too much money
spent chasing too few goods.
On top of this, austerity is dead and fiscal spending is here to
stay. What's more it is currently being financed by central bank
money printing. It doesn't matter whether it is the political left
or the right in power - they all have their own expensive plans to
stimulate and get the economy going again.
From the US Democrats' Green New Deal or Medicare-for-All,
Trump's Coronavirus Stimulus Cheques, to Rishi Sunak's furlough
schemes, bounce back loans and stamp duty holidays, the spending
rabbit is well and truly out of the hat.
But the problem with 'printing money' is one of control. Once
voters know that unfettered money can be bestowed so easily,
politicians will suffer greater pressure to create more! As Milton
Friedman said, 'Nothing is so permanent as a temporary government
program'.
This is an environment of financial repression - interest rates
held below the rate of inflation for a sustained period. We have
already had a decade and we think it is going to get worse.
In short, we are entering a new regime, and in contrast to the
world we have lived through it will favour labour over capital and
will be less friendly to the asset owner. This means our job of
protecting our shareholders is getting harder but it also makes the
answer clearer, more certain.
The solutions to the crisis this time have resulted in money
being injected directly into the real economy and people's pockets,
those companies and citizens who desperately need it and will spend
it. Quite the contrast to stimulus being stuck on bank balance
sheets as happened in the aftermath of the global financial
crisis.
Economic and market regimes matter, we think the corona-crisis
will act as an accelerant into a new regime of high economic and
market volatility and higher inflation. All of these are bad for
asset prices. If this is the case, then investors must protect
themselves against it. This world will require a profoundly
different portfolio from the one which has served investors well
over the last couple of decades.
A portfolio of index-linked bonds, gold and value stocks (which
benefit from stimulated GDP growth) and a significant sprinkling of
protection against market calamity looks to be the right mix. We
have survived the initial onslaught but this story is not over;
economic events have gone from a jarring spectacle to a corrosive
malaise which will play out over the coming months and maybe
years.
At Ruffer our approach has always been not to try to precisely
time events, but to position our portfolio in anticipation of the
environment we believe will inevitably emerge. We will continue to
strive to produce a defensive, uncorrelated return which can offer
useful diversification and peace of mind to our shareholders.
Asset allocation 30 June 2020 % 30 June 2019 %
============================== ============== ==============
Non-UK index-linked bonds 21.6 12.4
Credit protection and options 13.0 8.5
Cash 10.7 4.0
Gold and gold equities 10.6 7.7
Long-dated index-linked gilts 10.1 13.6
Short-dated gilts 3.6 12.4
Other Index-linked gilts 0.5 0.6
%%
============================== ============== =============
UK equities 13.0 10.3
North America equities 6.9 14.3
Japan equities 6.8 10.8
Europe equities 2.6 3.8
Asia ex-Japan equities 0.6 1.6
Ruffer AIFM Limited
10 July 2020
Portfolio statement
as at 30 June 2020 (unaudited)
% of total
net assets
======================================================= ===========
Non-UK index-linked bonds 21.54%
Japanese Government Index Linked Bond 0.10% 10/03/2026 0.60
Japanese Government Index Linked Bond 0.10% 10/03/2027 0.60
Japanese Government Index Linked Bond 0.10% 10/03/2028 0.59
======================================================= ===========
US Treasury Inflation Indexed Bond 0.125% 15/04/2021 1.97
US Treasury Inflation Indexed Bond 1.750% 15/01/2028 5.83
US Treasury Inflation Indexed Bond 0.875% 15/01/2029 3.15
US Treasury Inflation Indexed Bond 0.625% 15/02/2043 3.58
US Treasury Inflation Indexed Bond 0.750% 15/02/2045 3.39
US Treasury Inflation Indexed Bond 0.250% 15/02/2050 1.83
======================================================= ===========
Total non-UK index-linked bonds 21.54
United Kingdom bonds 14.21%
Long-dated index-linked gilts
UK Index-Linked Gilt 0.375% 22/03/2062 4.67
UK Index-Linked Gilt 0.125% 22/03/2068 5.41
======================================================= ===========
Total long-dated index-linked gilts 10.08
Short-dated gilts
UK Gilt 2.000% 22/07/2020 3.60
------------------------------------------------------- -----------
Other index-linked gilts
UK Index-Linked Gilt 1.875% 22/11/2022 0.53
Total UK gilts 14.21
======================================================= ===========
Total government bonds 35.75
======================================================= ===========
Equities 29.91%
Europe
Carrefour 0.36
Vinci 0.75
Vivendi 0.37
======================================================= ===========
ArcelorMittal 1.15
======================================================= ===========
Total Europe equities 2.63
United Kingdom
Barclays 0.47
Barratt Developments 0.45
Belvoir Lettings 0.23
Breedon 0.30
Countryside Properties 0.63
Grit Real Estate 0.23
Hipgnosis Songs Fund 0.36
Lloyds Banking Group 1.81
Ocado Group 0.77
PRS Real Estate Investment Trust 0.41
Renn Universal Growth Trust 0.36
Royal Bank of Scotland Group 0.93
Royal Dutch Shell 0.50
Ruffer SICAV UK Mid & Smaller Companies Fund 3.48
Secure Trust Bank 0.09
Tesco 1.59
Tufton Oceanic Assets 0.39
Total UK equities 13.00
North America
American Express 0.86
Benefytt Technologies 0.17
Bristol Myers Squibb CVR 0.05
Cemex 0.47
Centene 0.60
Charles Schwabb 0.36
Cigna 0.61
Ehealth 0.34
ExxonMobil 0.46
General Motors 0.87
JPMorgan Chase 0.51
Synchrony Financial 0.40
Walt Disney 1.21
======================================================= ===========
Total North America equities 6.91
======================================================= ===========
Japan
Bandai Namco Holdings 0.29
Central Glass 0.04
Dena 0.04
Fuji Electric 0.42
Fuji Media 0.04
Fujitec 0.06
Fujitsu 0.85
Hoya 0.35
Japan Petroleum Exploration 0.03
Kato Sangyo 0.11
Koito Manufacturing 0.05
Mitsubishi Electric 0.61
Mitsubishi Heavy Industries 0.38
Nippo 0.06
Nippon Seiki 0.07
Nippon Television 0.04
Nissan Shatai 0.09
Nomura Real Estate Holdings 0.80
NTT Data 0.04
Orix 0.52
Sekisui Jushi 0.03
Shin-Etsu Polymer 0.05
Sony 0.67
Tachi-S 0.06
Teikoku Sen-I 0.10
Toagosei 0.06
Toei Animation 0.10
Toei 0.05
Token 0.05
Tokio Marine 0.39
Tokyo Broadcasting 0.05
Toppan Forms 0.05
Torii Pharmaceutical 0.05
Toyota Industries 0.05
TS Tech 0.05
TV Asahi 0.04
Total Japan equities 6.74
Asia (ex-Japan)
Swire Pacific 0.34
------------------------------------------------------- -----------
Weiss Korea Opportunity Fund 0.29
======================================================= ===========
Total Asia (ex-Japan) equities 0.63
=======================================================
Total equities 29.91
------------------------------------------------------- -----------
Gold and gold equities 10.62%
AngloGold Ashanti 1.07
IAmGold 1.29
Ishares Physical Gold 1.08
Kinross Gold 1.31
LF Ruffer Gold Fund 3.08
Newcrest Mining 1.22
Newmont Gold 0.56
Wheaton Precious Metals 1.01
------------------------------------------------------- -----------
Total gold and gold equities 10.62
======================================================= ===========
Credit protection and options 13.03%
Ruffer Illiquid Multi Strategies Fund 2015 8.74
Ruffer Protection Strategies International 4.29
------------------------------------------------------- -----------
Total credit protection and options 13.03
------------------------------------------------------- -----------
Total investments 89.31
------------------------------------------------------- -----------
Cash and other net assets 10.69
------------------------------------------------------- -----------
100.00
------------------------------------------------------- -----------
Appendix
Regulatory performance data
To 31 Dec % 2004 2005 2006 2007 2008 2009 2010 2011 2012
------------------ ---- ---- ---- ---- ----- ---- ---- ------- ----------
RIC NAV TR 8.9 14.0 0.1 6.0 23.8 15.1 16.5 0.7 3.4
FTSE All-Share TR 12.3 22.0 16.8 5.3 -29.9 30.1 14.5 -3.5 12.3
------------------ ---- ---- ---- ---- ----- ---- ---- ------- ----------
2013 2014 2015 2016 2017 2018 2019 ++ 2020 Annualised
---- ---- ---- ---- ----- ---- ---- ------- ----------
9.5 1.8 -1.0 12.4 1.6 -6.0 8.4 6.7 7.4
20.8 1.2 1.0 16.8 13.1 -9.5 19.2 -17.5 6.6
---- ---- ---- ---- ----- ---- ---- ------- ----------
From July 2004
++ To June 2020
Source: Thomson Datastream, Ruffer, FTSE International (FTSE) .
Please note that past performance is not a reliable indicator of
future performance. The value of the shares and the income from
them can go down as well as up and you may not get back the full
amount originally invested. The value of overseas investments will
be influenced by the rate of exchange. Calendar quarter data has
been used up to the latest quarter end. Ruffer LLP is authorised
and regulated by the Financial Conduct Authority.
This document, and any statements accompanying it, are for
information only and are not intended to be legally binding. Unless
otherwise agreed in writing, our investment management agreement,
in the form entered into, constitutes the entire agreement between
Ruffer and its clients, and supersedes all previous assurances,
warranties and representations, whether written or oral, relating
to the services which Ruffer provides.
FTSE International Limited (FTSE) (c) FTSE 2020. FTSE(R) is a
trade mark of the London Stock Exchange Group companies and is used
by FTSE International Limited under licence. All rights in the FTSE
indices and/or FTSE ratings vest in FTSE and/or its licensors.
Neither FTSE nor its licensors accept any liability for any errors
or omissions in the FTSE indices and/or FTSE ratings or underlying
data and no party may rely on any FTSE indices, ratings and/or data
underlying data contained in this communication. No further
distribution of FTSE Data is permitted without FTSE's express
written consent. FTSE does not promote, sponsor or endorse the
content of this communication.
Enquiries:
Praxis Fund Services Limited
Shona Darling
DDI: +44(0)1481 755528
Email: ric@praxisifm.com
1 Assumes reinvestment of dividends
2 NAV per share as released on the London Stock Exchange
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END
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