Investment Monthly Report March 2020

RNS Number : 2146J

Ruffer Investment Company Limited

08 April 2020

 

RUFFER INVESTMENT COMPANY LIMITED

(a closed-ended investment company incorporated in Guernsey with registration number 41996)

LEI 21380068AHZKY7MKNO47

Attached is a link to the Investment Monthly Report for March 2020.

http://www.rns-pdf.londonstockexchange.com/rns/2146J_1-2020-4-8.pdf

During March, the net asset value of the Company rose by 4.2% after allowing for the dividend of 0.95p paid during the month. This compares with a fall of 15.1% in the FTSE All-Share index.

Lenin mused that 'there are decades where nothing happens; and there are weeks where decades happen'. March had four such weeks. COVID-19 scythed through Europe and the US whilst rolling shutdowns created the worst ever peacetime output collapse. Unprecedented economic uncertainty, intensified by a Russia-Saudi oil war, drove market volatility unseen since the Great Depression. March marked the end of history's longest US equity bull market with the fastest ever decline into a bear market from an all-time high and the largest one day falls in major indices since 1987.

The Company's derivative protections proved critical, blunting equity losses: we sold the VIX calls (adding +3.0% for the Company during March) and (most) equity put options (+1.7%); credit spreads blew out in Europe and the US lifting our credit protections (+5.8%). These fell back as the US Federal Reserve waded into corporate bond markets, but credit remains exposed and the focus of our remaining alternative protections. Traditional safe haven assets proved flakier friends. Gold and gold mining equities fell with stocks as many investors sold what they could, not what they wanted to. By contrast, capital preservation has allowed us to acquire mispriced assets amidst the volatility including gold mining equities; fixed income gyrations allowed us to add long-dated US TIPS (+20% in USD since purchase) at attractive yields. The Fed and fellow central banks need to anchor yield curves to reduce real rates of borrowing to make the debt splurge affordable. Given the 'wartime' scale of economic dislocation, actual fiscal stimulus required will likely far exceed that already declared.

Yet 'buy the dip' remains a powerful instinct. Is proposed stimulus enough to allow markets to stabilise, 'looking through' to a post-virus era? With the depth and duration of record economic disruption unknowable but increasingly visible, and in the absence of a magic bullet (eg vaccine), further volatility is likely and risks accelerating an investor preference for liquidity. Should markets sustain a rally, long TIPS and gold mining equities mean that the Company's 'risk' assets are materially higher than the c 28% equity weight suggests. Central banks are throwing the kitchen sink at the crisis, but their omnipotence is another COVID-19 victim. On Sunday 15 March, the Fed cut rates to zero and unleashed massive quantitative easing. Markets fell sharply the following day, the third 'black' day this month. This was the Fed's 'emperor has no clothes' moment and signalled the end of the post-1987 'Greenspan put' era, where monetary easing alone repeatedly bailed out fragile markets and economies. Exhausted monetary policy is impotent in the face of the massive real economy shock facing us, and markets know it. Game-changing 'helicopter money' - central bank financing of fiscal stimulus for the real economy - has arrived. Our bet remains that deeper financial repression will result, with inflation-linked bonds and gold the key defences.

Enquiries:

Praxis Fund Services Limited

Gail Adams

DDI: [phone]

Email: [e-mail]  

 

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