View the article online at http://citywire.co.uk/money/article/a750657
Ruffer buys 'old technology' for mini-bubble protection
Hamish Baillie and Steve Russell shun likes of Facebook in favour of less hyped mature firms such as IBM.
The Ruffer team added to its 'old technology' exposure last month, with the likes of Oracle, IBM and Qualcomm now accounting for 4% of the £310 million Ruffer Investment Company (RICA ).
'These businesses are at the opposite end of the spectrum to the upstarts of social media and internet start-ups,' the trust's managers Hamish Baillie and Steve Russell said in their monthly update to investors.
'They have mature businesses that are cash generative, profitable and derive a significant part of their profits from recurring (relatively stable) revenue streams.
'They remain reasonably valued and have not been caught up in the hype (and disappointment) of the recent technology mini-bubble.'
RICA is a long-standing pick of Citywire Selection. April was not one of the trust's better months as its 16% exposure to Japan turned sour, contributing to 1.1% decline its net asset value compared with a 2.2% rise in the FTSE All Share.
After much debate, Baillie and Russell believe their position in Japan remains justified. 'Japan has gone from hero to zero in a little over 12 months. While we are comfortably still in profit on our reflation trades in Japan (and we locked in some profits earlier this year) what is left has hurt us.
The duo added: 'Should we be reducing our exposure further? We think not. Some of the fair-weather participants who were out of the market for many years before last year’s rally will have missed out by joining the party too late.
'They have been quick to sharpen their knives and declare Abenomics a flash in the pan and another example of a failed Japanese economic revival.'
Abenomics is the name given to an ambitious economic stimulus programme introduced by Japanese prime minister Shinzo Abe. His aim is to revive Japan with 'three arrows': a massive fiscal stimulus, more aggressive monetary easing from the Bank of Japan, and structural reforms to boost Japan's competitiveness.
The pair said its meetings with the Bank of Japan and 'numerous' company meetings suggest Abe's programme is on track, with signs of positive inflation and growth.
'We are halfway through the stimulus programme which has succeeded in delivering dramatic growth in corporate profitability which will feed through to consumers through salaries, bonuses and dividends,' Russell and Baillie said.
'The government is preparing the ground for structural changes to employment law, agricultural reform and the introduction of corporate tax incentives. At the same time land prices in Tokyo are rising and the banking sector is willing and able to lend.
'We feel this is an encouraging backdrop. We should not expect the same level of return as we saw last year but if a domestic recovery is achieved then the very low level of expectations in markets means that there is still plenty to go for.'
In the three years to May, Ruffer Investment Company's net asset value (NAV) has risen by 10.7% versus a 27.54% rise in the FTSE World Index. Nevertheless, the shares trade on a small premium to NAV of just over 1%.
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by Daniel Grote on Jan 30, 2015 at 17:06