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Ruffer: interest rates to remain 'nailed to the floor'

The Ruffer Investment Company continues to seek protection with inflation-linked bonds to complement its bigger and riskier position in Japan.

 
Ruffer: interest rates to remain 'nailed to the floor'

Holdings in inflation-linked bonds helped protect Ruffer Investment Company, a pick of Citywire Selection, from an 8.2% fall in global equities in the second half of 2011.

A portfolio for all seasons

The management trio of Jonathan Ruffer, Steve Russell and Hamish Baillie secured a return of 0.7% for Ruffer Investment Company ’s net asset value (NAV) during 2011 despite the tough economic backdrop. The trust’s largest loss last year, measured from its peak to trough, was 4.5% compared with 14.7% for global equities.

The fund's mix of assets aims to offer downside protection and capital growth, with inflation-linked bonds a mainstay of the trust for a number of years.

Interest rates to stay 'nailed to the floor'

Inflation-linked bonds were one of the best performing investments during 2011, and helped cushion the blow of falling stock markets. During the second half of the year, global shares fell 8.2% while UK and US inflation-linked bonds rose 15.3% and 10.9% respectively.

After such a strong rally for these so-called 'safe haven' assets, Ruffer thinks they are still essential for protection into 2012 and beyond. ‘They prosper not so much from high inflation, [but] high inflation coupled with low interest rates,’ he said.

Even though inflation has fallen from its recent peak of nearly 5.5%, Ruffer thinks any potential spike into double digits would still see interest rates ‘nailed to the floor’ as the economy would be deemed too brittle.

‘This will tear through investment values, where cash on deposit will lose money in real terms at a similar double-digit rate, and most investments will not match cash. But index–linked are exactly designed for this eventuality,’ he said.

Equity exposure

Japan forms the largest country exposure at 24% of the portfolio, with the holdings in the CF Ruffer Japanese fund, life insurer T&D Holdings and Nippon Telecom.

The telecoms theme is continued with Vodafone (VOD.L) and BT (BT.L) also key holdings, forming part of the 15% exposure to UK equities, with Carphone Warehouse (CPW.L) a recent addition.

Large defensive companies are also favoured in the USA (10% of the portfolio) and Europe (6%). Gold and gold mining equities are a small part of the trust (5%), and around half of this is held in the CF Ruffer Baker Steel Gold fund.

Over five years to 31 January 2012, the trust’s share price has risen 92.9% versus 80.8% for its NAV. It is currently trading at a 4% premium to NAV, and investors can access a similar strategy through the CF Ruffer Total Return fund.    

Citywire Selection verdict:

Ruffer Investment Company maintained its net asset value during 2011, although the share price edged into the red over the year. Long-term returns remain very strong from one of the leaders in multi-asset investing, which has a strong focus on capital preservation. Around a third of the trust is allocated to index-linked bonds, and Japan provides the largest equity slice at 24%. The remainder is mainly held in Western blue-chip equities. 

4 comments so far. Why not have your say?

Broomtree

Feb 06, 2012 at 10:45

Great core holding over the last year

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Franco

Feb 06, 2012 at 21:00

Yes, interest rates will remain nailed to the floor. How else will the small man pay for our bank management fiasco and the bankers' telephone number bonuses?

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Anonymous 1 needed this 'off the record'

Feb 07, 2012 at 14:07

"Even though inflation has fallen....Ruffer thinks any potential spike into double-digits...". ???

IS RUFFER PREDICTING THIS THEN ?? - if so they should take courage and say so - OR ARE THEY JUST WASTING EVERYONES TIME - or was this part of the article badly written ?

We should be told.

report this

Ossian

Feb 28, 2012 at 18:29

Anonymous 1, you seam very agitated.

Anyone who follows Ruffer's reports will know that Ruffer are clear that they believe that inflation will return in the medium term. Regardless they position their portfolio in such a way as never to be wrong at the cost of never being positioned to make the most of an eventuality.

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