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Ruffer: we are ready to meet central banks’ cavalry charge

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Ruffer: we are ready to meet central banks’ cavalry charge

Steve Russell and Hamish Baillie, managers of the £276 million Ruffer Investment Company (RIC), have positioned the trust ahead of an impending ‘cavalry charge’ from central banks.

The managers said investors have continued to fret about the eurozone over the summer, with concerns over the lack of global growth and mounting debt.

Russell and Baillie said this has prompted investors to anxiously scan the horizon  for 'signs of the central bank cavalry riding once again to the rescue.’

However, they countered that in recent weeks such investors have been left disappointed.

‘Alas, no such cavalry charge came in July, but there were as ever tantalising hints and signs,’ the RIC team said.

Investors' concerns are unlikely to fade over the coming months given the bleak rounds of activity and growth data that has emerged, and managers Russell and Baillie said they expect another fretful stretch ahead as the debt burden lingers, while at the same time investors will remain hopeful policy makers will act.

Russell and Baillie said the likelihood is increasing that central banks will not quash these hopes, given that around the globe there has been balance sheet expansion.

With this in mind, the Citywire Selection duo have raised their gold exposure, believing the precious metal is now cheap to hold, despite conceding that bullion and gold mining shares have disappointed for some time.

They argued that coordinated action by central banks could undermine confidence in all major currencies, while negative nominal interest rates have emerged.

‘It has always been quite rightly held against gold that it does not produce an income, but neither these days does lending money to the governments of Switzerland, Denmark and Germany,’ said Russell and Baillie.

‘In a world where the economic textbook is being constantly reinvented, negative real interest rates are already morphing into negative nominal rates; under these circumstances the opportunity cost of holding gold rapidly diminishes.’

Russell and Baillie have taken some advantage of the eurozone malaise by buying Ebro Foods, a global rice and pasta business.

The managers have also moved back into M1, the Singapore telecoms company, which has returned almost half its market capitalisation to shareholders over the last five years through dividends, while yielding around 6%.

‘Such additions are small beer, but may help, along with gold, to deliver a reasonable positive return from a portfolio that, so far this year, has been rather better at preserving capital in market swoons than showing outright gains,’ they added.

At the end of July, the fund’s net asset value was 192.41p per share, while trading on a premium to NAV of 2.8%. This marked a 0.3% rise over the month, versus the FTSE All Share’s 1.3% appreciation.

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