Ruffer: how safe is our portfolio?

Central bank policy is also causing Ruffer some concern in an investment landscape it describes as being ‘more complicated’ than last year.  While its index linkers have provided its portfolio with protection despite there being no evidence of a general rise in inflationary worries, Ruffer is still very conscious of the deflationary threat.

‘We are faced with powerful deflationary forces brought about by the financial crisis and hence the effects of deleveraging and austerity, but all the world’s major central banks have chosen to fight this battle with their own inflationary forces  – liquidity injections, ultra-low interest rates and money printing,’ Baillie and Russell said.

‘Recently, central bankers have been in the ascendency not least through the European LTRO (long-term refinancing) operation, but the patient still appears to be dependent on the life support and, with any hint at that support being removed, the market gets the jitters.’

However, ultimately the pair believe central banks will continue to pump money into the system to avert deflation.

'[However] what we know is that the deflationary forces are a finite thing (how much can the economy contract?) whereas the troops at the disposal of central banks are infinite and will persevere as long as they continue to be deployed.'

Over the last 12 months RIC has been successful in its mission, returning 3.3% versus a 0.44% rise in the FTSE World index. The trust is currently on a 3.9% premium.