Ruffer Investment Company (RICA) is designed to achieve positive annual total returns (after expenses) of at least twice the Bank of England base rate. The trust invests internationally across a range of asset classes, seeking to hold both growth and protective strategies in an appropriate balance with the aim of generating consistent positive returns and avoiding losses over rolling 12-month periods.
RICA consists of pools of assets designed to provide different return profiles in various environments. This structure has proven robust in the market sell-off in Q1 2020, with NAV returns basically flat (see Performance). The managers have long argued that structural problems in developed economies – primarily too much debt and too little growth – will ultimately compel governments and central banks to ever more extreme measures to try and inject inflation and nominal growth into the system, and have been positioned accordingly. A sharp shock to the economic system from the spread of COVID-19 seems set to catalyse this, and they believe it will be unlikely to prove politically feasible to unwind ‘temporary’ emergency-support measures.
As we discuss in the Portfolio section, the managers have taken profits in protective strategies focussed on equity markets and volatility after a substantial rally in these derivatives. However, they continue to hold protection in credit markets, which should offer asymmetric protective characteristics should the current crisis evolve into a full-blown credit crisis.
With the protective strategies having largely offset losses in the equity holdings, RICA’s NAV has remained resilient. However, the discount has moved slightly wider, but seems to have consistently attracted buyers when around current levels (c. 6% as of 31/03/2020).