Ruffer’s investments held firm in December, with share price and net asset value (NAV) nudging up 0.2% and 0.3% respectively, ultimately capping off a strong year for the investment company.
In its year-end review, Ruffer confirmed that exposure to equities remained at the lowest level in its history, and though this meant it was ill equipped to gain from the recent bounce in prices, for the most part the allocation stood the company in good stead last year.
NAV total return was 8% for 2022, with the FTSE All Share only able to deliver 0.3%.
The firm ended the year with shares selling at £3.11, up by 11p since the end of June, while net asset value per share grew to £3.08. Shares traded at a premium of 1% on 31 December 2022.
Across 2022, the biggest contributor to the company was the interest rate hedges, via payer swaptions, which added 7.3% to the portfolio return.
Equity downside protection added 3% to the portfolio return across its strategies, while credit and volatility protections brought in 2.5%.
Unsurprisingly, the biggest detractor from performance across the 12 months was index-linked gilts. The 2073 bond was down a staggering 68% in 2022, knocking 5% off portfolio performance.
Despite the hammering gilts have taken, investment director Duncan MacInnes (pictured) stood by them: “We have long called these bonds the ‘crown jewels’ in our portfolio due to our conviction that they should provide the best protection in a world of financial repression. We are still of this view. That a key asset can be so painful to hold yet the overall portfolio out-turn be positive does reflect the importance of position sizing and portfolio construction.”
Ruffer’s cash allocation, which had grown to nearly 11% over the course of November 2022, was back down under 4%, and short-dated bonds finished the year at 32.5% of the firm’s holdings, up from 22% at the end of November. In December, the firm also added a 3% position to oil futures via an ETC.
Looking ahead, the report said: “In the near term, we are positioned for a disinflationary lurch, bond yields coming down and a bumpy recessionary landing for the economy. We are waiting for the opportune moment to pivot towards a portfolio positioned for higher nominal growth alongside inflation and financial repression.
“The probability of a global recession is rising. The US yield curve, normally upward sloping, is now the most inverted it has been in over 40 years.
“A benign outcome in 2023 depends on an almost impossible trinity – a short and shallow recession, a rapid decline in inflation and an aggressive Fed pivot. Not impossible but it is hard to see how all three can come to pass. And all three are needed if a favourable market environment is to return quickly.”
Ruffer’s market capitalisation reached £1.14bn by 31 December 2022, up from £969m on 30 June, and £722m at the end of 2021.
