Ruffer Investment Company delivered positive returns in each of the first three months of 2022 as both equities and bonds ended up in negative territory.
During March, the NAV was up 1.7%, after allowing for the dividend paid during the month, compared with a rise of 1.3% for the FTSE All-Share index.
In February, Ruffer’s NAV rose 2.6% against the FTSE All-Share index dropping 0.4%. In January, those figures were +0.8% and -0.3%, respectively.
See also: January offered brief taste of challenges conventional portfolios face
Active duration management via derivatives essential
In their latest investment update, managers Hamish Baillie (pictured) and Duncan MacInnes pointed to global bonds enduring “their worst quarter ever despite war, pestilence (Covid disruption in China) and growing fears of a recession”.
The pair have long flagged the vulnerability of conventional bonds, they said, adding that long-dated inflation-linked bonds “remain a key holding for the world we are heading into”.
“During March, long-dated inflation-linked bonds fell in value as yields rose faster than inflation expectations, but our interest rate options – which profit from rising yields – more than offset this fall in value. Active duration management via derivatives continues to be essential to the company’s resilience in a rising yield environment.”
They continued: “While fixed income volatility hasn’t been this high since the great financial crisis, equity markets look increasingly complacent, with many recovering all losses since the start of the Ukraine War.”
As a result, the duo “trimmed equity exposure to 36% reflecting greater uncertainty and profit taking in some equity derivative protections”.
Overall, “equities were a positive contributor for the month, with energy stocks once again leading the charge”, they added.
Tapering USD exposure in favour of the Aussie dollar
“Commodity markets continued to perform well, with higher prices helping the Australian dollar, where we now have exposure of around 5%,” Baillie and MacInnes said, adding it was funded from the US dollar.
They also believe that Australian pension funds may soon start to close their net short position in their domestic currency, “adding a further kick to the Aussie dollar”.
Keeping it commodities-related, Baillie and MacInnes added 2% to bullion exposure – taking total gold exposure close to 10%.
They said gold exposure and mining equities “were the largest positive performance driver during the month”.
