13 August 2024
RUFFER
INVESTMENT COMPANY LIMITED
(a
closed-ended investment company incorporated in Guernsey with
registration number 41966)
(the
"Company")
Attached is a link to the Monthly
Investment Report for July 2024.
http://www.rns-pdf.londonstockexchange.com/rns/1421A_1-2024-8-12.pdf
The portfolio delivered a positive
return over the month before what looks set to be an eventful
second half of summer.
The beginning of July was broadly
unremarkable until a slew of softer economic data raised hopes that
the US Federal Reserve would ease monetary policy earlier and more
than had previously been anticipated. This triggered a rotation out
of the 'Magnificent 7' tech stocks into smaller companies, which
are typically more economically sensitive than their larger peers.
So far, this initial rotation has been orderly. The S&P 500 was
positive for the month, helped by the soothing words of Federal
Reserve Chair Jerome Powell on the final day of July. Whilst the
market may currently cheer the prospect of lower interest rates, it
is prudent to challenge the notion that bad news for the economy
will be good for risk assets.
Gains for the month were led by the
portfolio's interest rate sensitive assets, such as the long-dated
inflation-linked government bonds and gold mining companies, which
enjoyed the move lower in bond yields. Another source of volatility
and interest rate sensitivity was the yen, which appreciated 7%
against the US dollar during July. The portfolio faced a headwind
from its derivative protections as equity markets largely remained
stable despite the movements under the surface.
Whilst the overriding theme from
central banks is one of monetary easing, the Bank of Japan stood
out from the crowd as it raised interest rates for the second time
this year. We have previously written about the asymmetry we see in
the yen. The size of likely interest rate hikes and their terminal
level may be modest, yet they would partly close the yawning gap in
monetary policy with other central banks. However, the yen's
primary role in the portfolio is protection. The plumbing of global
financial markets makes the yen, in our opinion, a prime
beneficiary of market turmoil. It is a favoured source of financing
for investors borrowing to invest in higher returning assets
overseas. If market conditions change for the worse, we expect the
yen to benefit from a flight to safety as other assets
struggle.
We do not attempt to time every
market turn, but we do seek to increase the portfolio's protective
armoury when we sense moments of danger. In today's environment, we
see a lot of value in out of favour areas, such as volatility and
the yen, rather than among conventional growth seeking assets.
Equities, dominated by the US mega-caps, look expensive and have
enjoyed a prolonged improvement in corporate profitability.
Although there may be no predetermined cap on valuations and high
prices do not offer any meaningful signal in the short term, they
do point to a vulnerability should reality fall short of the
market's lofty expectations. At that point, valuations will matter.
We have built a portfolio that should thrive - thanks to derivative
protection - if conditions markedly worsen but should also deliver
a positive, though perhaps unexciting, return should the exuberance
continue.
Enquiries:
Sanne Fund Services (Guernsey) Limited
Tracy Holloway
Email: RIC@apexfs.group
LEI: 21380068AHZKY7MKNO47