Ruffer Announces Monthly Investment Report – July 2024

RUFFER INVESTMENT COMPANY LIMITED

(a closed-ended investment company incorporated in Guernsey with registration number 41966)

(the “Company“)

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.