Ruffer ends tumultuous 2022 in positive territory as it continues de-risk mode

In the six months to 31 December 2022, the NAV total return for the £1.1bn trust was 4.8%, while the share price total return was 4.2%. 

As of the end of the year, Ruffer was trading at a premium of 1.02%. According to the Association of Investment Companies, this premium has now been reduced to 0.74%.

“In the context of conventional assets struggling, it is perhaps not surprising that the driver of performance was our unconventional protective toolkit,” wrote the managers Duncan MacInnes and Jasmine Yeo.

The biggest contributors to performance throughout 2022 were interest rate hedges via payer swaptions, adding 7.3% to the portfolio return. 

Ruffer cuts equities to all-time lows as ‘financial repression’ settles in

Equity downside protection through a mix of strategies such as puts on crowded and profitless tech stocks in Q1, European banks in February and puts on Tesla and the S&P 500 in the latter half of the year added 3% to the portfolio return.

The biggest detractor from performance was index-linked gilts. The 2073 bond, a 2.5% position at period end, was down 68% in 2022, knocking 5% off portfolio performance. 

“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,” the managers wrote.

In the first half of 2022, the trust slashed its equity exposure amid a de-risking of the portfolio and a move into “crouch mode”. Equities remain at 13.5% gross, the lowest weighting since the trust launched in 2003. 

In late Q3, the managers pivoted from bond bears to bulls, adding 12% to long US duration via 10 year and 30 year US Treasury inflation protected securities and US Treasuries. 

By the end of the year, these positions had been reduced to around 3.5% as rates compressed on recession fears. 

“There are many different flavours of risk beyond equity risk and it was our assessment, at the time, that the best risk-adjusted returns were available in the bond market,” the manager wrote.

Waverton’s Carter: Safe haven credentials will return to fixed income in 2023

In December, the trust added a 3% position to oil futures via an ETC and in Q4, it started to rebuild gold exposure towards 5%. 

Looking to 2023, the managers believe the year is “set for an uncomfortable ride”. As such, their assessment is that it is a poor time to take on risk.

“Patience and preparation are our watchwords and, in the meantime, for the first time in 14 years, you are paid a decent return to wait,” the managers wrote.

“The real pivot that needs to happen is in investor portfolios. Most are still over-indexed to equities and illiquid risks based on an asset allocation for a world that no longer exists.”