Ruffer Regulatory News (RICA)

RUFFER INVESTMENT COMPANY LIMITED

(a closed-ended investment company incorporated in Guernsey with registration number 41996)

LEI 21380068AHZKY7MKNO47

Attached is a link to the Investment Monthly Report for June 2019.

http://www.rns-pdf.londonstockexchange.com/rns/8241E_1-2019-7-8.pdf 

During June, the net asset value of the Company rose by 1.9%. This compares with a rise of 3.7% in the FTSE All-Share index.

Following January's handbrake turn on the path of interest rates by the US Federal Reserve, 2019 has so far been a profitable year for most investors, and the Company has benefited with NAV rising by 4.9% on a total return basis. Equities, bonds and credit have all appreciated in value, while hopes of lower US interest rates took the gold price up 8% in June in US dollar terms, reaching a five year high. And therein lies the rub. Global bond markets are signalling sharply decelerating economic activity, with $13 trillion marking a new high level of negative-yielding government bonds, and also the need for immediate rate cuts, with a full 1% of easing over the next twelve months now priced into US rates. Equities meanwhile march blithely on, their raffish insouciance seemingly blind to the risk of profits coming under pressure as economic activity slows. It seems very hard for both these markets simultaneously to be right, and at Ruffer our tradition has always been to focus on the mousetrap rather than the cheese, hence our reluctance to raise the Company's equity exposure from its present level of around 39%.

While in May equities were clearly spooked by the US-China trade spat, June's recovery owed something both to interest rate hopes and to heightened expectations that a trade deal might be struck at the G20 meeting in Osaka. A commitment emerged that talks should be resumed, but specifics and details were conspicuously light.

Unsurprisingly, the Company's credit protections suffered a small loss in June as optimism returned. We would, though, be very surprised if slower economic and profits growth did not bring about higher borrowing spreads and downgrades in corporate credit. Not only are 50% of outstanding investment grade corporate bonds rated BBB, if corporate credit were assessed on borrowing ratios alone 45% of the entire stock of investment grade bonds would be junk. Furthermore, benign borrowing data for the aggregate corporate sector disguises increasingly skewed distributions of profitability and debt. While at present investors seem happy to bid up credit on the basis of a benign interest rate outlook, investors seem equally content to ignore precisely why the interest rate profile has changed, viz slower growth. This investor myopia entirely convinces us of the need for the fund to carry protection against a deterioration in credit markets.

Enquiries:

Praxis Fund Services Limited

Shona Darling

DDI: +44(0)1481 755528

Email: ric@praxisifm.com