Ruffer goes off piste to keep positive return

INVESTMENT trust Ruffer is among a small clutch of funds that aims to generate positive annual returns, irrespective of prevailing stock market conditions. Trusts with similar objectives include Capital Gearing and Personal Assets.

It’s an objective that has proved increasingly difficult to achieve this year as prices for conventional assets – equities, bonds and commodities – have all headed down. Yet Duncan MacInnes, fund manager of this £1 billion stock market-listed fund, has refused to be beaten, adopting ‘unconventional’ tactics to ensure the trust’s share price and asset value keep moving up.

The result is that over the past year, the trust has delivered a 3.4 per cent return – and 38 per cent over three years.

In contrast, both Capital Gearing and Personal Assets have recorded losses (albeit small ones) over the last year and respective returns over three years of 14.5 and 15.6 per cent.

‘Conventional assets have struggled to deliver returns this year,’ says MacInnes. ‘So we’ve had no choice but to explore unconventional assets. It’s an approach we’ve adopted before successfully and we will continue to do so if it helps us achieve the positive returns our shareholders expect.’

In the trust’s financial year to the end of June 2021, a big chunk of its total return of 19.5 per cent was a result of a big holding in Bitcoin. Although it sold out of the cryptocurrency, MacInnes says other unconventional assets such as ‘put options and illiquid strategies’ are giving the trust’s share price much needed ballast. In effect, the trust is making money from betting on certain stocks – technology companies and European banks – falling in price.

‘We will do all we can to ensure we preserve the capital of our shareholders,’ says MacInnes. The fund manager has also made money for shareholders in recent weeks from trading long-dated index-linked gilts. MacInnes did this by taking advantage of wild fluctuations in the prices of these gilts, caused by the market turmoil arising from the unfunded tax cuts announced by then Chancellor Kwasi Kwarteng in his mini Budget. In effect, he bought when their prices plunged and then waited for them to bounce back.

‘If you have plenty of cash or near cash in a crisis, it means you can be nimble and buy assets at distressed prices,’ he adds. ‘It’s exactly what we did. As the saying goes, when it is raining gold, grab a bucket, not a thimble. We had our bucket ready and waiting.’

The defensive mode of Ruffer is such that it has just 15 per cent of its assets in equities – a record low for the trust. Of the equities held, most are involved in oil exploration – the likes of BP, Shell and US-listed Chesapeake Energy. MacInnes says: ‘Interest rates are going ever higher, although we’re closer to the end of rate hikes than the beginning. Investors are redeeming their equity holdings and cash is becoming increasingly popular. We will be waiting in the wings to buy equities when we think the price is right.’

Analysts at Investec Bank believe Ruffer now represents a ‘buy’. In a research note issued in recent days, it described the trust’s investment approach as ‘nimble and opportunistic’. It also said its ‘unconventional toolkit’ could provide shareholders with ‘significant value’ in the months ahead.

The trust’s shares are currently trading at around £3. Dividend payments are made semi-annually and in the last financial year (to the end of June this year) totalled 2.75pence a share. The trust’s annual charges total 1.08 per cent, the stock market identification code is BO18CS4, and the market ticker RICA.