RUFFER INVESTMENT COMPANY
LIMITED
(a closed-ended investment
company incorporated in Guernsey with registration number
41996)
LEI
21380068AHZKY7MKNO47
Attached is a link to the Monthly
Investment Report for January 2024.
http://www.rns-pdf.londonstockexchange.com/rns/3940C_1-2024-2-7.pdf
Global asset markets started the year
almost unanimously priced for a perfect soft landing, following the
strong rally in both equities and bonds into the year end. This
left scope for disappointment in January if either assumption of
early interest rate cuts or steady growth were dialled back. In the
end it was bonds that gave way as doubts emerged over the speed of
likely US rate cuts, whilst equities in aggregate continued to make
gains. Tensions in the Middle East remained high, leading to the
oil price rising 6% and freight costs rising sharply to more than
double the post-covid low seen in October. As yet this has had no
impact on inflation expectations, with markets now convinced that
this dragon has been slain.
The backup in bond yields, especially
in the UK, meant that our remaining holding in long-duration UK
inflation-linked bonds was a drag on performance. Having chosen to
add risk into portfolios through a significant increase in bond
duration in the final quarter of 2023, we took the profits on this
position by the year end, adding instead to our net equity exposure
this month, in light of continued US economic resilience. We
believed yields had fallen too far, too fast, given our concerns
over the likely stickiness and volatility of inflation, and so
started this year with just a core holding in UK inflation-linked
bonds. This was the largest detractor to performance in the month,
but we see this as temporary volatility in a core element of our
long-term inflation protections. Gold and gold equities also fell
back in January.
Global equities were positive overall
in January, with the S&P 500 hitting an all-time high during
the month. However, it is worth remembering this merely constitutes
a recovery from the 2022 bear market, with equities still broadly
flat over the last two years and in our view does little to support
the current, almost euphoric, levels of stock market positioning.
Once again, as we saw last year, equity gains in January remained
narrowly based. The S&P 500 rose 1.7% in the month, but the
equal weighted version was in negative territory. There has also
been what might be considered a worrying concentration of
performance within the dominant mega-cap tech stocks. NVIDIA and
Meta recorded double digit gains, but Tesla fell 20%, and Apple and
Alphabet were flat to down. Elsewhere, investors continued to shun
value, with the cheapest markets (China, emerging markets and the
UK) all down on the month. For us, the UK appears anomalously
undervalued while China now seems to be pricing in
despair.
Overall, the big questions for
investors remain unresolved. Most equity markets have now recovered
their 2022 losses and are increasingly priced on the assumption
that inflation will fall to target and stay there, without a
decline in profit margins or economic growth. Bond markets appear
to be more realistically pricing in a regime of higher interest
rates, even if they show periods of over optimism. Has the Fed
'put' now been restored, with the central bank free to cut rates if
growth falters, or will sticky and volatile inflation leave them
facing more difficult choices? In other words, are equities and
bonds still positively correlated or have we returned to the
'Goldilocks' conditions of the pre-covid era? We remain unconvinced
that inflation has vanished for good and that there will be no
lasting impact from higher interest rates. Therefore protection
remains key to the Ruffer portfolio.
Enquiries:
Sanne Fund Services (Guernsey)
Limited
Jamie Dodd
Email: RIC@apexfs.group