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‘Ugly duckling’ Ruffer sticks by market crash predictions

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Ruffer Investment Company has the potential to "rapidly turn into a swan", said Numis analysts.
Ruffer Investment Company has the potential to "rapidly turn into a swan", said Numis analysts.

The £1bn “ugly duckling” Ruffer Investment Company has reported a tough year after making wrong calls about the path of the economy, but analysts hope that the long-term bets made by the trust will pay off.

After betting on a lengthy downturn for the global economy, Ruffer has loaded up on protection assets in recent years to balance out the risk of an economic crash.

This move hasn’t paid off. Over the last year, the trust’s net asset value grew only one per cent, compared to 13 per cent for the FTSE All Share index.

The recent under-performance suffered by Ruffer was largely due to these unusual bets. Equity downside and credit protection cost the portfolio over three per cent across the year, while other bets like the yen dropped performance by another two per cent.

This commitment to safety has plagued the trust for months, with Ruffer manager Duncan MacInnes complaining in December last year that markets had become “complacent” to a potential downturn.

Now, he said in the trust’s annual report that he had “never seen an equity market as crowded, narrow and myopic” as the one led by top tech firms in the US today.

However, analysts are hopeful that this bet may eventually pay off.

“[Ruffer] have built a portfolio of ‘ugly duckling’ assets, including growth assets such as UK and Chinese equities, as well as protections, some bought at multi-decade low prices, such as Gold, the Yen, inflation linked bonds and equity/credit protections,” said Numis analysts Ewan Lovett-Turner and Ash Nandi.

Those ugly ducklings now have the potential to “rapidly turn into swans”, according to Numis, though it is unknown when this investment weather will change.

Managed by MacInnes and Jasmine Yeo, Ruffer IC has returned a net asset growth of 281 per cent since it launched in 2004, while the FTSE All Share index has returned 317 per cent.

“We continue to believe that the fund can be regarded as an attractive portfolio diversifier as Ruffer has an impressive record of insulating against market falls,” the Numis analysts added.

In April, Ruffer cut six per cent of its UK workforce across several divisions of the business, though none of the senior management at the company was let go.