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Given some of the go-anywhere multi-asset offerings in the Managed sectors these days, the £107.7m CF Ruffer European fund looks almost conservative. A combination of European stocks, government bonds and cash, hedged with equity index derivatives, makes it seem like either a pan-European fund or a risk-managed stock-and-debt mandate.

Yet the flexible, absolute-return mindset of the fund has taken it to the top of the Balanced Managed over one and three years. Over one year to 26 August, it gained 12.4 per cent, one of only 11 out of 126 funds in the sector to deliver a positive return over that period. Over three years, it added 66.7 per cent, while the rest of the sector went up 13.5 per cent. Its nearest competitor, the £391.9m Newton Global Balanced Exempt portfolio, trailed at 37.6 per cent.

The CF Ruffer European fund has achieved these numbers with an average volatility for the peer group and considerably less volatility than the IMA Europe including UK sector, whose top-performing fund returned 33.9 per cent over the period.

Timothy Youngman, manager of the fund and research director for Europe at Ruffer, explains some of the drivers of the fund’s success.

“Looking back, the performance of the fund has been rooted in stock picking, which is very much my background. I worked as a sell-side analyst for 18 years. For a lot of that time, I was looking at Scandinavian markets. I have a lot of experience looking at stocks that outperform.

“The other feature that has been instrumental in supporting the fund’s performance has been the Ruffer top-down perspective, which has driven the asset allocation of the fund. Equities were the main plank of the asset allocation until early last year, when it seemed to me things were about as good as they were going to get - we had a house view that was very nervous about ramifications of the sub-prime market. In May 2007, I hedged the entirety of the fund’s equity exposure and then wound down equity positions to the current levels.”

By retail standards, equity levels at 32 per cent of the portfolio are extremely low compared with the cash position, which is 59 per cent. “The only occasion on which that cash position has been higher was in 2002, when it had 90 per cent in cash in the depths of a bear market,” Mr Youngman says.

But as no manager wants to be sitting in cash when markets start to rally, he edged back into equities when he took over the fund in 2003.

The other significant feature of the fund is its weighting in bonds, which Mr Youngman has been holding back on until relatively recently. “Until the last month or so, we’ve been concerned about inflation, which has not proved a good environment for fixed interest,” he observes.

But now the oil price has come off, he has bought into some more Swiss franc-denominated debt, which he sees as a safe haven from a currency perspective compared to sterling. Combined with capital appreciation, this holding has brought Mr Youngman’s fixed income component to 9.9 per cent compared with 9 per cent at the end of July.

Elsewhere in the Swiss universe, the country’s equities contribute 9.7 per cent of the portfolio, while UK equities weigh in at a mere 2.3 per cent. Profitable Swiss stock calls include Acino, a generic pharmaceutical company that stands to profit from patent expiries elsewhere in the industry. Mr Youngman also bought into Meyer, a provider to the solar power industry, after it made its initial public offering late in 2006.

As Mr Youngman points out, Meyer was an example of what buy-and-hold stock picking could do for his vehicle’s returns. “There was some hedge fund money that followed into Meyer. It went from Sfr65 to Sfr90 in short order. The hedge funds jumped out, but it peaked at Sfr200, when the holding was 5 per cent of the fund’s assets.”

Despite the recent “flight to quality”, Mr Youngman is still not afraid to buy into niche small and mid caps like Meyer Burger when he sees attractive possibilities arise. “Historically, we’ve found most reward in small and mid-cap opportunities.” But he says recent additions he has made have nevertheless all been in mid and large caps. “It’s partly a factor of our view on liquidity in equity markets and the results of the credit crunch.”

Mr Youngman dislikes sticking to a particular style and prefers to adapt the portfolio to shifts in the market. “We try to look at a range of different types of opportunities. Some funds might focus on value plays, others might look at restructuring opportunities, others might look at growth stocks. We try to have a mix of all those styles.”

He maintains this stylistic flexibility is still possible despite Ruffer’s small number of European analysts. “There’s no strict delineation between Europe, UK and global markets. It’s fair to say we probably have four or five people with good knowledge of Europe. Lots of travelling and company contact throws up opportunities.”

Mr Youngman also has considerable responsibilities at Ruffer outside of running the European portfolio. “If anything, my main role has been to advise the portfolio managers on the private client side. A lot of our clients have a holding in the fund.”

But he says, if anything, this has encouraged him to have a more focused, buy-and-hold attitude to investment management, instead of limiting his stock selections to a few days in the sun.

“It has certainly helped me to be patient in terms of letting stock ideas materialize and letting performance run its course. In many ways, what we’re doing is the antithesis of what a hedge fund is doing, reacting to short-term events. In many cases, we could have jumped ship and missed some interesting opportunities.”

And although Mr Youngman operates with an absolute return mindset, it is his Meyer Burgers rather than his market timing which have kept him in the black.