In a monthly investment report, the trust’s managers Duncan MacInnes and Hamish Baillie told shareholders they expect “a further leg” for reflation trade - or assets which do better in periods of faster economic expansion.
Reflation describes monetary and fiscal policy designed to stimulate growth and end deflation - usually after a period of economic uncertainty or a recession.
The Ruffer managers said that although there was a growing perception interest rates would rise and government spending would fall, central banks remained “extremely accommodative” and the European Central Bank has re-committed itself to stimulus “as far as the eye can see”.
"A challenge to the reflation narrative was always likely in the second half of this year. The blistering rates of growth seen in the recovery from the sharpest post-war recession were bound to slow, whilst further waves of Covid-19 and uneven global vaccination progress threaten both confidence and re-opening.
"However, despite the angst and a mid-month sell-off, global equities ended July just shy of yet another all-time high."
They added: “Perhaps 'bad news is good news' again on the basis it keeps the punchbowl of central bank liquidity at the party for longer.”
However, the pair warned that risks to the market remain elevated, including fresh Covid-19 outbreaks and “perennial debt issues”. They also warned that the recent regulatory crackdown from Beijing marks a risk for investors and may not be the “last nasty surprise for financial markets”.
The trust’s net asset value fell by 0.5 per cent during July and the share price rose 0.3 per cent, compared with a 0.5 per cent rise for the FTSE All-Share index.
Last month, the managers told shareholders that those who claim transitory inflation is benign “miss the point entirely”.
In a year end review published last month, the pair told shareholders that even if inflation is temporary, unless wages rise in tandem people will be financially worse off.
They said: "We think this 'transitory debate' misses the point entirely.
“Of course, house prices will not rise at 10-20 per cent annualised forever. Inflation is simply a measure of the rate of change. If that delicious beer garden pint was £4.50 in 2019 and now it costs £6, it has inflated by 33 per cent. Next year it might cost £6.25.
"The Bank of England might say 'See! Inflation was transitory, it's only 4 per cent, we told you!', but unless wages have risen by 39 per cent since 2019, you should be feeling worse off.”