Gold, energy and derivatives boost Ruffer's performance

Gold, energy and derivatives boost Ruffer's performance

Derivative protection and exposure to gold and energy drove the Ruffer Investment Trust’s performance to rise above its benchmark by 3 percentage points in February.

The trust saw a 2.6 per cent rise in its net asset value, compared with a 0.4 per cent fall in the FTSE all-share index.

Hamish Baillie and Duncan MacInnes, in a monthly report to shareholders released today (March 10), said the chief drivers of this performance was derivatives protection in the form of interest rate protection and equity protection.

“We continued to use interest rate options to reduce duration risk in our inflation-linked bond holdings and this enabled us to benefit as bond yields rose for the first two weeks of the month,” they said.

The trust’s managers said they took some profits in these options and the marginally higher duration since Russia’s invasion of Ukraine has been “helpful” as bond yields have fallen.

“We will continue to be flexible in managing duration risk and believe that the path of rates will still be higher, but the speed of increase is now less certain,” they said.

Of the war in Ukraine, the managers said it is first and foremost a human tragedy, though they recognise their duty to provide investors with an update on the related impact on their investments.

The company made gains earlier in the month and was broadly flat as the invasion unfolded, they said, adding geopolitical risk is unpredictable and they do not claim to position the company in anticipation of specific events. 

“Instead, we always hold protective assets which help us to weather market volatility in environments of heightened geopolitical risk.”

The equity protection they used is in the form of equity put options, which will have improved performance amid falling global equity markets.

The managers moved the trust’s gold exposure from 6 per cent to 8 per cent in late 2021, saying there was a "general investor disinterest in gold after a lacklustre 2021".

The pair added that they thought emerging dollar weakness could see gold emerge as a safe haven, and although they were wrong about the dollar, gold has “undoubtedly” benefitted from safe-haven demand. 

Looking further ahead, they said, the US is unlikely to incur the serious energy price inflation expected in Europe, which may see a return to US exceptionalism and put upward pressure on the dollar. This would also suck liquidity out of broader financial markets.

“This is likely to increase stress in markets more generally, hence our desire not to be overextended in either direction,” they added.

The trust has seen its share price rise 12.2 per cent in the year to February 28, rising to 49.1 per cent for the three years to the same date.