RUFFER INVESTMENT COMPANY LIMITED
(a closed-ended investment company incorporated in Guernsey with registration number 41996)
Attached is a link to the Monthly Investment Report for September 2021.
During September, the share price rose by 0.2% and the NAV rose by 0.9%. This compared with a fall of 1.0% in the FTSE All-Share index. The Company declared a dividend of 1.55p on 5 October. This represents a 63% increase on last year's dividend. A significant part of the uplift relates to a one-off payout from a portfolio holding. The Company's directors remain committed to paying out at least 85% of revenue earned rather than targeting a specific yield and so investors should expect the level of the dividend to fluctuate over time.
'Transitory' or not, price rises (aka inflation) are certainly starting to have an impact on both financial markets and everyday life. Amidst pictures of queues at petrol stations reminiscent of the 1970s as well as global concerns over possible shortages and supply chain disruption, stock and bond markets both lost ground in September. Bond yields rose as inflation concerns led to talk of tapering and earlier than expected interest rises. Meanwhile equities, especially growth and tech stocks, fell back, with the Nasdaq down 5.3% in the month, dragging down the broader US market by 4.7%. Although some of the price rises this month were eye-watering (the oil price up 10%, natural gas prices up more than 90%) inflation worries were not the only concern for equity markets. The likely demise of the giant Chinese property developer Evergrande added contagion risks to previous fears of a clampdown by the Chinese government.
Against this somewhat unsettling background, the Company's performance was robust, remaining broadly unchanged even as bond and equity markets fell. Higher bond yields hurt our index-linked bonds, but as was the case in Q1 this year interest rate options offset much of the fall. On the equity side, rising yields were supportive for our bank positions and not surprisingly energy stocks performed strongly with holdings in BP, Equinor and Royal Dutch Shell up 15-20%. No doubt investors will be laser-focused on both inflation and the outlook for China.
However, for us the key observation from September is that 'balanced' portfolios had their worst month since March 2020, when global markets first felt the full brunt of the covid-19 pandemic. Back then, the 60% equity and 40% conventional bond mix that has been so popular and so successful in recent years fell 5% in a month. This time the US version fell 3.5%. Small beer perhaps after gains averaging 10% for a decade, but a worrying sign nonetheless.
We have long warned that higher inflation, or even just inflation volatility, could see a shift in the correlation between equities and bonds. This would merely be a reversion to the normal pattern before the decades of disinflation and falling interest rates since the 1980s. If so, portfolios would no longer be able to rely on rising bond prices (via falling interest rates) to soften the pain of equity market falls. In fact, the opposite could be true with falling bond prices exacerbating future equity market sell-offs. The Company holds inflation-linked bonds and other less conventional protections to guard against exactly such a situation. Last month, at least, this approach worked. We will wait to see if this too was just transitory.
Praxis Fund Services Limited
DDI: +44(0)1481 755584