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 October 2021.
As indicated in the Annual Report, the Company's board is preparing to offer new shares to existing and new shareholders. Further details will be published shortly and all shareholders will be notified. The offer will be open to both retail and institutional investors.
During October, the Net Asset Value of the Company rose by 2.3% and the share price by 5.4%, after allowing for a dividend of 1.55p paid during the month. This compared with a rise of 1.8% in the FTSE All-Share index.
The last two months represent a good outcome - we held our own in September as equity and bond markets fell in tandem, and then captured the bounce in October. Performance in October was driven by inflation-focused assets - particularly gold, energy companies and inflation-linked bonds.
The policy landscape is shifting. In the last week of October there was a whiff of panic amongst fixed income investors. Short yields rose sharply as fears mounted that central bankers are behind the curve in tackling inflation. This led to some extraordinary moves. The Reserve Bank of Australia was forced to abandon its policy of yield curve control and the Bank of Canada stopped its quantitative easing programme. The Bank of England now seems likely to raise rates, the Fed has dropped the word 'transitory' from its narrative and is likely to taper its $120bn monthly asset purchase scheme. Until recently, the sure message was that inflation would wash out and no action was required.
In other markets there is broad insouciance on inflation, and while inflation assets have performed well, so has almost everything else. According to the Bank of America Investor Survey a record number of portfolio managers are bearish on bonds, but the volume of renewables and infrastructure issuance would suggest they still love bond proxies. The gold price is down 5% year to date, the US 10-year yield is still only at 1.5% and the S&P 500 is trading at a 21x P/E multiple. This all suggests that markets are comfortable with inflation reverting lower relatively soon.
While Central Bank credibility is being threatened at the short end, perversely it seems that it is strengthening at the long-end of the yield curve. The expectation of near-term tightening is anchoring longer-term inflation expectations and long-term bond yields. Essentially the market is saying that despite lower credibility on their recent actions, Central Banks have the willpower and means to tame inflation. This emphasises the power and complacency of the belief in central bank omnipotence and underscores just how shocking it might be were that to change. Citigroup strategist Matt King summarised: 'Expect tantrums in risk [assets] if central banks respond to inflation - and tantrums in bonds if they don't.' Monetary policy setters are firmly wedged between a rock and a hard place.
While we expect inflation and real rate volatility to increase, it will not be a straightforward journey. This will necessitate a nimble portfolio. To use one example, interest rate options have allowed us to manage the Company's duration this year - making money in bonds even as yields were rising. This flexibility will be useful going forwards.
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