Monthly Investment Report April 2021
RUFFER INVESTMENT COMPANY LIMITED
(a closed-ended investment company incorporated in Guernsey with registration number 41996)
LEI 21380068AHZKY7MKNO47
Attached is a link to the Monthly Investment Report for April 2021.
http://www.rns-pdf.londonstockexchange.com/rns/9718X_1-2021-5-7.pdf
During April, the Company's net asset value appreciated by 0.9% and the share price rose by 0.5%. This compared with a rise of 4.3% in the FTSE All-Share total return index.
After one of the worst quarters for US bonds this century, and the steepest fall in the Barclays Long Treasury Index in 40 years, it was inevitable there would be some form of pause. Having peaked on 31 March at 1.74%, the US 10-year bond yield finished the month at 1.63%. This move lower boosted the performance of the Company's positions in gold and inflation-linked bonds. Earlier this year, gold had been doubly punished by the combination of rising yields and a rallying US dollar, but two recent tactical changes in the portfolio's asset allocation have helped performance. First, we added to bullion and selected gold mining equities during March and April, having reduced gold exposure last summer in anticipation of a reflationary shift in markets ahead of the vaccine announcements in November. Gold-related investments contributed 50bps to performance during the month. Secondly, we took profits in some of the interest rate options that protected the portfolio so effectively as bond yields rose during the first quarter of 2021, thereby allowing us to capture some of the rebound in inflation-linked bonds. This combination of index-linked bonds, gold, and interest rate protections, having been essentially neutral during the first quarter, contributed positively as US bond yields receded.
So, where next? Was April a pause for breath before a further move higher in yields and consequent move lower in bond prices? We think so but there will be an important shift in emphasis -we have probably seen the end of US reflation in isolation. The next leg down for conventional bonds will probably be driven by positive growth surprises from Europe, as the continent sees a sustained pickup in vaccination rates and starts to exit from lockdown. At the same time there appears to be growing political support for meaningful fiscal policy deployment in the coming months. This is a playbook we have already seen, except the baton is being passed from the US to continental Europe. It was instructive that the German 10-year bund yield rose 9bps over the month, in stark contrast to the moves seen in the US.
The Company's index-linked bonds, which we reduced slightly through sales of US TIPS during April, are shielded by interest rate options so they retain their inflation protection but are buttressed against the powerful economic rebound we expect to see through 2021. Our equities remain concentrated in economically sensitive and cyclical companies. This equity bias, combined with protection against rising nominal bond yields, means the Company is positioned for reflation, but still protected from inflation. In a world where fiscal policy dominates, inflation is the risk all investors should be guarding against. But conventional portfolios, hamstrung by the fallacy of benchmarks, are pointing in the wrong direction. They back-test well in the disinflationary world of the last 40 years, but are institutionally wired to the assets that performed well in the last market regime rather than to those opportunities which exist in the new one
Enquiries:
Praxis Fund Services Limited
Gail Adams
DDI: +44(0)1481 755584
Email: ric@praxisifm.com
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