Monthly Investment Report February 2022
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 February 2022.
http://www.rns-pdf.londonstockexchange.com/rns/2346E_1-2022-3-9.pdf
During February, the Company's NAV rose by 2.6%. This compared with a fall of 0.4% in the FTSE All-Share index.
Our commentary this month is dominated by the impact of events in Ukraine. This war is first and foremost a human tragedy and our thoughts are with the people of Ukraine. The investment implications are secondary to the crisis, but we recognise our duty to provide investors with an update on the impact on their investments. The Company made gains earlier in the month and was broadly flat as the invasion unfolded. Geopolitical risk is unpredictable and we 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 chief drivers of performance were derivative protection, gold and energy exposure. Derivative protection took two forms - 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. We took some profits in these options and the marginally higher duration since the invasion started 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. Towards the end of the month equity put options helped performance.
The Company has no direct exposure to Russia or Ukraine. We have a 1.8% position in BP, as part of our allocation to energy. BP is exiting its position in the Russian oil company Rosneft. It has underperformed its peers over the last fortnight due to this exposure, but the shares moved little on the announcement as an exit had already been priced in. Elsewhere, energy stocks have performed well for us. They have been a significant equity allocation since the beginning of the market recovery from the covid crisis. Our view that global demand would remain robust and supply would be constrained is playing out and we have been reducing exposure as part of an overall reduction in equity risk. We currently have 41% in equities, as well as protection in the shape of equity put options and exposure to credit default swaps.
We added to gold exposure in late 2021 moving from 6% to 8%. There was general investor disinterest in gold after a lacklustre 2021 and we also felt that emergent dollar weakness could see gold re-emerge as a safe haven. While we were wrong about dollar weakness, gold has undoubtedly benefitted from safe-haven demand.
Looking further ahead, the US is unlikely to incur the serious energy price inflation we expect in Europe. This may see a return to US exceptionalism. This would put upward pressure on the dollar, which in turn sucks liquidity out of broader financial markets (as well as making the Fed's life more difficult). This is likely to increase stress in markets more generally, hence our desire not to be overextended in either direction.
Enquiries:
Sanne Fund Services (Guernsey) Limited
Jamie Dodd
DDI: +44(0)1481 737600
Email: ric@praxisifm.com
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