Monthly Investment Report - March 2019
RUFFER INVESTMENT COMPANY LIMITED
(a closed-ended investment company incorporated in Guernsey with registration number 41996)
LEI 21380068AHZKY7MKNO47
Attached is a link to the Investment Monthly Report for March 2019.
http://www.rns-pdf.londonstockexchange.com/rns/3484V_1-2019-4-5.pdf
During March, the net asset value of the Company rose by 1.8% (including the dividend of 0.9p that was paid during the month). This compares with a rise of 3.2% in the FTSE All-Share index.
The defining feature in March has been the sharp falls in bond yields (prices up) across developed markets. Early in the month, the European Central Bank downgraded their forecasts for economic growth, which immediately sent German bunds towards zero for the first time since 2016. This move was further catalysed by the Federal Reserve, who completed their volte-face on interest rates in definitive fashion. As recently as September the Fed had forecast as many as four interest rate rises in 2019, but at their most recent meeting they implied they do not expect to raise rates again until 2020, while financial markets are now assuming the most likely next move is for rates to be cut. This shift is as close to confirmation that the words from Chairman Jerome Powell in the fourth quarter amounted to a significant error in communication, one requiring substantial efforts to correct. This backdrop of soothing actions and words from policy makers has given comfort to equity markets, which ended the month at the highs for the year. We continue to have just under 40% of the fund invested in equities, enabling us to capture a reasonable share of the returns, whilst continuing to hold protection should the market lose faith in the powers of central bankers.
We have long-described a world where financial markets are too weak to tolerate higher interests rates. The events of 2018, and the most recent pronouncements from the Fed, have confirmed to all market participants this is correct. The patient continues to be reliant on the drugs, and the doctors are reluctant to see if they can cope without. The greater the market belief in policy makers the harder it is to control. Consider what will happen the next time the Fed seems cornered, facing a buoyant market with loose financial conditions and incipient inflationary pressure. The market, sensing the Fed may wish to tighten financial conditions, may well pre-empt Fed action and tighten financial conditions endogenously, ie equity and credit markets will fall sharply. The new additional risk is that if markets have been justified in their recessionary fears, then the Fed will have to act in dramatic fashion, they cannot risk a nine foot jump over a ten foot gap, they need a twelve foot jump. The threshold for this is substantial.
We have absolute conviction in our view that markets remain structurally fragile, for which we hold protection, whilst if the Fed have postponed the reckoning we have sufficient equities in the fund to enjoy the remaining sunshine.
Enquiries:
Praxis Fund Services Limited
Shona Darling
DDI: +44(0)1481 755528
Email: ric@praxisifm.com
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