12 September 2024
RUFFER
INVESTMENT COMPANY LIMITED
(a
closed-ended investment company incorporated in Guernsey with
registration number 41966)
(the
"Company")
Attached is a link to the Monthly
Investment Report for August 2024.
http://www.rns-pdf.londonstockexchange.com/rns/8311D_1-2024-9-11.pdf
The portfolio was broadly flat in
August. In July we suggested we were heading into an eventful
second half of the summer. Eventful it was, but anyone who took
their summer holiday over the first two weeks of August would be
forgiven for assuming they hadn't missed much. Markets ended the
month in a similar shape to how they began.
So what happened? On 5 August, the
Nikkei had a 1987 moment, falling 12% in a day with record volume.
The VIX was up a record 180% in a day and the S&P fell 7% in
three days. The proximate cause was hard to pinpoint - was it a
weak jobs number? A rallying yen? A turn in Trump's polling
numbers? Perhaps more important is to note the fragility of the
market setup, such that a minor informational change could cause
considerable disruption.
However, this was just a market
wobble: at the lowest point the S&P 500 was down less than 10%
from its mid-July highs. That doesn't count as a correction, let
alone a crisis. It was a warning shot, heard around the investment
world, but heeded by few. Willingness to buy the dip has been
evident in positioning and sentiment numbers. We weren't surprised
by the nature of the tremor. The yen rising caused global damage,
acting like the wrecking ball we thought it might be. Markets
proved gappy and illiquid, with significant crash risk as the
machines stepped back. Investors simply couldn't sell. That we had
identified the potential for this sort of mechanical failure
confirms we have been looking in the right direction.
This was proof of concept for the
portfolio, if not the full realisation of the risks we seek to
protect against. We can have a higher degree of confidence in the
portfolio's ability to make money in downside conditions. The
portfolio airbags worked. Our protections responded strongly and
quickly. However, the window to monetise our potent options was
short. Historically, when the VIX has exceeded 35, it has taken
around six months to reset below 20. This time it took just seven
days. We took profits on some of our protection before markets
rallied. The portfolio coped well with the market stress, even
though the volatility was too short-lived to have a major impact on
performance.
As investors came to view the
volatility as a discrete event, the equity market rallied back
towards new highs. There was a notable giveback in our protection
assets as credit spreads narrowed again and the VIX collapsed back
to near where it started.
Late in the month, Federal Reserve
(Fed) Chair Jerome Powell's speech at Jackson Hole was a confident
declaration that unemployment risks are now greater than inflation
risks. That signalled the all-clear for rate cuts from September.
The market rushed to price in nine cuts before the end of 2025. The
US dollar weakened meaningfully against sterling and the yen. We
have used the subsequent bond market rally to sell US TIPS,
reducing portfolio duration towards two years. This speaks to our
view the rate cuts now priced in are only likely if bad news
appears. In a nutshell, bonds and equities cannot both be right as
they are forecasting opposite things. We made small additions to
equity protection and bolstered credit protection as markets
recovered and volatility came back down.
One canary in the coal mine might be
the gold price - typically held as a hedge to worsening economic
and market conditions - which surged to new highs above $2,500. We
continue to be excited by the prospects for our allocation to gold
mining equities. Indeed, our largest holding rose 8% during the
month.
Enquiries:
Sanne Fund Services (Guernsey) Limited
Tracy Holloway
Email: RIC@apexfs.group
LEI: 21380068AHZKY7MKNO47