The euphoria of rising prices off the June lows seems to have stalled while talk of recession and general economic malaise has increased. Timing the market does not seem a sensible option for me. I need to ensure that my portfolio includes stocks where capital preservation is prioritised if this market does indeed continue lower. The Ruffer Investment Company (LSE: RICA), listed on the FTSE 250, has an investment strategy that appears to meet that objective.
A quick check of the Ruffer Investment Company website provides a convenient summary of its investment aims — namely to provide “consistent positive returns, regardless of how financial markets perform”.
It also goes on to claim that it tries not to lose investor’s money in any 12-month period. Its performance figures to date appear to bear that out. Over the past five years, Ruffer Investment Company has consistently shown a greater cumulative performance than the broader FTSE 250 index. Crucially it has managed that without the amount of volatility I often experience with other investments.
Given the prevailing economic climate, these objectives are particularly appealing to me, although I am conscious that I already hold Capital Gearing Trust in my portfolio, which operates along similar investing principles.
But investing conditions at present appear challenging to say the least. I do not know if we are facing a prolonged recession nor even a significant market correction. I do know from observation that market sentiment is lower than it has been for a while.
Therefore, adding more weight to my portfolio that prioritises capital preservation over capital gain seems prudent to me and am happy for my investments to reflect that.
Ruffer Investment Company is a multi-asset investment trust, which means that the fund managers can provide exposure to several asset classes that they believe meet the fund’s overall objectives. The bulk of these assets are inflation-linked government bonds, both in the US and the UK. This reflects a view that the managers have held for some time — correctly as it has turned out — that inflation will remain higher than the savings rate. Importantly these bond holdings are then hedged via credit default swaps to protect against potential default.
Similarly, derivatives are in place (via the options market) to provide insurance against falling share prices. These additional layers of financial protection again emphasise the focus on capital preservation.
The fund has exposure to the gold price (a 4.8% weighting) as well as other commodities. At present, this sector is under pressure due to both waning demand and a rising US dollar. However, I am comfortable with exposure to this asset class that could start to perform should inflation figures appear to plateau in the future.
Ruffer Investment Company may appear expensive, trading at a 12-month average premium of 2.82%. But this is not a stock that I would try and time an entry. I believe it has earned a place in my investment portfolio now.
