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Investment trust insider on the return of inflation

Investment Trust Insider on Perpetual Income and Growth

Investment trust insider on the return of inflation – James Carthew: Ruffer, Capital Gearing & Personal Assets make a good point on inflation

The Association of Investment Companies’ Flexible Investment sector encompasses funds with a diverse range of investment objectives. Among those whose primary aim is to preserve investors’ wealth, the trust that seems to have come through the current turmoil best is Ruffer Investment Company (RICA). Over the past three months, its net asset value (NAV) has gained 7.2% while Personal Assets (PNL) has slipped 0.9%, Capital Gearing (CGT) slid 4.3% and RIT Capital Partners (RCP) tumbled 9.5%. Over five years, however, it ranks last of this peer group.

RICA has long been positioned defensively. At the end of January 2020, going into the pandemic, 30.7% of the portfolio was in index-linked bonds, mostly US Treasury Inflation-Protected Securities (Tips); 8.3% was in cash, 7.6% in gold and gold equities, 3.7% in short-dated bonds and 6.8% in a bucket it calls illiquid strategies and options. Almost 43% was in equities, with a strong bias to shares in the UK and Japan. Almost 80% was exposed to sterling with the pound’s moves against the dollar not helping matters.

Compared to the other three funds, RICA had a fairly high equity exposure going into the crisis. This could have spelled bad news in February and March except the managers responded quickly and the shape of RICA’s portfolio changed over the next couple of months. Equity exposure dropped significantly to 30.5% at the end of March and the holdings in illiquid strategies and options grew to 20.9%.

The trust’s gold exposure has been beneficial, although it looked for a while as though that wouldn’t work. In the depths of the panic, investors in need of liquidity sold their gold holdings. Now the gold price is not that far off its all-time high. (As an aside, the real winner from this has been Golden Prospect Precious Metals (GPM), whose NAV is up 77% over the past year and share price up 89% although it still sits on an 18% discount.)

However, it looks to me as though the main reason why RICA has managed to pull ahead of the pack has been…

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