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: [email protected]

LEI: 21380068AHZKY7MKNO47