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 February 2020.
http://www.rns-pdf.londonstockexchange.com/rns/4377F_1-2020-3-9.pdf
During February, the net asset value of the Company fell by 2.6%. This compares with a fall of 8.9% in the FTSE All-Share index.
February proved to be the month when concerns over coronavirus truly went global. With cases emerging in countries as far apart as Italy and Iran the illusion was shattered that this was an infection limited to China. With concerns growing about global supply chains and the availability of labour in China's factories, investors moved to price in lower growth and an increased risk of recession. Equity markets tumbled while safe havens, such as government bonds, registered gains. Gold had a wild ride, reaching $1659 per ounce before ending the month unchanged at $1585 per ounce.
It goes without saying that we did not in any way predict the onset of COVID-19. However, we have been concerned for some time that equity and credit markets were priced for perfection, and that any one of several factors could expose their underlying fragilities. If economic growth slows, let alone a recession occurs, then profits go into reverse. The recent enormous rise in corporate debt, typically executed to fund share buybacks rather than investment in productive assets, will then be thrown into sharper relief. In a month when even the Company's prudent equity exposure proved in hindsight to be still too much, its credit protections stepped forward and rose around 15%. Owing to how these instruments are priced not all of that increase was captured in the Company's month end NAV, but we are confident that if market conditions darken further these instruments will provide substantial gains, at a time when other assets will struggle. Ultimately it is the credit market that the US Federal Reserve (and equity investors) should be fearful of if growth continues to slow.
Looking out now we are not inclined to buy the dip, even after the sharp drop in equities. We have no greater forecasting power than the next man in terms of the spread of coronavirus, but viewing the slump in the official Chinese purchasing managers' indices, which in February hit levels even lower than those registered in the financial crisis, certainly provides food for thought.
The world's authorities will undeniably do their best to keep the economic system afloat, witness the emergency intra-meeting cut of 0.5% in US interest rates by the Federal Reserve, although it must be pointed out that the performance of risk assets following such cuts has historically been decidedly mixed. Moreover monetary firepower is running low, most especially in the Eurozone and Japan. For that reason, and for those of political economy, we have long articulated the view that the response to the next financial or economic downturn would have to be fiscal, against which eventuality the Company's index-linked bonds are key should inflation expectations consequently rise.
Enquiries:
Praxis Fund Services Limited
Gail Adams
DDI: +44(0)1481 755584
Email: [email protected]
