Monthly Investment Report August 2020

RUFFER INVESTMENT COMPANY LIMITED

(a closed-ended investment company incorporated in Guernsey with registration number 41996)

LEI 21380068AHZKY7MKNO47

Attached is a link to the Monthly Investment Report for August 2020.

http://www.rns-pdf.londonstockexchange.com/rns/2649Y_1-2020-9-7.pdf

During August, the net asset value of the Company fell by 0.3%. This compares with a rise of 2.4% in the FTSE All-Share index.

Index-linked bonds have risen sharply since spring 2020. During August we took some profits in the longer dated US TIPS bought in March, but our conviction remains that financial repression (interest rates being kept below the rate of inflation) will be a key part of the investment landscape in the future. If this is correct it will have widespread investment ramifications. History shows us that equities, most bonds and cash are poor investments when inflation rises sharply, but real assets such as inflation-linked bonds and gold should do well. Let's visit the parts of the inflation jigsaw to examine what has changed since the onset of covid-19.

Supply side - disrupted supply chains and additional costs will drive prices higher. In many sectors fragmented supply chains have not recovered, bottlenecks remain and there are additional costs to protect employees and customers. The 'just in time' business model will be replaced with a

'just in case' model with greater emphasis on controlling production (ie bringing it in-house). Similarly, balance sheets will adjust by increasing cash and rainy-day reserves to weather future crises. This is all negative for profitability unless prices are increased.

Monetary/fiscal policy - money supply has gone through the roof since March, reflecting combined monetary-fiscal policy support unprecedented in scale, speed and breadth. At the same time control of the economy's steering wheel is unquestionably passing from central banks to governments. The conundrum for politicians is that reducing stimulus is not good for re-election prospects. As Milton Friedman once said 'Nothing is so permanent as a temporary government program.'

Past peak globalisation - before covid-19 the deflationary force of globalisation was already in retreat; this move has since accelerated. Trade protectionism will increase and offshoring to tap into cheap labour will become much harder. The trade war between the US and China is clear evidence of this and so is the talk of 'pay to stay' schemes in the US and Japan to encourage companies to move production back home.

Socio-political - before this year's events the need for the western world to inflate away its debt burden was desirable for reasons of demographics and wealth distribution. Now it is essential if the financial support provided during the crisis is to be remotely affordable. It is also unlikely that interest rates could rise meaningfully to counter inflationary pressures without damaging the debt-dependent economic recovery.

These changes all make it likely that we are entering a new economic regime, which will be one where financial repression and negative real interest rates will be the norm. Our job is to hold assets that will protect and grow our investors' capital through this period and in the aftermath. The roadmap of the last 40 years is unlikely to work; we believe index-linked bonds and gold will be key assets to hold, along with the right mix of equities and credit protection.

Our shareholder webinar is on 17 September. Please email [email protected] for details

Enquiries:

Praxis Fund Services Limited

Gail Adams

DDI: +44(0)1481 755584

Email: [email protected]