Mind the Gap

14.05.2016 • Investing

From the Fleet Street Letter (GREAT BRITAIN) –

In this week’s update, I’ll show you why there’s a gap between anything American and anything non-American in markets. There’s a momentum gap in the market as well as a value gap. Both will close, eventually. And there’s a large seller in the physical gold market. But first…

 
Last week I went to see Steve Russell, the investment director at Ruffer.  It was launched in 2004 and follows Ruffer’s core investment process dating back to 1994. RICA has beaten both equities and gilts over the past decade – with less volatility. It’s an impressive record.

 
Ruffer has a unique investment culture. It may surprise you to hear that it isn’t deliberately profit seeking. Instead it aims to deliver a real return (above inflation) while avoiding loss. How does this help you?

 
It claims to have no ability to time the market and instead, constructs a robust portfolio that can benefit from different economic scenarios. In the past this has meant being prepared for both inflation and deflation. The former (inflation) favours inflation-linked bonds and cheap equities, whereas the latter (deflation) favours conventional bonds. Ruffer also buys foreign currencies that it believes will protect it against sterling weakness. Currently, it has low exposure to currency because it doesn’t see sterling to be particularly vulnerable – despite fears over Brexit.

 
Recently, the major change is that it has switched off the deflation side of the portfolio. Why? Because bond yields are too low to make a difference and it believes that the central banks provide a backstop. Deflation may happen – especially if China devalues.

 

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