Ruffer: We're passing ‘the point of no return’ for US exceptionalism 

The allocation 'supertanker' has started to turn away from US equities, leaving investors looking elsewhere for returns, according to the famously defensive firm.

Patient Ruffer (RICA ) is beginning to reap the rewards of its protectionist approach as the investment ‘supertanker’ turns, putting an end to so-called US exceptionalism.

Jasmine Yeo, Ian Rees and Alexander Chartres – who make up the management team of the near £1bn wealth preservation trust following Duncan MacInnes’ exit earlier this year – are looking beyond the tariff turmoil and towards a ‘regime change’ in markets that means ‘we may be passing the point of no return for US exceptionalism.’

Although, there could be a rebound to the US-centric narrative of 2023 and 2024, they ‘doubt such a swing would last’. 

Damage control 

Amid the global sell-off markets have experienced since last Wednesday, when US president Donald Trump declared ‘liberation day’, demand for Ruffer’s defensive strategy increased.

In the immediate aftermath of Trump’s tariff announcement, from 2 to 7 April, Ruffer Investment Company’s share price rose almost 6%.

Albeit, there has been a pullback since, accelerating since the Trump administration announced a pause to the most aggressive trade levies yesterday. 

A return of caution to markets could be a turning point for the trust, which has suffered in recent years from the exceptional performance of equity markets, which it has traditionally maintained low exposure to.  

However, allocation to equity growth was almost doubled in the second half of last year, from 17% of the fund to 30%, in a bid to ‘keep us in the game’, said Yeo and her team.

Top holdings are in iShares MSCI China, BP (BP), Prudential (PRU), Amazon, and Alibaba. 

In typically defensive style, it was Ruffer’s safe-haven assets that kept the trust afloat, helping to ‘cushion losses incurred from its equity exposure’ in the first quarter, said the managers in RICA’s latest factsheet, published on Wednesday.

A very similar defensive approach is also employed at Ruffer Investment Management’s flagship open-ended WS Ruffer Total Return fund, which is home to £1.5bn of assets, and also its marginally smaller £1.3bn WS Ruffer Diversified Return fund.

The biggest guard against losses came from precious metals, primarily silver bullion and gold mining companies. The trust does not currently hold any physical gold but as of June 2024, held 3.6% in the WS Ruffer Gold fund and smaller positions in individual miners like Barrick Gold. 

Physical platinum made up about 2% of its portfolio at the same time, according to Morningstar data.

Elsewhere, derivatives also helped to offset losses in the first quarter. Defensive positions in the credit market performed particularly well as credit spreads widened. The trust has been increasing its derivates exposure since 2021, following a structural rethink as equities and bonds started to positively correlate. 

Regime shift 

The managers said the strategy has been rewarded for the accuracy of its long-term forecasts. In particular, they said the Covid pandemic marked a ‘regime shift from monetary policy dominance to fiscal policy dominance, and that view has only been strengthened by recent events in the US and Europe’.

‘The flow of global government spending – which has supercharged US markets in recent years – is being diverted,’ they said.

‘Investors have a significant overweight in US assets and the dollar predicated on long-term US exceptionalism. It will take time for institutions to alter their strategic asset allocations, but we believe the investment supertanker has started to turn.’

Over the year to end of March, the NAV has grown 3.7% while Ruffer shares have returned 6.4%, according to the factsheet.