Ruffer Investment Company Limited Monthly Investment Report - April 2023 (7738Z)
May 17 2023 - 10:30AM
UK Regulatory
TIDMRICA
RNS Number : 7738Z
Ruffer Investment Company Limited
17 May 2023
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 April
2023.
http://www.rns-pdf.londonstockexchange.com/rns/7738Z_1-2023-5-17.pdf
Despite ongoing stresses in the US banking system, asset markets
collectively shrugged their shoulders in April. According to
Deutsche Bank, despite the second largest ever banking failure in
the US, it was in fact the least volatile month since the pandemic.
It won't surprise that we are not so sanguine.
Banking crises always lead to credit contractions. We are seeing
this play out now: National Federation of Independent Business
small business credit conditions are approaching GFC levels, whilst
both the Fed Beige Book and the Senior Loan Officer Opinion Survey
are signalling further declines in credit availability coming down
the tracks. What is particularly pernicious today is the additional
undermining of trust in the security of deposits. This is where the
banking crises of March intersect with our fears of an asset market
liquidation. As a reminder, central to the argument was that
changes in the size and composition of the Fed's balance sheet
would be damaging to asset markets. On the one hand, we have seen
an immediate (but supposedly temporary) increase in the size of the
Fed's balance sheet. On the other hand, a light has been shone on
the relative danger of uninsured banking deposits compared to
government backed money market funds. Given the fact that the
increased safety of the latter actually comes with a higher
interest rate, we expect deposit flight from banks to continue
despite continued efforts to reinforce the regulatory system. Not
only will this lead to further scrutiny of the increasing levels of
taxpayer deposit guarantees, but it will continue to undermine the
ability of commercial bank balance sheets to act as a
shock-absorber for any distress in financial markets.
At Ruffer, we always aim to create a portfolio that is robust to
multiple future pathways. The fine line between monetary and
financial stability is central to how the portfolio is positioned
today. If the Federal Reserve prioritises financial stability
concerns, continues to expand its balance sheet and sets the scene
for interest rate cuts before inflation is wrung out of the system,
then we enter the next phase of the inflationary regime. Under this
scenario our portfolio allocations to inflation-linked bonds, gold
and commodities should get an immediate tailwind. However, if the
Federal Reserve continues to focus on bringing inflation down
through monetary tightening, then we fear that liquidation risk
comes to the fore. If interest rates remain where they are, let
alone go higher, and quantitative tightening continues (proving the
recent central bank balance sheet expansion to be as temporary as
originally claimed), then the painful chokehold of the interest
rate squeeze will continue. In this environment, the portfolio is
protected by its low equity weight (both gross and net) and potent
protections against likely distress in credit markets.
Enquiries:
Sanne Fund Services (Guernsey) Limited
Jamie Dodd
DDI: +44(0)1481 755584 Email: RIC@apexfs.group
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