Bargain Hunter: safe haven investment trust slips to rare discount

Other safe haven investment trusts are trading on premiums, but this trust has fallen to a discount and offers a cheap entry point.

In uncertain times, investors typically pay a premium for safe haven assets, but Ruffer Investment Company is currently an exception to the rule.

The investment trust is one of a small number of funds that place a high priority on capital preservation, alongside RIT Capital Partners, Personal Assets and Capital Gearing Trust.

But unlike its two rivals, Ruffer Investment Company is currently trading on a discount, of 4.4%, according to Winterflood, the broker. The discount catches the eye, as since 2009 the trust has typically traded on a small premium. Moreover, over the past year it has more often than not been on a premium, with its 12-month average premium figure standing at 0.8%.

In contrast, RIT Capital Partners is trading on a premium of 4.3%, Capital Gearing Trust is on a premium of 2% and Personal Assets is on a premium of 1.1%.

All four trusts invest on the principle that they would sooner keep £1 rather than risk losing it to try and win £2. The trade-off, however, is that in rising markets these funds will lag both the stock market and many of their sector rivals.

Infrastructure trusts have also been high in demand and are trading on high premiums, with investors attracted to the asset class’s safe-haven qualities. 

For most of 2018, Ruffer had around 40% of its assets in equities, with a notable 10% stake in Japan. The rest of the portfolio is mainly in low-risk bonds that are inflation-linked. The management team, Hamish Baillie, Steve Russell and Duncan MacInees, also have a small weighting to gold and cash, which represents just over 10% of the portfolio.  

In light of the sell-off in the final quarter of the year, the trust moved to reduce risk further, cutting exposure to the financials and retailing sector and adding to its protective assets. This resulted in equity exposure being cut to 34%, its lowest weighting since the global financial crisis a decade ago.

Hamish Baillie, lead manager of the Ruffer Investment Company, explained last month: “Recent market volatility has not been an economic event yet but a financial market one: the global economy has been growing robustly with the US at the forefront. Yet more than 90% of asset classes posted losses in dollar terms for the year, a record since 1908.

“The combination of option protection and credit market protection will be a powerful one and should more than offset any losses in our relatively trim equity exposure, which is now at its lowest since 2008. When combined with gold starting to show signs of life and index-linked bonds likely to contribute positively, this should allow us to be greedy when others are fearful, if markets fall further.”




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