Investment Insights

Investment Committee Output, 07/03/2022

March 4, 2022 – Written by Nick Gait

Markets have been exceptionally volatile since the Russian Invasion of Ukraine, with the full ramifications of current sanctions becoming clearer with fund managers doing deep dives into all their positions to assess consequences.

As you may have already seen, we have made some changes to your portfolio this week post Tideway’s most recent committee meeting. Markets have been exceptionally volatile since the Russian Invasion of Ukraine, with the full ramifications of current sanctions becoming clearer with fund managers doing deep dives into all their positions to assess consequences. Committee takeaways: 

  • War is unpredictable: Any major changes implemented (such as going to cash) could backfire magnificently. Although unlikely, a swift resolution to war would see a sharp rebound in asset prices. 
  • Stay invested as we have done in previous crises – Further caution against going to cash with inflation at current levels.  
  • Retain long term view – As with other crises, markets rebound eventually, though timing of this is clearly unknown.  
  • Historically markets have rebounded quickly after a geopolitical shock, though TS Lombard are more sceptical of that happening this time; volatility unlikely to abate anytime soon 
  • Broadly happy with portfolio allocations with Credit positions (especially short-dated Credit) providing some protection relative to larger equity market falls – See James Baxter’s note from last week. 
  • Maintain equity allocations to help protect against inflation. Continue to monitor both geographic and stylistic makeup of the Equity portfolio with Europe coming under the most pressure.  

Changes Made: 

  • Add portfolio insurance in the form of Ruffer Diversified Return without sacrificing too much on long term returns 
  • Funds were raised via reducing exposure to Sanlam Hybrid, Sanlam Multi-strategy, and Schroder Global Cities 

LF Ruffer Diversified Return – New addition to Multi-Asset Portfolios  

We are pleased to announce the addition of a new fund manager to Tideway’s Model Portfolios, opening a position in Ruffer Diversified Return, executed on Thursday, which should be viewable in the Tideway portal over the coming days. 

About Ruffer: 

For those who are not familiar with the Ruffer brand, they are a London based investment manager (just a few doors down from our old offices in Victoria Street for those who remember) who practice just one investment philosophy and strategy which they extend to their entire selection of funds and segregated mandates, and their £24.5 billion under management.  

The firm was founded in 1994 by Jonathan Ruffer, Robert Shirley and Jane Tufnell as an independent private partnership; it has prospered over the years now employing over 350 people. Although of private investor origins, the firm’s investment strategy has been recognised by many an institutional investor, now providing 60% of Ruffer’s assets under management. As Chairman, Jonathan Ruffer remains a key figure in the investment process to this day. 

The Diversified Return fund was only launched in September of last year and already boasts over £300m of assets. What sets this strategy apart from other Ruffer investment vehicles and has allowed Tideway to invest on behalf of clients, is that it is Ruffer’s only daily liquidity offering with their previous/ existing strategies being a minimum of weekly dealing. Lower liquidity strategies remain both inappropriate for the needs of our investors and incompatible with a model portfolio service. 

Investment Philosophy and Approach:  

The firm’s investment philosophy is exceptionally clear and can be summed up by the following two objectives: 

  • Not to lose money in any 12-month period 
  • Generate returns meaningfully ahead of the return on cash 

Although these objectives are not unique in the much-maligned absolute return and multi-asset space, it is Ruffer’s success, as evidenced below, in achieving these objectives on a yearly basis which sets them apart from their peers. 

Protecting capital: An almost unblemished record 

  • In the 27 years of running this strategy, there has only been one calendar year where performance has not been positive, when firmwide strategies achieved a total return of -0.3% 
  • In the same vein, the fund has also performed exceptionally well in the three largest stress events in recent memory; 2000-2002 ( crash), 2008-2009 (Credit crisis) and 2020 (Covid-19 crisis) returning an impressive 26.9%, 21.1% and 16.7% where broader markets were down in bear market territory as a minimum 
  • Despite this strong record of protecting capital, the strategy is not immune to all drawdowns with five drawdowns over 4.5% over the history of the strategy and the largest drawdown at 9.1%. In all these instances however, the entire drawdown was recovered in between 3 and 12 months 

Returns meaningfully ahead of cash: Well ahead of their promises though returns not always linear 

  • Despite the primary aim, long term performance has been exception, annualising 9% since the inception of the firm in 1994.  
  • It must be noted that performance is not linear and will typically underperform in strong rising markets. This is not an issue as it means that the rest of your portfolio is performing well. 
  • Returns are even more impressive when risk is considered having a much lower volatility than global equities and with a correlation of just 0.3 to said global equities 

Current Portfolio Positioning: A dynamic process will lead to ever changing positioning within portfolios 

  • Currently long equity with only a nominal allocation to US.  
  • Long Index linked gilts 
  • Long Gold with some protection strategies overlayed 
  • More details contained in the latest factsheet 

Fit within Tideway portfolios: Diversification and portfolio insurance without diluting long-term returns 

  • Low correlation with all Tideway funds – Between -0.1 to 0.5. This will reduce volatility in the short term 
  • Portfolio Insurance – Aims to provide protection to portfolios in all market conditions, including major stress events 
  • Improves risk adjusted returns and to be held throughout the cycle – Will underperform in strong bull markets