It has been six months since the Ruffer Diversified Return fund was added into Tideway model portfolios.
Although this is a short period in investment terms and in the context of your investment journey, a lot has happened in markets during this period as central banks continue the balancing act of attempting to tame inflation whilst simultaneously trying to cause as little damage to the economy as possible.
As a result, markets have been extremely volatile with most traditional asset classes still showing a negative return year to date, despite the market rally experienced from the end of June. In this context, we thought it would be interesting to examine what Ruffer has added to Tideway portfolios.
How the main investment sectors have performed YTD.
N.B. Please note that Tideway portfolios have no exposure to IA UK Gilts or Index Linked Gilts
As an absolute return fund these are the sort of conditions where absolute return managers should earn their money (from IA Targeted Absolute Return sector performance year to date it looks like they have). Ruffer’s specific mandate is to aim not lose money over any 12-month rolling period which it has succeeded in doing over the last 12 months and with a year-to-date return of 1.41%.
For those needing a refresher of the strategy, please click the following link which will take you to the note we wrote in March upon initial investment.
Protecting capital, diversification benefits and deaccumulation:
In addition to helping protect capital in tough market conditions, one of the major benefits of holding an absolute return strategy, is the overall portfolio diversification benefits that are achieved. With a low correlation to most of Tideway selected funds, between -0.1 to 0.5 (using Ruffer’s Total Return Fund as a proxy due to its longer-term track record), this reduces the overall volatility of the portfolio giving the investor a more stable overall ride helping them to remain invested in times of market stress. This is especially useful when traditional asset classes (fixed income and equities) are struggling as we are currently seeing.
From the table below, Ruffer is one of the handful of Tideway selected funds that is in positive territory year to date. It has also achieved these returns at slightly higher levels of volatility to fixed income funds and significantly lower levels than equity strategies.
Tideway Selected Funds:
| Selected Tideway Funds | Annualised Standard Deviation % (Volatility) |
Return % |
| Sanlam Credit A Acc GBP in GB | 2.29 | -7.06 |
| Artemis Target Return Bond F Acc in GB | 2.37 | -4.34 |
| Royal London Sterling Extra Yield Bond A Inc TR in GB | 4.31 | -3.59 |
| Artemis (Lux) Short-Dated Global High Yield Bond I Hedged Acc GBP in GB | 4.94 | -5.19 |
| Sanlam Hybrid Capital Bond A GBP in GB | 5.28 | -16.03 |
| Sanlam Multi Strategy I2 GBP Acc in GB | 6.20 | -8.12 |
| LF Ruffer Diversified Return I Acc in GB | 6.29 | 1.41 |
| Artemis Corporate Bond I Acc GBP in GB | 6.30 | -13.90 |
| Jupiter Asian Income I Acc in GB | 10.44 | 7.83 |
| FTF ClearBridge Global Infrastructure Income X Acc GBP in GB | 12.31 | 18.01 |
| Fidelity Asia Pacific Opportunities W Acc in GB | 13.41 | -8.06 |
| Schroder Global Equity Income Z Acc in GB | 13.74 | 3.00 |
| Fidelity American Special Situations W Acc in GB | 14.19 | 14.48 |
| Artemis Global Income I Inc TR in GB | 14.41 | 1.51 |
| Unicorn UK Income B Inc TR in GB | 14.48 | -11.68 |
| Fidelity European W Acc in GB | 15.01 | -6.78 |
| BlackRock Emerging Markets D Acc in GB | 16.12 | -14.38 |
| Schroder Global Cities Real Estate Z Acc in GB | 17.98 | -6.53 |
| Artemis US Select I Acc GBP in GB | 18.51 | -3.69 |
| T. Bailey Fund Srvs Ltd (ACD) Heriot Global A Acc in GB | 19.71 | -6.40 |
| Montanaro Better World Dist GBP TR in GB | 26.44 | -23.22 |
Although helpful in the accumulation phase of investing, diversification benefits and lower portfolio volatility are even more important in the deaccumulation phase when investors require cash from the portfolio.
Also, all our multi-asset portfolios have a natural yield built into them to meet regular income; unforeseen circumstances will dictate that additional monies need to be withdrawn from time to time. Should this event come when markets are weak and all funds are heavily correlated to market returns, you will be forced to sell assets at a loss.
Furthermore, traditional safe assets such as UK gilts (-18.79%) and other fixed income investments (IA Strategic Bond -10.18%) which have typically protected capital better in times of market stress have not done so this year being amongst some of the worst performing asset classes; even partially liquidating these investments at these levels can be very harmful to your long-term portfolio plan. In addition to Tideway’s short dated fixed income strategies, having Ruffer in the portfolio helps provide our investors with another avenue where they can access capital without harming their long-term investment objectives.
Conclusion:
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- Ruffer has protected capital well in 2022 whilst traditional asset classes have not
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- Diversification allows for a smoother overall ride for investors
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- Low volatility and a propensity for the fund to protect capital in most market conditions makes it an ideal place to take capital in the deaccumulation phase
A couple of weeks ago we interviewed Fund Manager Jack Holmes, Artemis’ Global high yield and high income strategies. Jack talked to us about how the market works and gave us very interesting insight. You can watch the full interview here.
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- The content of this document is for information purposes only and should not be construed as financial advice.
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- Any rates of return used are for illustrative purposes only. Please be aware that the value of investments, and the income you may receive from them, cannot be guaranteed and may fall as well as rise.
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- Any rates of tax referred to are correct as at the date of this document and may be subject to change in the future.
