Overview of the quarter

IN THE MUSÉE D’ORSAY IN PARIS HANGS PAUL CÉZANNE’S STILL LIFE WITH APPLES AND ORANGES. OF COURSE, APPLES AND ORANGES ARE PROVERBIALLY HARD TO COMPARE. AS IF TO EMPHASISE THE POINT, CÉZANNE HAS PUT ONLY APPLES IN ONE BOWL AND ONLY ORANGES IN ANOTHER. WITH THE REMAINING FRUIT, IT’S SOMETIMES HARD TO TELL WHETHER THEY ARE APPLES OR ORANGES.

At Ruffer, we are used to making difficult comparisons. For example, we use baskets of equities to gain a diversified exposure to particular market themes. Currently, we have one basket of US companies with high free cash flow yield (the cash generated by the core operations of the business after deducting investments in new capital) and another of Japanese companies with potential for a restructuring (a merger, acquisition or divestment of business units, to improve company financial performance).

It is fairly straightforward to use quantitative screens on fundamental investment factors to identify the relevant companies for inclusion in these baskets. However, whilst quantitative investment strategies are proven, identifying factors which deliver persistent returns in a changing market environment is not straightforward. And it’s much harder still to assess companies on their ESG characteristics, largely because they are not required to share much of the information we would like them to disclose. And that leaves us comparing apples and oranges.

Enter RUPI (resource usage and productivity indicator), our quantitative model which assesses companies on nine variables we believe are integral to fostering value creation that should deliver shareholder returns over the long term. RUPI allows us to identify gaps in disclosure and then engage with the laggard companies systematically to encourage them to fill those gaps, so that we have not only easier comparisons but also, crucially, better corporate practices.

This quarter’s Responsible Investment Report delves into what RUPI is and how we use it. Meanwhile, our engagements in focus features three basket constituents we engaged with systematically – Toll Brothers, Kasumigaseki Capital and Micronics Japan – as well as a separate broad-ranging engagement with Reckitt.