Chair’s statement

In recent Annual and Interim Reports, the Investment Manager argued that markets were discounting a goldilocks scenario for US bonds and equities and warned that this was too complacent given the risks. The Investment Manager forecast three potential paths ahead: a continued US-led equity rally, a significant equity market sell-off, or a rotation within markets. Markets in 2024/2025 were so volatile as investors held all three views at different times.

The outstanding aspect of RICL’s performance in the past year has been the ability to achieve positive returns amidst such diverse market regimes while retaining the necessary protection to offset market falls. This was achieved by Ruffer through a combination of three factors:

First, asset allocation has been dynamic, with careful optimisation of the allocation to equities, short-term bonds, commodities and inflation-linked bonds. For example, the gross allocation to equities has varied between 23% and 35% but the net allocation after accounting for derivative positions has fluctuated between 0% and 48%.

Second, long-held contrarian positions in unloved ‘ugly duckling’ assets have been rewarded. For example, China equities, UK equities and the yen have all delivered positive returns.

Third, unconventional assets held to protect the portfolio against market downturns have paid off during equity market sell-offs in August 2024 and April 2025. This helped RICL achieve positive NAV returns during these market squalls.

One aspect of RICL’s portfolio that continues to attract questions from shareholders is the Company’s trading of derivatives and ownership of specialist third-party hedge funds which typically use credit and derivatives. A financial derivative is a contract between two parties that derives its value from an underlying asset, such as stocks, bonds, commodities or currencies. It is essentially a play on the future price movement of the underlying asset. While derivatives have become increasingly common in the investment company sector as an alternative to bank debt, Ruffer typically uses them – along with funds – not just for hedging against risks, but also to profit from price movements and to amplify gains with relatively small investments. Examples of their use in the past year have included options to benefit from spikes in equity volatility, options to benefit from both rises and falls in equity price levels and ownership of funds which benefit in market sell-offs. The trading is undertaken directly by Ruffer’s dedicated protection team or via investment in funds managed by specialist third-party managers.

Risk is overseen by Ruffer’s risk team. Although Ruffer has used derivatives since 2008, it is by no means axiomatic that it does so. However, in a period in which bond-equity correlations are positive, bonds may not offer insurance against equity market falls and unconventional protection via derivatives may be needed to help the Company to meet its objective. The closed-ended status of RICL is an ideal structure to own strategies such as the third-party funds, given their illiquidity. These strategies are also a source of differentiation for retail shareholders, as they are typically only available to larger clients at a higher cost.

Although in individual periods the attribution from derivatives and third-party funds may be positive or negative, the Board believes the way to assess their success is via the Company’s NAV TR, as all activity is conducted as part of overall asset allocation to achieve the Company’s objective.

More detail about investment performance can be found in the Investment Manager’s report on pages 12 to 37.