Ruffer Investment Co. Ltd. · LSE:RICA
Ruffer Investment — Investor Presentation (April 2022)
51 slides from Ruffer Investment's investor presentation, Apr 27, 2022
Slide 1: Crossing the Rubicon
Crossing the Rubicon Navigating the New World Disorder Alexander Chartres, Investment Director 80 Victoria Street London SW1E 5JL +44 (0)20 7963 8100 ruffer.co.uk A limited liability partnership, registered in England with registered number OC305288 authorised and regulated by the Financial Conduct
Slide 2: Stability breeds instability
Stability breeds instability
Slide 3: Disinflationary drivers
Disinflationary drivers
Slide 4: Capital's post-Cold War Golden Age: permanent? (no)
Capital’s post-Cold War Golden Age: permanent? (no) LOW RATES, INFLATION AND VOLATILITY HAVE UNDERPINNED ASSET PERFORMANCE 50 Price-earnings ratio (LHS) 16 Average 1950-1990 Average 1990-present 40 Long-term interest rates (RHS) 12 30 8 20 4 10 0 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2
Slide 5: Global debt has grown quickly, too
Global debt has grown quickly, too DEBT AS A PERCENTAGE OF GDP IS BACK AT WWII LEVELS, INCREASING ECONOMIC FRAGILITY Asian Global 1980 debt financial financial Covid-19 World War II crisis crisis crisis pandemic 140 Developed economies Emerging economies 120 100 80 60 40 Sources: IMF, Historical Pub
Slide 6: 2022 Russian invasion of Ukraine
2022 Russian invasion of Ukraine 24 February 2022 - present
Slide 7: The new era dawns: inflation at 40 year highs
The new era dawns: inflation at 40 year highs THE OUTCOME IS UNLIKELY TO BE LINEAR: MORE VOLATILE THAN ELEVATED. COVID & UKRAINE = ACCELERANTS 30 12 month % change 25 20 15 10 5 0 -5 -10 US UK -15 1930 1936 1943 1950 1956 1963 1970 1976 1983 1990 1996 2003 2010 2016 Source: Bank of England, ASR Ltd/
Slide 8: Operation Stable Door begins…
Operation Stable Door begins… INFLATION IS OUT OF CONTROL. CENTRAL BANKS & INVESTORS ARE PLAYING CATCH-UP Two year government bond yield, % 2.5 US Germany 2.0 UK Japan 1.5 1.0 0.5 0.0 -0.5 -1.0 Jan 21 Apr 21 Jul 21 Oct 21 Jan 22 Apr 22 8 Source: FactSet
Slide 9: Some doors are more open than others…
Some doors are more open than others… IS THE ECB RUNNING ON FAITH? 9 German CPI YoY Bundesbank/ECB Base Rate 8 7 6 5 4 3 2 1 0 -1 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 9 Source: Refinitiv Datastream
Slide 10: Boom to bust?
Boom to bust? PRICES Inflationary bust Inflationary /stagflation boom Cash in strong Asset-heavy currencies value stocks, Inflation-linked commodities, energy bonds GROWTH Deflationary Deflationary bust boom Government Asset-light bonds growth stocks Derivative protection 10 Source: GaveKal Research
Slide 11: So much for 'safe haven'…
So much for ‘safe haven’… FIXED INCOME ENDURES ITS WORST START TO A YEAR. REMIND ME WHY YOU OWN CONVENTIONAL BONDS? Bloomberg Global Aggregate Total Return Index 1990-2022 15% 10% 5% 0% -5% 15 Apr 2022 -9.2% -10% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 11 Source: Bloomberg, Bianco Research
Slide 12: What about the market darlings?
What about the market darlings? (turns out they do care…)
Slide 13: Higher inflation and rates = equity rotation
Higher inflation and rates = equity rotation JANUARY MARKED THE SECOND BEST MONTH IN 50 YEARS FOR VALUE – BUT IS IT THE START OF A TREND? MSCI WORLD VALUE GROWTH 9% 7% 5% 3% 1% -1% -3% -5% -7% -9% 1975 1978 1981 1985 1988 1991 1995 1998 2001 2005 2008 2011 2015 2018 2021 13 Source: Bloomberg, data t
Slide 14: Liquidity remains a critical variable
Liquidity remains a critical variable The taps are now being tightened – but how far?
Slide 15: Something always breaks…
Something always breaks… IT’S A QUESTION OF ‘WHEN’, NOT ‘IF’ Franklin Natl First Mexico/ Cont Black S&L Mexico/ Asia dot.com Housing Great Energy Equity Pandemic Penn Penn Illinois Monday crisis Orange financial crisis bubble financial market turmoil Square Co crisis crisis collapse (SPX -20%) 16 14
Slide 16: The road ahead
RU The road ahead
Slide 17: Energy transition, World order, Digital
Energy transition World order Digital Fourth turning Environmental Monetary
Slide 18: It's all about power
It’s all about power Energy use per capita, kwh (2019) 200,000 180,000 Stylized net global CO2 emission pathways 160,000 Billion tonnes CO2 per year (GtCO2/yr) 60 140,000 120,000 50 Canada 100,000 CO2 emissions decline 40 US from 2020 to reach net 80,000 zero in 2055 or 2040 30 60,000 20 40,000 Fran
Slide 19: New supply side shocks which aren't deflationary
New supply side shocks which aren’t deflationary ESG – THE TRANSITION TO NET ZERO INVOLVES A LARGE NEGATIVE SUPPLY SHOCK & MEGA CAPEX
Slide 20: Energy sector weighting in the S&P 500
Energy sector weighting in the S&P 500 MARKET CAP OF S&P ENERGY SECTOR AS A PERCENTAGE OF THE S&P MARKET CAP Source: FactSet, Ruffer. 20 Data to February 2022
Slide 21: Slide 21
Slide 22: From a hydrocarbon world order…
From a hydrocarbon world order… RATIO OF FUEL IMPORTS TO EXPORTS. EUROPE, CHINA AND JAPAN ARE ALL VULNERABLE TO HIGH FUEL PRICES < 0.25 Between 0.25 and 0.5 Between 0.5 and 1.0 Between 1.0 and 2.0 Between 2.0 and 5.0 > 5.0 Based on UNCTAD STAT data . ‘Fuel’ as categorised within Standard Internation
Slide 23: …to a metal world order
…to a metal world order RATIO OF HARD COMMODITY IMPORTS TO EXPORTS. JURISDICTIONAL RISK IS NOW CRITICAL < 0.25 Between 0.25 and 0.5 Between 0.5 and 1.0 Between 1.0 and 2.0 Between 2.0 and 5.0 > 5.0 Based on UNCTAD STAT data . ‘Hard Commodities’ as categorised within Standard International Trade Clas
Slide 24: 'Financial' versus 'real'
‘Financial’ versus ‘real’ EQUITIES EXPENSIVE RELATIVE TO COMMODITIES? 9 GSCI Commodity Index / S&P 500 8 7 6 5 Median: 4.1 4 3 2 1 0 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 Source: Incrementum AG, data to 24 April 2022
Slide 25: Commodity currencies have lagged commodity prices
Commodity currencies have lagged commodity prices EQUITY-LIKE RISK, WITHOUT THE EQUITIES 160 S&P GSCI Index Spot CME (lhs) 130 DM commodity currencies (rhs) 140 120 120 110 100 100 80 90 60 80 40 70 20 60 0 50 25 1997 2002 2007 2012 2017 2022 Source: S&P/GS, Bloomberg, NBER, Minack Advisors, data to
Slide 26: Let them eat (lentil?) cake!
Let them eat (lentil?) cake! WORLD FOOD PRICES HAVE JUST POSTED THEIR FASTEST EVER INCREASE. HIGH FERTILISER PRICES = LOWER CROP YIELDS NEXT YEAR 180 UN Food and Agriculture Price Index (lhs) 8 1,800 Natural gas (rhs 1) 160 1,600 Fertiliser prices (rhs 2) 7 140 1,400 6 120 1,200 5 100 1,000 4 80 800
Slide 27: Let them eat cake! Like fuel, food drives revolution
“Let them eat cake!” Like fuel, food drives revolution
Slide 28: Cost of living crisis drives confidence collapse
Cost of living crisis drives confidence collapse UK CONSUMERS' EXPECTED PERSONAL FINANCIAL SITUATION (NEXT 12M) = BAD FOR INCUMBENT POLITICIANS 1.8 1.5 1.2 0.9 0.6 0.3 0 -0.3 -0.6 -0.9 -1.2 -1.5 -1.8 -2.1 -2.4 -2.7 -3.0 -3.3 1985 1989 1992 1996 2000 2003 2007 2011 2014 2018 2022 Sources: Gfk, Europe
Slide 29: Whatever it takes?
Whatever it takes? EUROPEAN INFLATION EUROPEAN GROSS DEBT TO GDP > 150.0% > 10.0% 100.0 to 150.0% 7.5 to 10.0% 50.0 to 100.0% 5.0 to 7.5% < 50.0% < 5.0% 29 Source: OECD. Eurozone CPI and General government debt-to-GDP ratio. All data rebased to 100
Slide 30: 'No limits'?
‘No limits’?
Slide 31: Our objective should be free but secure trade
“ Our objective should be free but secure trade. We cannot allow “ Perhaps the time has come when we should preferentially do business with those who are countries to use their market not only trading partners, but also want to be position in key raw materials, partners in values… technologies, or p
Slide 32: Industrial strategy, energy security, currency independence
MILITARY- CIVILIAN OVERLAP INDUSTRIAL STRATEGY COMPETITION | | ‘NATO FOR BILL TRADE’ RESERVE ENERGY DIVERSIFICATION SECURITY INVESTMENT RESTRICTIONS CURRENCY INDEPENDENCE
Slide 33: Electric vehicle or intelligence asset?
Electric vehicle or intelligence asset?
Slide 34: Great Power politics is here to stay…
Great Power politics is here to stay… Historic empire Qing Chinese Russian Ottoman Mughal Europe Safavid Persian …and it looks suspiciously 18th century
Slide 35: So, expect more lobster pots
So, expect more lobster pots
Slide 36: a FedEx M] &
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Slide 37: So, what do you actually own?
So, what do you actually own?
Slide 38: Gold versus equities
Gold versus equities $2.5t $2.5t $115t Gold Global Global equities equities $12t Gold January 1980 2022
Slide 39: From baby boomers to busters
From baby boomers to busters OVERPOPULATION WILL NOT BE THE PROBLEM… EXPECT MASSIVE AUTOMATION PUSH & PUBLIC FINANCE CRISIS Births per woman 6 5 4 OECD average China EU 3 USA Japan Replacement rate=2.1 2 1 1960 1968 1976 1984 1992 2000 2008 2016 Source; OECD, UN Population 39 Dynamics
Slide 40: From have yachts to have nots?
From have yachts to have nots? WILL THE ECONOMIC PENDULUM NOW SWING AWAY FROM CAPITAL? INFLATION IS A CLEARING MECHANISM 22% 20% 18% 16% 14% 12% 10% US pre-tax national income Bottom 50% Top 1% 8% 1913 1919 1925 1931 1937 1943 1949 1955 1961 1967 1973 1979 1985 1991 1997 2003 2009 2015 2021 40 Sourc
Slide 41: Supply side pressures have been building for years
Supply side pressures have been building for years DURABLE CONSUMER GOODS PRICE INFLATION IN ADVANCED ECONOMIES, % dura les inflation H filtered trend 12m % change in CPI, country-level data aggregated using annually- updated weights for durable goods spending, US, UK, Euro area, Japan and Canada in
Slide 42: Investment implications
RU Investment implications
Slide 43: The big risk…
The big risk… Inflation-prone economy versus inflation-intolerant financial system
Slide 44: The fear of missing out
The fear of missing out LOWER RATES DRIVE HIGHER ALLOCATIONS TO RISKY ASSETS – AND HAVE INCREASED MARKETS’ DURATION Source: Ma and Zijlstra (2018), A new take on low interest rates and 44 risk taking
Slide 45: The same return, with 16 times the risk
The same return, with 16 times the risk ESTIMATES OF WHAT PORTFOLIO INVESTORS NEED TO EARN A 7% RETURN % 1991 2006 2021 US fi ed income lo al e US e uit ri ate e uit Return 7.0 7.0 7.0 US small mid ca Risk 1.1 6.7 17.3 Cash eal estate Risk increase versus 1991 6.1x 15.7x US large ca Sharpe ratio 1.2
Slide 46: Credit: NASA’s Goddard Space Flight Center/Jeremy Schnittman
Credit: NASA’s Goddard Space Flight Center/Jeremy Schnittman
Slide 47: Kryptonite for conventional balanced portfolios
Kryptonite for conventional balanced portfolios 1.0 US stock-bond correlation US equity versus bond total return correlation (3m%ch rolling 3 years) 3 month over 3 year 1962-1997 1997-2022 0.5 0 -0.5 -1.0 US core inflation (3 year CAGR) 0 1 2 3 4 5 6 7 8 9 10 11 12 47 Source: ASR Ltd, Refintiv Datas
Slide 48: 5 dimensional chess
5 dimensional chess Future focus Be active Be anti-fragile Make time your friend Own real assets
Slide 49: Great doubt: great enlightenment
“ Great doubt: great enlightenment Small doubt: small enlightenment No doubt: no enlightenment Zen Buddhism ”
Slide 50: Ruffer LLP
Ruffer LLP 80 Victoria Street London SW1E 5JL +44 (0)20 7963 8100 A limited liability partnership, registered in England with registered number OC305288. This financial promotion is issued by Ruffer LLP which is authorised and regulated by the Financial Conduct Authority © Ruffer LLP 2022 For privat
Slide 51: Regulatory performance data
Regulatory performance data PERCENTAGE GROWTH To 31 Mar % 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Ruffer 11.0 29.7 7.6 2.6 20.4 5.2 -0.8 17.5 12.2 20.5 1.6 4.8 10.3 24.2 6.8 5.3 10.7 0.9 10.0 -5.5 12.0 -1.9 -1.6 5.6 23.3 5.6 LF Ruffer Total Return 9.6 6.9 20.8 1