Ruffer Investment Company: Inflation beating trust

By Richard Dyson
Updated: 08:52 EDT, 5 April 2011

If you fear inflation, Ruffer Investment Company is the fund for you.

Inflation beater: Ruffer aims to get above inflation returns and double that of cash

Ruffer, quoted in London, is a little-known investment trust that never advertises. It says it will be judged only by its performance.

The company manages money for wealthy individuals and charities and this £260m trust is the publicly available version for 'everyman'.

Its main objective is to preserve capital. After that, it aims to generate a 'sensible' level of growth of twice the return from cash.

In normal times, says portfolio manager Steve Russell, that would be about 10%. The portfolio has managed to achieve that on an annualised basis since its 2004 launch.

In the years before the financial crisis, Russell's big fear was the level of debt building in Western economies.

'Back then there was one question, and it was - is there too much debt? The answer was yes,' he says. So he pulled the trust away from riskier assets. This meant the portfolio underperformed in the years to 2007, but sailed through the crisis virtually untouched.

Now, says Russell, there is a different question - can that debt be repaid? This time the answer is no.

Profligate Western nations and governments, including our own, will resort to a 'nice, comfy, stealthy' means of reducing the debt by allowing high levels of inflation to erode it away. 'This will be good for national deficits but it will attack savers' assets,' he says.

As a result, a third of Ruffer is invested in inflation-linked UK and other government bonds. About 7% is in gold.

The rest is in equities, with Japan a major region, accounting for 23% of the portfolio.

Russell says: 'Of course Japan has suffered given the earthquake, but we remain committed.'

His argument is that Japan's central bank, regardless of the earthquake, tsunami and nuclear crisis, will stimulate the economy, deliberately stoking growth and inflation. This will benefit the stock market.

Ruffer's excellent record during and after the financial crisis has swollen demand for its shares, which trade at 5% above the underlying assets' value.

Investors may wish to wait for this 'premium' to slip back before buying. The shares, which are at 204.25p, are readily tradeable in tranches of several thousand or less.