We're all doomed says Jonathan Ruffer.

[colin]

Can't see the article but two extracts from a Telegraph article written when the FTSE 100 breached the 1999 high.

Furthermore, the FTSE 100 today is not the same index that set the 1999 peak. FTSE Group reviews its indices every quarter and so the composition of the FTSE 100 regularly changes.

“It’s apples and pears,” said Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers. “The make-up of the FTSE 100 today is totally different to what it was in 1999.”

Whereas mining and oil and gas stocks now account for more than a fifth of the index – a much larger component of the FTSE 100 than fifteen years ago – in 1999 there were far more telecommunications, media and technology (TMT) shares, with the likes of Logica, Marconi, Misys all blue-chips.
and
'He added: “The FTSE is back to its 1999 level but the earnings picture is very different. Earnings are 99pc higher than they were in 1999. It is almost a buy one get one free market compared to 1999.'

[colin]

http://documents.financialexpress.net/Literature/893D94B8737F0C52B2FA426BF8A78E64/101491069.pdf

That's quite a bearish portfolio, not sure what the 1% in options is meant to achieve, in the monthly newsletter for Ruffer Investment Company he describes the options as 'potent'? what does he mean?

[GeoffF100]

I believe I saw an article that suggested that FTSE 100 earnings were at a cyclical high. By potent, Ruffer means expensive and likely to be a waste of money. He is buying well out the money options. They will not make much money unless the market moves decisively. It will do that eventually, but his options may have expired by then. Buying options is expensive unless you get the timing right.

Ruffer's fees are eye watering. Overall performance is OK because he avoided the 2008 crash. He may not manage that next time.

[colin]

Yes I guess someone must have sold him insurance against an event considered highly unlikely to actually occur, but I can't help thinking with such a defensive portfolio why did he bother? Markets had better tank big time for his fund to make any money this year.

I read an article about CAPE P/E which said the opposite, that the FTSE was cheap, the 250 was a little expensive and the S&P was very expensive all compared to long term averages

[GeoffF100]

The FTSE 100 has a lower CAPE than the US market, but its CAPE is higher than it was. The UK is unattractive because of the twin threats of a hard Brexit and Corbyn. If those threats fade, the UK market could regain some lost ground.

Ruffer appears to be about 55% bonds, which is not particularly defensive. 40% bonds is considered to be middle of the road. Buying options is a boldly defensive move though. He thinks that the bubble is about to burst.

[scrumpyjack]

Looking at his portfolio, it looks extremely risky to me - 72% Sterling - 48% Cash and Bonds

There is a significant chance of a Corbyn Government, who are likely to print money like there's no tomorrow - sterling could collapse, we must be near the turning point for interest rates and a return to 'normal' rates of interest (2% + the inflation rate = say 5% to 6%) and the 30 year fixed interest party will rapidly move to unwind and go back to 'normal'

and to charge a 1% fee for holding cash and gilts!

Oh well it is always said it takes 2 views to make a market!

[GeoffF100]

Increased interest rates will hit equities too.

[LittleDorrit]

The great man's words can be found here, along with many years of retro angst. :-

https://www.ruffer.co.uk/about/investment-review

We are confident that the earthquake will happen, more confident than we have been that it will happen in months, not years, and as confident as one can be that our disposition of assets will, as in previous crises, serve to protect clients.

April 2018

[GeoffF100]

If interest rates rise, bond prices fall, but equities fall correspondingly because the discount rate by which they are valued has risen. Worse, the cost of borrowing hits many companies, pushing their share prices down. Worse still, there is usually a flight to safety. Investors are willing to accept a tiny return rather than a big further loss of value.

Of course, if we are heading for deflation, the 30 year bonds will be great. Historically, in most cases, when equity prices fall long dated government bond prices rise. Ruffer has said that he is not confident that will happen this time, but he is trying to cover himself as best he can for all eventualities.

1% for investing in cash and bonds seems nuts to me. However, there are plenty of people who pay an adviser 1% to direct them to a fund that is heavily invested bonds and charging another 1%. Those bonds often pay less than bonds guaranteed by the FSCS.

[GeoffF100]

Ruffer says volatility is doom. Here is another view:

https://www.marketwatch.com/Story/hyper ... yptr=yahoo

Nobody knows.

[colin]

Well I suppose if there is a market in appealing to nervous investors someone will supply that demand.

[GeoffF100]

A full page and more, he could have just said "we're all doomed". Reads a lot like an investment manager's suicide note to me. I'll say what I said before - Yielding around 4% and valued the same as around 20 years ago, how far and for how long can the market fall? If it falls a third and the yield is then 6% how many people will sit on their hands watching their money get 0.5% interest or less? I am a simple bloke but it does not make a lot of sense to me. In fact the more doom I see in the media, the less convincing it becomes.

It does not look like a suicide note to me. Ruffer is making huge amounts of money, and his recent success has gained him lots of publicity. He will be right one day. There will be another bear market. Nobody with any sense is getting 0.5% or less on bonds. A falling stock market is likely to be triggered by rising inflation, rising interest rates, falling company earnings, falling dividends and increasing taxes. Bonds will not be fun, but they will be safer than equities.

[0x3F]

I've a holding in RICA, I think it offers something different and I quite enjoy reading the thought process behind their investments. As Geoff said, they do appear to try to cover most eventualities and they carefully choose where they wish to risk their money (eg Japan)

1% for investing in cash and bonds seems nuts to me.

This reminded me of a Seth Klarman (Baupost Group) quote after receiving a similar query:

You think you’re paying me to hold cash? you are paying me to know when to hold cash, when to invest, when the risk-reward is right. You think you are paying me to hold cash then get out of my fund.

While I don't expect Ruffer to match Klarman's 16+% annual return over 33 years, I do think that it's a valid point as his record clearly demonstrates how important Asset Allocation is. Apparently Baupost held 30-40% cash at all times and a former employee stated "We don’t return 16.4% in spite of the cash, we return 16.4% because of the cash."

- 0x3F