Jonathan Ruffer's Latest Commentary: Reducing High-Yield Equities, Adding Interest Rate Hedges ~ market folly

Friday, April 12, 2013

Jonathan Ruffer's Latest Commentary: Reducing High-Yield Equities, Adding Interest Rate Hedges

Today we check in with UK-based manager Jonathan Ruffer via his April market commentary from Ruffer Investment Company.  In his latest missive, he talks about the continued government printing presses and how liquidity benefits asset prices.

Investors Flee Cash Seeking Yield

Ruffer points out that while many investors have gotten over their losses from the financial crisis, there still is no worthwhile yield on any 'safe' investments.

He writes,

"The  lack of yield on cash is a distortion which means that safety can no longer be found in conventionally defined ‘safe  assets’ or ‘safe havens’, and cash itself is dangerous to hold in these inherently inflationary conditions. Without a refuge,  and safety closed off to prudent investors, there seems little choice but to strive for capital gain – which has been broadly  available. Thus we are all chivvied towards reckless behaviour at a time when the macro-economic climate cries out for  carefulness in the management of assets."

His main concern has been and continues to be inflation going forward.  Previously, we'd noted how Ruffer had been seeking 'refuge' in inflation-linked bonds, gold and Japanese equities.  As of late, gold has obviously been selling off.  But as a pleasant surprise to Ruffer, his Japanese equities holdings have fared better than anticipated.

Trimming Equities, Adding to Interest Rate Hedges

But as equities have surged, Ruffer has been reducing their positions in high-yield staple equities.  Additionally, Ruffer makes the case that interest rates could rise sooner rather than later and his firm has used instruments that would take advantage of such happening in the US and Japan.  If interest rates surged higher faster than many anticipate, Ruffer sees this as bad for equities and has looked to hedge against such a scenario.

Embedded below is Jonathan Ruffer's Q1 letter:

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