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Ruffer or Trojan: Which multi-asset fund is right for you?

18 August 2014

In the next article in the series, FE Trustnet compares two of the largest and most popular funds for investors looking for a multi-asset fund to give them diversification.

By Alex Paget,

Senior Reporter, FE Trustnet

There is a growing level of scepticism among investors at the moment, with experts voicing concerns about high valuations, potential interest rate rises in the US and UK, the future of China’s growth and geo-political risks – to name but a few.

All of these factors have and will continue to create volatility in the equity market.

However, most investors in funds take a long-term view and aren’t interested in trying to go into cash and time the market. While a cliché, “time in” the market is usually more rewarding than “timing” the market.

Instead of chopping and changing your portfolios, long-term investors who are worried about the short-term may be interested in funds that can protect and even make money when everything else is falling.

Two of the highest profile funds that have fitted these criteria in the recent past are CF Ruffer Total Return and Troy Trojan.

Both multi-billion funds have highly experienced management teams that aren’t afraid to take a view that differs greatly from their competitors, even if it means they underperform for years at a time.

Both have delivered market beating returns via an approach which is principally focused around capital preservation, making some money in rising markets but more importantly protecting on the downside.

Sebastian Lyon’s £2.3bn Trojan fund has been the second best performing portfolio in the IMA Flexible Investment sector with returns of 166.52 per cent since its launch in December 2001, beating its FTSE All Share benchmark by more than 70 percentage points in the process.

The £2.8bn CF Ruffer Total Return fund has been the best performing fund in the IMA Mixed Investment 20%-60% sector with returns of 78.66 per cent since FE Alpha Managers Steve Russell and David Ballance, took over in October 2006.

Performance of funds vs index since Oct 2006

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Source: FE Analytics

Though Trojan has returned 16 percentage points less than that, both funds have comfortably outperformed equities. The ride has also been much smoother.

They have also been nearly three times less volatile than equities over that time and their maximum drawdown, which measures how much an investor would lose if they bought and sold at the worst possible time, has been only around 9 per cent.

The max drawdown of the UK equity market has been 45 per cent, according to FE Analytics.

The two funds’ ability to defend their investors has been proven during times of severe market stress. In the crash year of 2008, Trojan managed to grind out a positive return of 1.11 per cent when nearly all other asset classes delivered substantial losses.


However, the CF Ruffer fund was the pick of the two that year, delivering more than 20 per cent, thanks in part to a heavy weighting to gold and the Swiss Franc.

Performance of funds vs index in 2008

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Source: FE Analytics

However, in 2011 when the eurozone crises intensified causing substantial volatility in risk assets, Trojan returned 8.52 per cent compared to Ruffer’s 0.91 per cent.

Our data shows that CF Ruffer Total Return has delivered a positive return in every calendar year since Russell and Ballance took over.

Trojan has made money in every year since its launch except for 2013, when it lost just over 3 per cent.

Both portfolios have very good long-term track records, but what can investors expect if they were to buy now? Charles Younes (pictured), analyst at FE Research, says that Russell and Ballance build their fund around their various top-down views.

ALT_TAG “They take a view according to their economic outlook and decide whether they want to take risk or not,” Younes said.

“Within that, they will try to asses which assets are suitable for risk-on or risk-off.”

The team at Ruffer have maintained a relatively bearish outlook over recent years.

One of their major themes, according to Younes, is that inflation will inevitably pick-up as a result of the ultra-loose monetary policy from the world’s central banks.

To protect their investors, Russell and Balance hold 35 per cent of their fund in index-linked bonds and 6 per cent in gold and gold equities. They also have built in protection against a correction.

Younes says that the managers have a “put” on the S&P 500, meaning they would profit if US equities were to fall, and a call option on the VIX, which would see them make money if market volatility picks up from its current low level. The team also hold 10 per cent in cash.

Younes says all three of these allocations have dragged on performance this year.


Performance of fund vs sector in 2014

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Source: FE Analytics

The one area that they have been bullish on, however, is Japan.

“They have been very, very long-term backers of Japan which worked well for them last year. However, they took profits from some of their holdings. They have sold out of domestic facing companies and into some of the country’s exporters, which should benefit from a weaker yen,” said Younes.

For their exposure to the UK, Europe and US, the managers tend to hold large-cap multinationals which tend to hold up better in times of stress.

Rob Morgan, pensions and investment analyst at Charles Stanley Direct, says that Lyon also takes a macro view when building his Trojan fund.

He points out that he and the team at Ruffer have similar views and positions, though he doesn’t consider Japan when putting his portfolio together.

“He has been quite negative on stock market valuations for some time,” Morgan.

“Lyon divides his portfolio into three pillars. The first is in blue-chip equities, both UK and overseas. These tend to be high yielding, cash rich and solid companies that aren’t too sensitive to the global economy.”

“The second pillar is that he has quite a lot in index-linked bonds and thirdly he has had a high weighting to gold. Put those three different asset classes together in a blend and you have a portfolio which is designed to beat inflation.”

Lyon also holds 15 per cent in cash at the moment.

Performance of fund vs sector and index in 2013

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Source: FE Analytics

The fund’s exposure to inflation linkers and gold in particularly weighed heavily on performance, and unlike Ruffer, Trojan couldn’t fall back on a high weighting to Japanese equities.

The experts’ view Morgan rates both funds highly and says that it all comes down to investor preference as they have very similar characteristics.

Those who have a particularly negative view on Japan are likely to prefer Trojan for example, while those who believe a high level of inflation is probable are likely to prefer Ruffer.

He points out that the Ruffer fund has tended to be more aggressive in the recent past, but he describes Lyon as a frustrated bull who, on a number of occasions, has said that he would like to take more risk if valuations were attractive.


Because of that, investors shouldn’t expect Trojan to always remain so defensive. Morgan says that leads onto the major risks regarding both funds.

“They should be viewed in a similar category. Investors who buy Trojan and Ruffer are relying on the tactical allocation of the managers as neither of them are really stockpicking funds,” he said.

“It’s more about them adding value by getting their economic views right over time.”

Trojan, which is officially soft-closed but available on various platforms, has an ongoing charges figure (OCF) of 1.07 per cent while Ruffer has an OCF of 1.03 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.