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Does the soaring performance of Trojan and Ruffer signal a market crash?

07 October 2014

The Troy Trojan and CF Ruffer Total Return funds have a knack of surging when the market is about to pull back. That’s happening now.

By Jenna Voigt,

Editor, FE Investazine

While we often hear past performance is not a guide to future returns, the recent performance of the £2.4bn Troy Trojan and £3bn CF Ruffer Total Return funds is worth watching as both could be poised to perform a hat trick in predicting a market crash.

The defensively-focused funds’ outperformance has been achieved in periods when the rest of the market is in turmoil and, according to FE Trustnet research, their current performance could be a sign of trouble to come.

Before markets tanked in 2011, Trojan began to outperform just as volatility started to hot up and the same has happened this year.

Though much less pronounced, the CF Ruffer Total Return fund was fairly flat in 2011, something it’s repeating in 2014.

Performance of funds and index in 2011

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Source: FE Analytics

According to the below chart, it looks like we are in late July 2011 right now.

Year-to-date performance of funds and index

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Source: FE Analytics

As if that isn’t enough to make investors wary, the defensive Trojan fund performed the same feat right before the credit crisis in 2008.

Ruffer’s outperformance was even more pronounced. From the start of 2007 to the end of 2008 the fund made 27.65 per cent, almost exactly opposite the returns of the FTSE All Share which lost 26.2 per cent.


Performance of funds and index from 2007 to 2008

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Source: FE Analytics

Cantor Fitzgerald’s Charles Tan warned of a similar phenomenon with the closed-ended BH Macro Trust which has seen its performance rally strongly in recent months – a clear signal, in Tan’s eyes, that equity markets are about to tumble.

The performance of these two funds, which tend to protect investors’ capital on the downside, combined with a record low volatility, at least until recently, could foreshadow a difficult time ahead for markets.

Earlier this year, FE Alpha Manager Iain Stewart warned some of the biggest bubbles of all time were being created as investors and the market ignored just how inflated prices were becoming.

Stewart’s own total return and income vehicle, the £9bn Newton Real Return fund, surged in the darkest days of 2008 when the markets were plummeting.

Performance of fund and index from 2007 to 2008

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Source: FE Analytics

Newton Real Return, however, performed broadly in line with markets in the latter half of 2011, though it didn’t fall as far as the index, losing 0.75 per cent while the FTSE All Share was down 3.46 per cent.

So far this year the fund is up 1.88 per cent, but its performance does look eerily similar to that of 2011 when the fund fell alongside the index and then flattened out in line.


Year-to-date performance of fund and index

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Source: FE Analytics

However, in spite of recent volatility, managers like FE Alpha Manager Giles Hargreave think nothing’s changed for investors.

Hargreave is looking at last week’s pull back as a buying opportunity rather than a reason to be worried.

“I like to think it’s just a correction. Not much has changed in the world,” he said.

“There’s better value to buy good companies. Stocks are cheaper than they were two weeks ago.”

In an FE Trustnet article last week, other UK equity managers echoed Hargreave’s views, including Franklin Templeton’s Colin Morton, Liontrust’s Jan Luthman and Rathbone’s Carl Stick.

Yesterday, we highlighted the open-ended funds that could be more attractive for investors in light of recent turbulence in markets.

Charles Stanley’s Rob Morgan says the recent market volatility does create the ideal conditions for funds like Troy Trojan and Ruffer Total Return to outperform because their defensive characteristics reflect a flight to safety.

ALT_TAG “[Trojan and Ruffer Total Return] tend to do well when fear is stalking the market, which it is now,” he said.

However, Morgan says the outperformance is more about the funds’ defensive, large-cap tilt than a real threat to market stability.

He points out that over the last several years, small and mid-cap funds raced ahead of the market. Yet in 2014, funds with a bias further down the market cap spectrum haven’t fared as well and the pull back at that end of the market cap has sent the FTSE All Share lower.

Morgan says he’s not worried markets are about to suffer a major fall, though he admits volatility will increase because it’s been so low and there are a number of macro and geo-political concerns that will cause periodic tremors.

“I’m not expecting a significant period of volatility. We’ve already had a pull back and I don’t think there’s going to be a major sell-off unless something out of the blue happens,” he said.

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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.