LF Ruffer Equity & General is the only fund in the IA Flexible Investment sector that has made a positive return in every one of the past 10 calendar years, according to research by FE Trustnet.
Another fund – Trojan – made a positive return in nine of the past 10 calendar years, while another 56 of the 68 funds with a track record of this length made a positive return in eight.
Funds that lost money in fewest no. of calendar years
| Name | 2017 (%) | 2016 (%) | 2015 (%) | 2014 (%) | 2013 (%) | 2012 (%) | 2011 (%) | 2010 (%) | 2009 (%) | 2008 (%) | No. of positive years | Total 10yr return (%) |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| LF Ruffer Equity & General | 11.55 | 8.14 | 0.4 | 1.32 | 21.45 | 7.54 | 3.51 | 7.95 | 14.43 | 7.33 | 10 | 119.93 |
| Trojan | 4.14 | 12.26 | 3.17 | 8.92 | -3.13 | 2.11 | 8.52 | 14.4 | 11.68 | 1.11 | 9 | 82.17 |
| IA Flexible Investment | 11.21 | 13.82 | 1.99 | 4.89 | 14.54 | 10.13 | -8.73 | 14.57 | 24.03 | -26.11 | 8 | 63.68 |
Source: FE Analytics
LF Ruffer Equity & General invests in out-of-favour sectors and special situations. However, the fund’s FE Alpha Manager Alex Grispos said that following the prolonged bull market, few sectors are out of favour enough to be “characterised by significant asymmetry”, so he is now also looking for value in companies run by chief executives “who think and act like owners”.
“As a consequence, our portfolio is currently somewhat more volatile and involves more idiosyncratic ideas where our estimate of the business value is significantly higher than the market price,” he said.
Perhaps surprisingly for a fund with such a strong record of capital preservation, its two largest holdings are small cap names: RPM Global and Science Group.
The first of these in particular fits the model of a special situation with a visionary chief executive.
RPM Global provides software to the mining and commodities industry, meaning it offers an indirect method of playing a sector in turnaround. Following heavy investment in new products, the Australian firm saw its customer base grow between 2016 and 2017, but the market reacted negatively when it announced plans to switch to a “software as a service” model last autumn – even though this was the correct long-term decision, according to Grispos.
“The business has net cash – around 20 per cent of its market capital – and the market values it at approximately the value of its maintenance long-term cash-flows – i.e. little value is attributed to its growth potential,” he explained.
“We have always expected RPM Global to be a volatile stock but the risk-reward is asymmetric and under this management team the odds are high for an exit via a trade sale.”
Grispos recently warned that with large sections of society bringing into question the value of capitalist principles espoused by Milton Friedman – namely prioritising profit over all other considerations – the rise in populism could well gather momentum. He said this could have severe implications for markets when the next crisis hits and as a result he has initiated a position in gold.
“It is unusual for us because gold is not a productive asset and we cannot value it,” he continued. “Nevertheless, we view gold as insurance against extreme outcomes. Currently, as the market thinks that interest rates are going higher, gold is not popular. We have started building a position with a three-year view.”
LF Ruffer Equity & General has made 119.93 per cent over the past decade, compared with 63.68 per cent from the sector average and 84.49 per cent from its FTSE All Share benchmark.
It is just £145m in size and has ongoing charges of 1.28 per cent.
As with all Troy Asset Management funds, Trojan is run with a heavy focus on capital preservation. It aims to deliver capital growth through investing in UK and global equities and bonds, but may also invest in other funds and money market instruments.
In his latest note to investors, FE Alpha Manager Sebastian Lyon said recent share price volatility in top holdings Sage and Philip Morris was nothing to worry about.
“This investor nervousness has occurred in the context of a more pervasive sector rotation away from defensive companies towards more cyclical sectors like energy and retail,” he explained.
“A de-rating of companies with robust fundamentals should provide us with opportunities to add to the fund’s equities.”
While the fund has soft-closed to new money, Lyon said this was not because of capacity constraints, but because taking on more clients would make it difficult to give them all the same level of attention they have received in the past. The fund is still available on many retail platforms.
Trojan has made 82.17 per cent over the 10-year period in question. It is £4bn in size and has ongoing charges of 1.02 per cent.
Performance of funds vs sector over 10yrs
Source: FE Analytics
Juliet Schooling Latter, research director at Chelsea Financial Services, said both of these funds have strong long-term track records, outperforming their sector average and FTSE All Share benchmark over the past 10 and 20 years, with less volatility.
“Both have also protected capital well in down markets – posting positive returns in both 2008 and 2011,” she added.
“[But] over three and five years, they haven't done so well. In the short term, Troy Trojan has been hurt by a large weighting to cash (almost 30 per cent) and a similar weighting to UK and US index-linked bonds. These positions reflect the manager's cautious view on markets today.
“The Ruffer Equity & General manager is also cautious, with a 25 per cent allocation to cash and small allocation to gold, but the rest of the portfolio is predominantly in equities and will have been given a boost by the recent bounce in oil stocks as two oil companies are in the top-10 holdings. Over one year, the performance is looking better."