Ruffer: Democracy may be pitfall for Europe in 2012

The public's willingness to accept economic reform may be a greater problem for Europe this year than the stubbornness of the ECB, according to the managers of the Ruffer Investment Company.

Chief executive Jonathan Ruffer (pictured) and directors Hamish Baillie and Steve Russell, who manage the £264m trust, said the three-year refinancing facility offered by the ECB in December demonstrated a more accommodative attitude from the central bank.

"The ECB's balance sheet expanded by a massive 45% in the second half of 2011 and we can expect more of the same in 2012," the managers said.

"Democracy may be the pitfall for Europe in 2012 as governments try to push economic reforms past their electorates - this will be a hard sell both within the core and the periphery of Europe".

Ruffer said running a portfolio of offsetting assets has enabled it to hold relatively high equity weightings in 2011 while still dodging a number of bullets. The trust's NAV rose by 0.7% over the course of the year.

"In Japan it was a case of taking a bullet, but one which missed vital organs", Ruffer said.

The managers were holding 24% in Japanese equities as at the turn of the year, with non-sterling index-linked securities and index-linked gilts forming 16% and 12% of the portfolio respectively.

UK equities made up 15%, with Vodafone and BT remaining two of the largest individual positions.

"We will endeavour to maintain a portfolio that will perform come sunshine, rain (or gales) and, as ever, the battleground will be to ensure our offsetting assets are fulfilling their role in protecting other parts of the portfolio," they said.