The managers of the Ruffer investment company have defended their portfolio's exposure to the US dollar, saying it will protect them against a trio of political events which could knock back sterling.
Hamish Baillie and Steve Russell (pictured) ended the month with a 25% exposure to the US dollar. A weakness against sterling means dollar protection has “come at a price” for the fund’s performance over the past 12 months, the managers acknowledged.
But the duo said the dollar remains an important offsetting asset: “Sterling has been an outright beneficiary of the UK’s co-ordination of fiscal and monetary policy as tools to kick-start the economy.
“If this recovery proves unsustainable then sterling is vulnerable, and particularly so when one also factors in the looming political uncertainty surrounding the Scottish referendum, a general election and the question of EU membership.”
The dollar helped protect shareholders during the eurozone crisis, they said, while other assets such as equities fell in value.
Assessing the portfolio's fortunes last month, the managers said the most positive returns for the fund came from protective investments.
The fund saw little trading during July, with holdings remaining roughly in keeping with the previous month. A “tough month” for equities clost the fund 24bps of performance, the managers said, but Japan broke even. Protective assets - including the US dollar - added 32bps to returns.
The fund’s holding in ITV also benefited from increased merger and acquisition activity in the media sector – shares rose 17% as the firm became seen as a potential takeover target.