"Ostrich" investors who buy equities and ignore the risks may find their "day in the sun" is soon over, the managers of Ruffer investment company have warned.
The portfolio delivered a total negative return of 2.6% in the 12 months to 30 June 2014, in terms of NAV performance. As a result, the managers have missed their 1% target rate of return.
Managers Hamish Baillie and Steve Russell (pictured) acknowledged their protective investments such as index-linked bonds, US dollars and gold “came at a heavy price”, but insisted these assets are as important as they have ever been.
Underlying the confidence in their strategy, lead manager Baillie acquired a further 43,000 shares on 18 August 2014.
The managers told shareholders: “The best rewards came from what an investor described to us as the 'ostrich approach to investing' - buy equities and ignore the risks at large in the world. This is not an easy environment for our style of investing.”
But rather than 2014 being a year of normalisation, they argued governments’ interventionist approach to monetary policy has pushed markets deeper into “uncharted territory”.
They slammed the “wanton stimulus” of central bank policymakers willing to pursue all available options to achieve a higher rate of growth. These tactics are likely to become more extreme and experimental in future, they warned.
The managers added: “Our intention is to guard against the risks we see in the world but hopefully also make a positive return at the same time. The ostriches may be having their day in the sun, but we doubt this will last.”
While admitting performance has been “disappointing”, Baillie and Russell pointed to previous periods of “dull performance” which took place in the run up to crises such as that in 2008-7.
Half of the fund is allocated to equities, the managers confirmed: “Looking forward, we will continue to try to find parts of the equity market which offer reasonable value, although this is becoming increasingly hard to do.”
