The managers of Ruffer's investment trust increased total return by 0.5% in an "extraordinarily" volatile October as the effect of protective assets finally kicked in.
After their portfolio missed its annual 1% target rate of return in September, Hamish Baillie and Steve Russell (pictured) acknowledged their protective investments such as index-linked bonds "came at a heavy price".
But after October's volatility, the managers said the portfolio has benefited from positions in options.
They continued: "The other asset class that helped the portfolio weather this deflationary lurch was our index-linked bonds which, as real yields fell even further into negative territory, proved to be a key offset.
"With previous little expectation of inflation built into their prices, and interest rates likely to remain suppressed for an extended period, these bonds remain central to our portfolio."
There is more volatility ahead, the managers predicted: "We cannot help but feel that we are emerging from a period where it has been easy, but dangerous, to make money into a time when holding either equities or bonds will remain dangerous, whilst returns will be harder to come by and more volatile."
Close to two-fifths of the portfolio is held in index-linked instruments, while 8% is held in cash. Japanese equities account for a further 17% of the fund.
Baillie and Russell also praised Japanese policymakers' "rare sense of timing" in announcing the revised asset allocation of the Government Pension Investment Fund (GPIF) at the same time as the US Federal Reserve ended quantitative easing.
The move "not only took markets completely by surprise", but "provided us with a welcome fillip for the month end valuation", they noted.
