Ruffer reports gains amid market volatility

Ruffer Investment Company reported positive May 2025 performance driven by global equity market rebounds following tariff de-escalation between the U.S. and China, where the U.S. slashed tariffs from 145% to 30% and China cut retaliatory tariffs from 125% to 10%. Ruffer increased equity exposure via S&P 500 call options and initiated a position in 30-year Japanese government bonds amidst bond market turbulence stemming from U.S. fiscal concerns and global long-dated bond sell-offs. The company anticipates a future economic environment characterized by more volatile and higher inflation, affecting equity and bond performance.

Analysis

Ruffer Investment Company Limited reported positive performance for May 2025, capitalizing on a rebound in global equity markets which was significantly influenced by a de-escalation in U.S.-China trade tensions. This de-escalation saw the U.S. reduce tariffs from 145% to 30% and China lower retaliatory tariffs from 125% to 10%, contributing to the S&P 500 returning to positive year-to-date figures after the 'Liberation Day' downturn. In response to improved market sentiment, robust economic data, and lower implied volatility, Ruffer increased its equity exposure through S&P 500 call options. Concurrently, the bond market experienced notable turbulence, driven by concerns over the U.S. fiscal situation following President Trump’s 'One Big Beautiful Bill' Act, which extends tax cuts and increases spending, leading to a divergence between the U.S. dollar and treasury yields. This turbulence was global, evidenced by a sell-off in long-dated bonds, with Japan’s 30-year yield reaching a record 3.18%. Ruffer addressed this by initiating a small position in 30-year Japanese government bonds, aiming to provide liquidity during market stress. The company maintains a low interest rate sensitivity within its portfolio, citing structural concerns about inflation and government debt. Looking forward, Ruffer anticipates an economic environment characterized by more volatile and higher inflation, which is expected to impact the performance and traditional correlation stability between equities and bonds, as fiscal policy dominance grows and investors re-evaluate U.S. assets and the dollar.

Key Decisions for Investors

• Investors should acknowledge the current positive equity momentum driven by tariff reductions but remain cautious due to underlying fiscal concerns and anticipated higher inflation.
• It may be prudent to re-evaluate fixed income allocations, particularly long-dated bonds, given the observed turbulence and Ruffer's move into Japanese government bonds for liquidity, while also considering strategies to hedge against rising inflation and potential shifts in equity-bond correlations.
• Monitor fiscal policy developments globally, especially in the U.S., and their potential impact on sovereign debt markets, currency valuations, and overall market volatility, as a shift towards fiscal dominance is anticipated.