Ruffer Investment Company posts gains amid market rotation

Software stocks fell ~9% in February while the S&P 500 was down <1%, prompting Ruffer to trim AI-related positions; Japanese equity allocation was raised to ~5.5% and contributed ~0.5% to returns. UK and Japanese government bonds added ~0.4% as the US 10-year fell below 4%; the fund remains low-duration (~1 year), holds ~40% equities, yen exposure, precious metals, oil, derivatives protection and cash. Credit spreads widened modestly amid AI-related credit worries, and geopolitical tensions—including a US-Israel offensive against Iran on Feb. 28—lifted gold and oil prices.

Analysis

Japan’s political stability + potential fiscal impulse creates a structural window for a steeper JGB curve and a stronger yen — the key second-order beneficiary is Japanese financials (banks/insurers) which win from wider net interest margins while rate-sensitive real assets (REITs, long-duration utilities) would be the losers if front-end yields move higher by 25–75bp over the next 3–12 months. Global portfolio flows matter: if JGB yields reprice, expect capital rotation into JPY assets and a tightening of USD-funded carry trades, compressing risk premia in U.S. growth names and accentuating the ongoing value vs. growth tilt.

The recent AI/software derating creates a short-term dispersion opportunity but also a longer-term credit channel risk: software-exposed credit managers and leveraged lessees may see covenant stress if corporate capex stalls for 2–6 quarters, which would widen credit spreads unevenly across tech-linked credits. Geopolitical risk keeps a positive skew on commodities and safe-haven assets — oil and gold are likely to react on headline shocks within days, whereas credit and equities reprice over weeks to months depending on policy responses.

Contrarian payoff: the initial wave of AI-related selling looks more liquidity-driven than fundamentals-busting for hardware names that sell into capacity-constrained segments; a tactical re-entry into high-quality AI hardware (SMCI-style exposures) is warranted on two-week price consolidation, but avoid crowded long-only exposure given the macro uncertainty. Hedge construct matters: favor call-spreads and short-dated protection over naked longs to capture mean reversion while capping downside from widening credit or rates moves.

Key Decisions for Investors

• Long tactical SMCI & APP 3-month 10–15% OTM call spreads (size 1–2% NAV combined). Entry after two consecutive trading days of stable realized vol; target 2.5x payoff on premium, stop loss = full premium if price breaches new lows on >20% volume spike.
• Buy JPY exposure via FXY (or a 3–6 month forward) sized to 1–2% NAV. Rationale: 5–8% JPY appreciation yields asymmetric portfolio benefit if BoJ re-normalization bets persist; hedge with a USD-funded stop if 10y UST yields rise >50bp in 30 days.
• Long Japanese banks (MUFG, 1–2% NAV) vs short US software ETF (IGV, matched notional) for 3–9 months. Expect banks to outperform if JGB curve steepens by 25–75bp; pair reduces beta to global equities while capturing curve-driven spread.
• Buy 5y CDX IG protection (small size, 0.5–1% NAV) or HYG 3-month 2.5% OTM puts as asymmetric tail hedges against broader credit widening. Cost is insurance against the credit channel triggered by tech capex slowdown or geopolitical escalation; treat as event insurance rather than alpha trade.