Interactive Investor

Defensive trust buys bitcoin as a safe-haven investment

17th December 2020 09:00

Tom Bailey from interactive investor


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Ruffer has taken the decision to allocate 2.5% of the portfolio to bitcoin. 

Ruffer Investment Company (LSE:RICA) has added the cryptocurrency bitcoin to its portfolio.

The trust has taken the decision to allocate 2.5% of the portfolio to bitcoin. This represents an unusual move, as the vast majority of fund managers have to date steered clear of investing in bitcoin.

The digital currency has had a volatile 2020. After sharp falls during the early stages of the pandemic, its price has moved sharply upwards. Bitcoin recently surpassed its December 2017 all-time high, reaching $20,000 per coin.  

However, rather than jumping on a potentially speculative bandwagon, the managers of Ruffer view their exposure to bitcoin as a defensive hedge.

The trust, after all, is defensive, with its aim being capital preservation. As a result, its decision to add bitcoin to its portfolio is explained as providing a hedge against monetary and market risks.

The managers of trust, Hamish Baillie and Duncan MacInnes, argue that the cryptocurrency has very low correlation with other asset classes and therefore offers a “small but potent insurance policy.”

Principally, they see a risk of the world’s major currencies devaluing due to growing public deficits, zero and negative interest banks rates and historically unprecedented quantitative easing. Bitcoin offers a “hedge” against this risk, they argue.

The managers also argue that bitcoin will see increasingly institutional adoption, helping to support its price longer term.

In a stock market announcement Ruffer said the purchase of bitcoin, with the assets held in a segregated account, was made in November following a reduction in its exposure to gold.

It said: “The exposure to bitcoin is currently equivalent to around 2.5% of the portfolio. We see this as a small but potent insurance policy against the continuing devaluation of the world's major currencies. Bitcoin diversifies the company's (much larger) investments in gold and inflation-linked bonds, and acts as a hedge to some of the monetary and market risks that we see.”

Commenting on the decision, Numis, the investment trust analyst, noted: “Given the manager’s track record it is hard to question its asset allocation decisions, although we would expect the exposure to bitcoin to raise a few eyebrows.”

They continue: “The exposure for Ruffer fits with their outlook that that the level of government debt and recent fiscal and monetary stimulus can only be addressed through financial repression and that it has created the risk of debasement of traditional currencies.

“We note that it remains are relatively modest positions at 2.5% of the portfolio and can understand the rationale of the managers seeking diversification at a time when the correlation of returns across asset classes is increasing.”

Ruffer has performed relatively well this year, returning investors just over 12% year-to-date (in sterling terms), according to FE Analytics. The trust also did its job of capital preservation during the Covid-19 market crash in March, falling by significantly less than the wider market and most other funds.

Ruffer currently trades on a small discount of 0.7% to its net asset value.  

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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