In a stock-market update, Ruffer managers restated their rationale for gaining exposure to bitcoin.
Last month, Ruffer Investment Company (LSE:RICA) caused a stir when it disclosed it had invested in bitcoin. The traditionally defensive investment trust reported that it had gained around 2.5% exposure directly to bitcoin, on the basis that it offered a defensive hedge.
The move raised eyebrows, as most fund managers have, to date, steered clear of investing in bitcoin, viewing it as too volatile, risky and speculative. The trust also has indirect exposure through companies involved with bitcoin.
However, so far, Ruffer’s exposure to bitcoin appears to have a paid off. According to the latest update from the managers, dated to the end of December, their bitcoin exposure has appreciated by around 100%. Their direct holdings in bitcoin, they note, were up by around 90%. Meanwhile, their two “proxy equities”, MicroStrategy (NASDAQ:MSTR) and Galaxy Digital (TSE:GLXY), were both up by around 100%.
MicroStrategy is a software company that has been buying bitcoin as a way to protect the value of the cash it holds against inflation. At the end of December 2020, the company reported it held 70,470 bitcoins, which were acquired at an average purchase price of approximately $15,964 per coin. As of 18 January, the price of bitcoin is around $35,000.
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Galaxy Digital, meanwhile, describes itself as a “diversified financial services firm dedicated to the digital asset, cryptocurrency and blockchain technology industry”.
Over a one-year period, Digital Galaxy has seen its share price surge by around 700% and MicroStrategy by around 300%.
In their half-yearly report (to 31 December 2020), the fund managers of Ruffer restate their rationale for gaining exposure to bitcoin. They note: “We have a history of using unconventional protections in our portfolio. This is another example, a small allocation to an idiosyncratic asset class, which we think brings something significantly different to the portfolio.”
Ruffer’s fund managers argue that zero interest rates mean many investors are now looking for new safe-haven and uncorrelated assets.
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They continue: “We think we are relatively early to this, at the foothills of a long trend of institutional adoption and financialisation of bitcoin. Think of bitcoin’s bad reputation as a risk premium - as we move through the process of normalisation, regulation and institutionalisation, the compression of this premium can have a dramatic effect on the price. If we are wrong, bitcoin will return to the shadows and we will lose money - this explains why we have kept the position size small but meaningful.”
For 2020 as a whole, Ruffer reported a net asset value (NAV) return of 13.5% and a share price return of 17%.
Priyesh Parmar, an analyst at Numis, is a fan of the trust, due to its defensive qualities. He says: “The nature of the portfolio means that the NAV will inevitably lag if equity markets are strong. However, the fund has a long-term track record of delivering consistent growth with low volatility.
“Ruffer has an impressive record of insulating against market falls, most notably during the global financial crisis, as the NAV rose 26% in 2008 versus a 30% fall in the FTSE All-Share, and again in the first quarter of 2020. We believe that the fund can be regarded as an attractive portfolio diversifier.”
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