We still like gold, but here’s why we’ve halved exposure

Wealth preservation strategy Ruffer Investment Company (LSE:RICA) has been dialling down exposure to gold mining companies. Co-fund manager Ian Rees explains why, and outlines two areas in which he is finding new opportunities.

Other topics covered in the interview include how Ruffer aims to strike a balance between protecting and growing capital, and why performance has lagged the FTSE All-Share index over the past three years.

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Kyle Caldwell, funds and investment education editor at interactive investor: Hello and welcome to our latest Insider Interview. Today in the studio, I have with me Ian Rees, co-fund manager of Ruffer Investment Company. Ian, thank you for coming in today.

Ian Rees, co-fund manager Ruffer Investment Company: Thank you, Kyle. It’s good to be here and good to be here in person.

Kyle Caldwell: So, Ian, Ruffer is described as a wealth preservation strategy. Could you explain how the portfolio is structured? What’s the current split between shares and bonds?

Ian Rees: Sure. Ruffer is a single strategy asset manager with a focus on capital preservation. Simply, our primary aim is not to lose money for our investors. We do realise through time that we do need to deliver a positive return as well, but first and foremost, it’s not losing money.

In theory, what is that meant to provide to investors? Well, if you can avoid those large drawdowns that financial markets, or equities in particular, have a tendency to fall into every so often, and you can still capture some of the returns available in the good times; over the medium to longer term, you can deliver an equity-like return, but with much lower volatility or a much smoother ride.

Pleasingly, the strategy has been able to preserve capital during the dot-com bust, global financial crisis, around the time of the pandemic, but also in 2022. And the overall return since 1995 has been about 8% per annum, but with around half the level of volatility of equities over that time.

Now, in terms of what’s in the portfolio, there will always be a balance between what we call ‘growth’ and protective assets. Now, that balance is not fixed. It will vary depending on how we are seeing the world and how comfortable or worried we might be.

In terms of growth assets, typically that’s equities. In terms of protective assets, think government bonds, think currencies such as the Japanese yen or Swiss franc in 2007-08, think commodities, gold.

I would say over the last decade or so, we’ve also introduced derivatives into that protective armoury. So, an example would be protecting against falls in the equity market, for example.

Now, bringing us back to today, the portfolio has about 30% in equities spread across the globe. So, that’s the UK, US, Europe, some in the Far East as well.

We have a relatively modest exposure to bonds with more than five years of duration. So, we have relatively modest interest-rate risk in the portfolio.

When I look at the asset allocation, we have plenty of protection. Some of that is through the derivatives. But also a lot of that is through cash-like assets, so short-dated bonds.

When I put that portfolio together, 30% in equities, quite a lot of cash or dry powder, I think that reflects a level of caution that we see in the opportunities ahead for equities. But also looking to preserve cash on the sidelines. When opportunities present, which they will do at some point, we’ll be ready to be on the front foot.

At the same time, if markets have a wobble, we feel confident that the portfolio will be very robust in that moment of difficulty.

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Kyle Caldwell: You’ve mentioned cash. Overall, if you also add up the cash-like investments that are held, which are the short-dated bonds, Ruffer has around 40% in cash. Could you explain how defensively positioned the portfolio is today compared to usual?

Ian Rees: It’s a good question to ask because the asset allocation is dynamic. It’s hard to say, well, that’s usual or that’s the benchmark. I would say the equity weighting is below the 30-year average. The 30-year average is about 40%. We’re at 30% today. So, if you like, there’s some equity exposure that might have been there previously that isn’t [now].

Some of the short-dated bond exposure, around 10%, are short-dated government bonds in Japan, which are a very deliberate holding to gain access to the currency.

However, that does leave, as we highlight, quite a large exposure to short-dated bonds or cash-like assets in the UK and in the US, so US government bonds, UK government bonds.

As a manager who is unbenchmarked and unconstrained, we do have that benefit of when we don’t think this is a moment to be taking a lot of risk, we can take that step back.

So, it’s nice and it’s helpful that those short-dated bonds are yielding 3.5%, 4%, that helps. But, really, they are ready to be sold to be deployed into more attractive opportunities once they present.

Kyle Caldwell: I next wanted to ask you about performance. When pitting the performance of Ruffer Investment Company against the FTSE All-Share Total return index, you’ve underperformed in 2023, 2024, and so far in 2025. Could you explain why you’ve underperformed that particular index?

Ian Rees: I think we have to acknowledge the last approaching three years of performance has been below the standard that we would expect for ourselves, and also demanded by our investors. But what I do want to, if you like, break down is that each year has been different.

So, 2023, that was a difficult period for us, and the strategy. In the interest of time, I would put it down to two factors. First, that balance between growth and protective assets was too heavily skewed towards protection. It turned out to be a relatively benign period for risk assets.

The AI trade came in the sort of second half of that year. But then also thinking of that balance between growth and protection, the growth assets, which we needed to perform well in what was a relatively benign environment, didn’t quite fire as well as we would have liked. So, we didn’t quite have the right balance. But also, where we were taking risk, it didn’t perform as well as we would have wanted. It was a disappointing year.

2024, I think it’s more frustrating. We were sort of nudging around zero, basically flat for the calendar year. It was frustrating because it felt like one step forward, one step back. There were periods, such as July and August of last year - it feels like a lifetime ago now - but it was a difficult period for financial markets. The portfolio was making good money. There were other moments where we were moving forward, but the portfolio just wasn’t quite able to maintain that momentum.

This year has been a better, well, 10 months or so for the strategy. We’re up over 10% year to date. When I spoke about that frustration last year of going forward and then backwards, this year we’ve had certain parts of the portfolio perform very strongly. So, whether that’s gold mining equities - I probably can’t say all of them, but - a lot of them have doubled. Some of our individual equity exposures have performed very strongly, our Chinese tech exposure. So, this year has been better, but we acknowledge that 2023 and 2024 were difficult.

One point I would like to clarify is the benchmark of the trust is two times cash. So, two times the Bank of England base rate. However, we will compare the performance of the trust to the equity market for our investors to see, not because we are beholden to it, but we do acknowledge that over a long enough time period, it’s a reasonable comparator. So, we’ll never keep up with it year in, year out, and we’re comfortable with that. But it is not the benchmark. The benchmark is two times cash.

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Kyle Caldwell: You’ve mentioned gold mining companies as one of the success stories of 2025. What is your current stance? Have you been moving to take some profits following the strong run in the gold price both in 2025 and also in 2024?

Ian Rees: So, a great time to be speaking about gold given all that’s going on in the world and the performance of gold and related assets this year.

Before I talk about gold, I think it’s important to clarify that we haven’t owned bullion for two years, give or take. We’ve held our gold exposure through gold mining companies, but also some silver and platinum.

Really, that was a view that, yes, the fundamental story for gold is very positive, but we felt there were much more attractive valuation opportunities outside bullion, but in miners and catch-up plays in the form of silver and platinum.

Pleasingly, that has worked this year. You’ve seen a number of gold miners up over 100% year to date. When we started the year with 6%, throughout the summer I think that position got to near 11%. That’s quite a large position, particularly when you’re thinking it’s gold miners and silver and platinum.

So, we began to take profits in the early summer. First, we took out silver and platinum. That left us with the gold miners, and we’ve continued throughout the summer and into the autumn to reduce that gold mining position. So, today, gold miners are around 4% of the portfolio.

Now, a year ago, gold miners relative to bullion were very cheap by historical standards. Today, that sort of relative valuation of bullion to miners is about normal. So, yes, the fundamental story is great. Costs are low for miners, the gold price is high. It’s a great time to be a gold company CEO.

But as an investor, when you’re looking at the risk/reward and the relative value, it’s less compelling. The story is still good. We like gold, but we feel it’s a time to have a smaller position than we did earlier in the year when valuations were much more compelling.

Kyle Caldwell: As you mentioned, you hold around 30% in equities. Could you give a flavour of the types of companies and key characteristics that you look for in a business?

Ian Rees: Sure. So, because we are unbenchmarked both at the strategy [level] but then also within the equities, we’ll look anywhere at anything. Everything has a price or a value.

I think the beauty of that allows us [to] focus on where we think there are the best - I say asymmetry a lot, but to clarify what I mean by that - opportunities where we think we could lose a little bit if we’re wrong, but if we’re right, we can make a lot more than we can lose. So, you’re looking at those opportunities.

We aren’t worried about ‘Shall I go overweight the benchmark a little bit here and underweight there?’ That’s not what we’re playing. We think that gives us the freedom to really look around the world for the best opportunities.

When we look at the portfolio today, it probably looks quite different to a global equity index. We have large exposure to the United Kingdom. I’m sure that can be topical for many people. Europe, Japan, and China is an area we’ve owned for a couple of years. Where we will look different is we have a smaller equity weight than most investors would have in the US.

Now, what’s been pleasing year to date is that that equity market rally from early to mid-2023 has started to broaden out. You haven’t needed to be in NVIDIA Corp (NASDAQ:NVDA), Microsoft Corp (NASDAQ:MSFT), etc, solely to make returns.

It’s been a good year in Europe, it’s been a good year in the UK, it’s been a good year for banks, it’s been a good year for Chinese tech. So, while it was frustrating last year where you felt you were owning good value, good optionality, but it wasn’t being rewarded, this year some of those areas have begun to perform very nicely.

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Kyle Caldwell: In terms of portfolio activity, could you highlight which areas you’ve been buying in 2025 and why?

Ian Rees: Sure. The ones from 2024, we’ve largely been - not all, but quite a few - taking profits. So, one area would be China tech, where Alibaba Group Holding Ltd ADR (NYSE:BABA) has risen 80% to 90% year to date. It’s been a very strong run, but also the valuation has expanded. So, that asymmetry has played out.

Where we are finding newer opportunities, I’d probably highlight two areas. Within global pharmaceutical companies, we’ve allocated about 1.5% of the portfolio to a selection of pharma names. Why? Well, we can see the worries that Robert F. Kennedy Jr and President Donald Trump might pose to the healthcare industry and policymaking in the US.

But we think, one, the valuation looks pretty good from here, and two, just thinking about the role that healthcare can provide as a more defensive, less economically sensitive part of the market, and what that can do to our portfolio as a whole.

Second, and I don’t know whether to risk saying it so close to the Budget, we have been adding a little bit to the UK. Of late, more domestically focused parts. So, I would mention housebuilders, so Barratt Redrow (LSE:BTRW), Taylor Wimpey (LSE:TW.), etc.

I think what’s interesting with the UK is that clearly there are known risks and I might have egg on my face come the end of November, but when you’re looking at the valuation of the housebuilders in particular, Barrett is trading at sort of 0.8 times book with a net cash balance sheet. So, it will survive, it will keep going.

But if things are to get less bad, dare I say, not necessarily great, but less bad, and as we think you will begin to see the Bank of England cut interest rates further, the passing of worry could be quite powerful as a starting point.

Again, that out-of-favour asymmetry, moving from one that’s worked into the next, and the UK and pharma are two areas we’re excited by.

Kyle Caldwell: Ian, thank you for your time today.

Ian Rees: Thanks, Kyle. Thank you for having me.

Kyle Caldwell: That’s it for the latest Insider Interview. I hope you’ve enjoyed it. For more videos in the series, do hit the subscribe button and hopefully I’ll see you again next time.