Ruffer: Better than Madoff - and without the fraud

Jonathan Ruffer has a simply astonishing investment record. Henry Maxey, the chief executive of his funds group, talks to Merryn Somerset Webb about what they are buying now.

Everybody loves Ruffer. Ask a rich person in London for a wealth management recommendation and the name almost always pops up. There are a few good reasons for that.

The first is Jonathan Ruffer. Google him and you'll find pictures of him giving speeches, picking up lifetime achievement awards, and the like. He's set up the Jonathan Ruffer Curatorial Grants Programme with the Art Fund; last year he paid £15m to stop the sale of a collection of 17th-century Spanish paintings at Auckland Castle; this year he plans to revamp the castle as a centre telling the story of Christianity in the northeast. In person he's modest, but this sort of thing gets a man noticed.

But it's the second reason that is the key: Ruffer's investment record. It is, says Ruffer himself, "astonishing". As he told Independent Investor's Jonathan Davis last year, "there has been the odd 12-month period when we may be down 0.3% or 0.8%, but essentially we've never lost money... on a one-year perspective, and we've compounded at 11.5%. Well, that's better than Madoff [the American conman]." And without the fraud bit too.

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The firm's investment trust, Ruffer Investment Company (which charges a flat 1% management fee), is down slightly over the last year, but up nearly 40% over three years and 90% over the last five. The average global growth fund is, according to Trustnet, up 2.6% over the last five years.

In 2008, when the FTSE fell 31%, Ruffer made 14%. This is why Ruffer now has over 4,000 private clients invested with it and why it runs £8bn-plus of money and why the investment trust trades at a near 4% premium to its net asset value.

Of course, Ruffer, being a good absolute-return manager and hence a nervous one, finds that nothing makes him more nervous than his firm's astonishing record. When I saw him late last year, his main concern was that having done so well thus far, "a real downdraft" was pretty much a given.

With that in mind, and the fact that Ruffer has now stepped back from day-to-day management of the firm, I popped in to see Henry Maxey, Ruffer's chief executive, a few weeks ago. Henry doesn't like doing interviews, so what follows here is a ramble around a long chat I had about the markets with an interesting man.

First, America. When I saw Henry I was fresh from a long conversation with Eclectica's Hugh Hendry (whose latest investment letter to his fund's clients you can read here). Hendry reckons (and we are tempted to agree) that America is working its way out of this bit of the crisis. It's got functioning manufacturing and export industries, it has a proper work ethic, it is on the verge of a new cheap energy boom; and with China faltering the re-shoring trend is really kicking off. Henry agrees.

And he adds another positive. America has, he says, "positive credit impulse". I'm guessing you have no idea what this means. I didn't either. It is an idea introduced in 2008 by Deutsche Bank's Michael Biggs to explain why economies often manage to grow even when credit is static or shrinking. The point is that credit is a flow rather than a static lump. So rather than look at the stock of credit as a whole as an indicator of economic health or potential growth you need to look at the shifts within it. This sounds complicated, but it isn't.

Say a man has debt and is paying it down. In year one, he has £100. He pays £40 to the debt and spends £60. If he does the same the next month, then credit is falling and the credit impulse is zero. But if he repays £20 and spends £80, things change. Total credit is still falling. But the credit impulse is positive (spending growth is positive). For growth, what matters is not necessarily credit growth but net new credit, and the good news is that America has been seeing a positive credit impulse, which the indicator's supporters think is "consistent with healthy growth in private sector demand".

What about the credit impulse elsewhere? In Britain it is "not so bad". Europe? It's bad. Negative all over in the second half of last year and (with the happy exception of Germany), still mostly negative, with Italy looking the most negative of all.

How much does Henry worry about Europe? Not as much as some. As far as he can see, the introduction of the LTRO (whereby the European Central Bank loaned lots of cheap money to troubled banks to prop up troubled sovereigns) has been a "massive game changer" in terms of buying time. He thinks the eurozone will lurch from crisis to crisis for a bit, but in the end survive with only "the occasional bit knocked off the edge".

How does all this make him feel about gold, one of Ruffer's big long-term holdings? Ruffer has cut its exposure to gold over the last year or so it now makes up just 5% of its portfolio. Why?

The reasons are similar to the ones we have been giving you since late last year (when we started to think of gold as pure insurance rather than as a speculative investment). One thing we now know, says Henry, is that for many holders gold is just a source of liquidity (something that can be turned into cash in a hurry). That means that, however comfortable you might feel holding it, at some point it is "going to hammer you". Something big will go wrong and everyone will sell. But he is still happy with 5%? Yes. Ruffer holds gold as insurance against the possibility of a deflationary bust or hyperinflation. Both remain possible.

What else can we buy? Last time I saw Henry, we discussed German property. He's still interested, and Ruffer has backed a few firms he mentions Patrizia Immobilien and Gagfah Group. There's been some muttering about a property bubble appearing in Germany. Henry isn't having any of that; "it's up 5%". What about individual stocks? This might, says Henry, be the year in which buying growth at a reasonable price comes into its own. Growth is hard to find and people are increasingly prepared to pay up for it. Ruffer still holds the dividend-paying global stocks it's been in for some time (Johnson & Johnson makes up 2% of the portfolio).

I had this chat with Henry a few weeks ago (thanks to my incompetence with my iPhone it took a while to get it out). But the last thing we talked about was the overall outlook. His view was pretty clear expect volatility. It will, he said, be a bit like 2011. Everyone will think they are "getting some stability" and start to look at things with that in mind. Then there will be a "macro event that just happens to everybody". So far, so right.

Henry Maxey


Henry joined Ruffer in 1998 after graduating from Oxford University with a first-class honours degree in economics and management. He became chief executive in April 2012.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.