Jonathan Ruffer: tech stocks have become “long-duration assets”

As with bonds, tech stocks are now held not because of that they are, but because of what investors fear if they don't hold them, says Jonathan Ruffer, chairman of Ruffer Investment Management.

Consider what “the easy route to a successful portfolio in 2020 would have been”, says Jonathan Ruffer, the founder of the £20bn asset manager that bears his name, in his latest letter to investors. First, hold firms such as Amazon “where Covid-19 has blown a mighty following wind”. Second, recognise “that pressure on central banks to cut interest rates further would be irresistible” and buy government bonds before they did so. If you did either, you had a very good year. “But a change in a single variable will sideswipe both those asset classes at the same time. Their dynamics feel very different, but actually, they are not.” 

In the eyes of the market, the long-term earnings power of tech stocks has become “more and more valuable” when “discounted at lower and lower interest rates”. They are now “long-duration assets” (ie, their value is very sensitive to changes in interest rates). So their fate will be closely linked to that of bonds.

At this point, investors hold tech because people “fear not holding these stocks”. They hold bonds not for income, but because of “the chess game that plays out between the authorities and the investment community”, under which markets feel they have policymakers trapped “in low-yield (pushing into no-yield) territory”. 

When sentiment and circumstances change, so will the calculations that prop up both asset classes. “If inflation comes about – or, rather, looks a realistic possibility – you won’t see government bonds or tech stocks for dust.”

Recommended

Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022
The MoneyWeek Podcast: nuggets of positivity in an extended bear market
Investment strategy

The MoneyWeek Podcast: nuggets of positivity in an extended bear market

Merryn and John talk about he need for higher wages and lower house prices, and why the fact that this is the least dramatic bear market they’ve ever …
1 Jul 2022
Here are the best savings accounts on the market now
Savings

Here are the best savings accounts on the market now

With inflation at more than 9%, your savings are not going to keep pace with the rising cost of living. But you can at least slow the rate at which yo…
1 Jul 2022
Don’t try to time the bottom – start buying good companies now
Investment strategy

Don’t try to time the bottom – start buying good companies now

Markets are having a rough time, so you may be tempted to wait to try to call the bottom and pick up some bargains. But that would be a mistake, says …
1 Jul 2022

Most Popular

UK house prices are definitely cooling off – but are they heading for a fall?
House prices

UK house prices are definitely cooling off – but are they heading for a fall?

UK house prices hit a fresh high in June, but as interest rates start to rise, the market is cooling John Stepek assesses just how much of an effect h…
30 Jun 2022
The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
22 Jun 2022
Gold has been incredibly boring to own – but that’s no bad thing right now
Gold

Gold has been incredibly boring to own – but that’s no bad thing right now

Stocks, bonds and cryptocurrencies have all seen big falls this year. But gold remains at its one-year average. It may be dull, but it’s doing what it…
29 Jun 2022